British Pound (GBP) Outlook: GBP/USD, EUR/GBP Levels to Watch
16:31, 29 November 2022
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BoE Governor Bailey Gives Little Guidance on December Meeting
Little has been discerned regarding the monetary policy outlook from BoE Governor Bailey’s testimony to the House of Lords. Much of what had been discussed centred around BoE’s handling of the turmoil in the gilt market stemming from the previous government’s mini-budget. The Governor did add that the gilt market is not yet back to normal. That said, looking ahead to the December meeting, the rates market is pricing in 54bps worth of tightening, thus suggesting that BoE’s 75bps rate hike in November was a one-off.
GBP/USD Fails at 200DMA
GBP/USD: After failing to test its 200DMA the Pound has been oscillating around the 1.2000 handle. This is similar to EUR/USD which has also failed to hold above its 200DMA, which may suggest that USD selling in recent weeks is coming to an end. The key risk event to watch is Chair Powell’s speech. In my view, I lean towards Powell being hawkish, which may lead to renewed strength in the USD across the board. Should this scenario be realised a break below the 200HMA (1.1960) opens the door towards the support at 1.1770-1.1800. On the flip side, a closing break above the 200DMA (1.2165) raises the risk of a 1.2300 test.
GBP/USD chart: daily time frame
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EUR/GBP Sticking to Recent Range
EUR/GBP: Lower than expected prelim inflation prints from Germany and Spain have somewhat reduced the pressure for the ECB to go ahead with another 75bps at the December meeting. As it stands, money markets are pricing an 85% probability of a 75bps hike. From the technical front, trend indicators signal that EUR/GBP may continue to trade within a 0.85-0.88 range. While the Pound has picked up against the Euro, the 200DMA will likely offer support and thus reaffirm the range trade. Meanwhile, topside resistance in the form of the 200WMA is likely to cap rallies at 0.8688.
EUR/GBP chart: daily time frame