Now that a plan is in place, what’s next for GBP?

Joe Perry
By :  ,  US Market Analyst

Now that a plan is in place, what’s next for GBP?

The plan to reopen the UK was laid out yesterday, and things couldn’t be better!  Everyone will be back outside and enjoying cocktails and hugs by mid-June.  However, we did see a mixed bag of employment data from the UK today.  Although the headline Claimant Count Change for January was better at -20K vs +25k expected, the unemployment rate ticked higher from 5% to 5.1%.  But that doesn’t matter, because it’s in the past.  The reopening is the future.

Not to sound like a broken record, but the GBP has been on a tear since mid-November.  First, hope for a positive Brexit scenario, and then the done deal.  Throw in a BOE who sounds “less dovish” than other central banks and now a reopening plan.  The UK has been in lockdown for months.  There is no where to go but up.  Fx traders have been anticipating this for just as long as the country has been in lockdown!

But what now?  The plan is here. Will GBP continue to move higher?

GBP/USD moved higher on February 18th above some key levels.  Not only has  pair broken above the upward sloping trendline from the channel back in November, but it also broke above phycological resistance at 1.4000 and is heading into horizontal resistance from the spring of 2018 near 1.4120.  The RSI has moved into overbought territory to 75.87 on a daily timeframe, so there is a possibility of a pullback.  With all the good news out there already, is it possible the pair could pullback?  A confluence of support is back at the upper trendline of the channel and the 1.4000 level.  Below there, price can fall to previous support near 1.3750. However, note that if price does break above 1.4120, it can run up to spring 2018 highs at 1.4376.  Be weary of a pullback to shake out weak longs in these overbought conditions.

Source: Tradingview, City Index

EUR/GBP was in a symmetrical triangle since the pandemic highs of March 2020.  However, in mid-January, price broke below the upward sloping bottom trendline of the triangle and hasn’t looked back.  EUR/GBP has recently broken the 161.8% Fibonacci extension from the November 24, 2020 lows to the highs on December 21, 2020 highs, near 0.8466.  However, the RSI is in oversold territory, down near 21.71 and price is moving towards strong long-term horizontal support near 0.8600.  The bounce is not out of the question as bears may look to take profits near these levels. The next level of horizontal support is near 0.8517.  If price does bounce, resistance is at 0.8736, then 0.8810.

Source: Tradingview, City Index

Just as with EUR/GBP, GBP/CAD has recently broken out of a symmetrical triangle.  However, even with recent CAD strength, GBP/CAD continues to move higher.  Price is currently moving up to horizontal resistance near 1.7800.  This is the last remaining resistance level before the March 2020 pandemic highs at 1.8055.  The RSI is NOT overbought; however, price is forming an ascending wedge. The expectation is that price moves lower from an ascending wedge, and the target is a 100% retracement of the wedge, near 1.7350.  If the wedge does break,  support is at the January 29th highs of 1.7641 and then again near 1.7500, ahead of the 1.7350 target.

Source: Tradingview, City Index

Although GBP has been moving higher on anticipated good news out of the UK, what happens now that the plan is laid out?  What if variants cannot be controlled?  What if there are vaccine problems?  What is the plan needs to be delayed? There may now be more questions that arise now that the plan has been presented, and the possibility GBP pairs may be ready for a pullback.

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