Sterling Reinforces Range Trading Tendencies

British Pound News and Analysis

• Cable remains directionless as market continues to raise prices further
• Large Speculators Maintain Net Long Positions Through CoT Reports
• EUR/GBP Trading Range Heads for Support Amidst ECB Concerns
• In this article’s analysis, chart pattern and the key support and resistance level. See our comprehensive information for more information. education library

Cable maintains no orientation

After breaking out of the long-term uptrend, GBP/USD has struggled to strengthen the move to the downside while also presenting multiple challenges on the upside. The flat trading largely reflects where both central banks (the Bank of England and the Fed) are in their respective upcycles, near their peaks.

With interest rates falling sharply (core and headline CPI), central banks face the option of holding off on rate hikes, risking not raising rates enough, or increasing rates and tightening too much. It could be at risk of shrinking the economy. Other scenarios, such as a US “soft landing” where the Fed could tighten without hurting the economy, have been addressed, but policymakers are fundamentally influenced by current data, so future decision is less certain than before.

GBP/USD looks to have support at 1.2585. This level was the pivot point in April and June (highlighted in purple). The price is trading above the 200-day simple moving average and the upside levels remain constructive. That level would be 1.2676. Support is at 1.2585 and the 200 SMA is near 1.2420.

GBP/USD daily chart

Source: TradingView, Author Richard Snow

Emerging downside risks for GBP/USD bears are signs of weakness in US economic data, triggered by a downward revision of Q2 GDP. Survey data from the ISM Services PMI report for July showed a slowdown in new orders as well as activity/production. The US services PMI will be released this week as the only event scheduled to have a significant impact between the two currencies.

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Interest rate expectations continue to support the pound. The market is still expecting two more 25 basis point hikes this year, with an 86% chance of another 25 basis point hike later this month and another by June. This has hampered the GBP/USD downside, especially now that more Fed rate hikes are more likely, wiping out USD support.

implied interest rate probability

Source: TradingView, Author Richard Snow

Speculative Positioning by Commitment of Traders Report reveals speculative net positioning remains sterling long. These are large profit-seeking speculators, like hedge funds, who are required to disclose their currency exposure to the CFTC.

GBP speculative sentiment on CoT report

Source: TradingView, Author Richard Snow

EUR/GBP Trading Range Heads to Support

euro/pound It has traded broadly between 0.8515 and 0.8650 and is now trading towards 0.8515 after trading below 0.8565. The European Central Bank (ECB) has expressed concern that recent economic data have been weaker than originally expected, reducing the likelihood of another rate hike towards the end of the year.

Markets still expect one more 25 basis point hike by the end of the year, but it’s unlikely the Fed will change rates at this month’s meeting.

EUR/GBP daily chart

Source: TradingView, Author Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @Richard Snow