Where to next for GBP/USD, GBP/JPY and EUR/GBP?

GBP attempts to regain lost ground

With a plethora of data out this week the pound sterling stemmed its recession fear-driven depreciation versus several currencies and has tried to regain lost ground.

Tuesday’s UK unemployment data, which edged down to 3.7% versus the previous month’s 3.8%, the lowest reading in nearly 50 years, initially boosted the pound. For the first time since records began, there are fewer unemployed people than job vacancies but real wage growth for regular pay was 1.9% lower than a year ago in March, the biggest fall since the third quarter (Q3) of 2013, as high inflationary pressures continue to hurt consumers' purchasing power.

Even though Wednesday’s release of UK annual inflation data for April, which came in at its highest reading in 40 years and is the highest among G7 countries at 9%, put a dampener on the pound, it managed to recover towards the end of the week amid unexpectedly strong UK retail sales data despite record low UK consumer confidence.

UK retail sales unexpectedly rose 1.4% month-on-month in April, rebounding from falls in the previous two months and beating forecasts of a 0.2% decline whereas the UK GfK Consumer Confidence indicator dropped to an all-time low of -40 in May, below the previous low of -39 set in July 2008, amid the cost of living crisis and increasing fears of a recession rearing its head.

GBP/USD’s relief rally has further to run following a plethora of UK data releases

The slide in the British pound versus the US dollar seems to have ended at last week’s $1.2156 low with the cross having tried all week to break through minor psychological resistance at the $1.25 mark. If it were to be exceeded on a daily chart closing basis, the $1.2638 early May high would be targeted.

As long as the $1.2638 level isn’t exceeded, the long-term downtrend in the currency pair remains in play with the minor psychological $1.2000 region representing a possible downside target zone.

Were a rise above the $1.2638 early May high to take place, however, a more sustained bullish reversal would likely ensue with this year’s downtrend line and the 55-day simple moving average (SMA) at $1.2821 to $1.2854 representing probable upside targets.

GBP/JPY decline also looks to have ended at last week’s low

The slide in the British pound versus the Japanese yen seems to have ended at last week’s ¥155.61 low ahead of this week’s unemployment, CPI, and retail sales data releases.

From a technical point of view an Elliott Wave zig-zag correction, also called and A, B, C correction, may have ended at last week’s ¥155.61 trough, provided that no drop below it is being seen. If so, a continued advance should take the cross to above this week’s high at ¥161.85 and eventually exceed its April ¥168.43 peak.

For this scenario to become more probable a rise and daily chart close above the wave ‘B’ high at ¥164.25 needs to ensue.

On the flipside, a drop through the current May trough at ¥155.61 would invalidate the bullish technical set-up and probably provoke a resumption of the recent descent towards the December-to-May uptrend line at ¥152.60.

EUR/GBP little changed despite lowest ever consumer confidence data

EUR/GBP’s bullish reversal off Tuesday’s candlestick “Hammer” low at £0.8393 has taken the cross above the 200-day SMA at £0.8446, above which it has stayed despite the UK GfK Consumer Confidence indicator hitting an all-time low of -40 in May, below the previous low of -39 set in July 2008, amid growing recession fears and the cost of living crisis.

The 200-day SMA and yesterday’s low at £0.8448 to £0.8446 are expected to act as support, if revisited at all. In case of failure, the 55-day SMA at £0.8401 would be back in sight, together with the early May low at £0.8368.

A rise above this week’s high at £0.8495 would put the late March high at £0.8512 back on the map. While Monday’s high at £0.8534 isn’t bettered, however, overall downside pressure remains in play.