December 2, 2021 15:00:55
Sterling is the strongest major currency today but has been a little forgotten among all the recent volatility. That may be because it sits between safe haven currencies like JPY and CHF, and higher-yielding, more risk-on ones like AUD and NZD.
UK news has been limited recently with money markets pricing out the December rate hike by the Bank of England. There’s now just around a 30% chance of a move, which was a near certainty last week before the Omicron news. New risk-off news will hurt GBP versus the euro and yen, but the pound is at important junctures in these crosses.
EUR/GBP hits trendline resistance
This pair has remained supported as markets revise how hawkish the BoE might be at its meeting in a couple of weeks. After dropping in mid-November to levels last seen in February 2020 at 0.8380, prices consolidated around 0.84 before surging higher. We are potentially on track for six straight days of gains.
But the pair has now stalled and is battling with the 100-day SMA and the long-term downward trendline from the December highs. If that resistance works again, first support comes in at the 50-day SMA at 0.8486, ahead of the August low at 0.8450. More upside will see the 200-day SMA as strong resistance at 0.8559, with the November high at 0.8594.
GBP/JPY rebounds from support zone
This cross has fallen sharply since topping out at 158.21 in late October. Prices collapsed after the BoE held rates steady in November when consensus had expected a rate rise. The 50-day and 100-day SMAs supported the cross for most of last month.
We’ve seen another leg lower recently, with prices taking out all the long-term SMAs, but we are now in oversold territory. This is shown on the 14-day RSI which is a useful way of looking at how fast a price has been moving. A low RSI suggest a currency pair is oversold, a high one suggests it’s rising too fast. On previous occasions when the RSI has been this low in 2021, we have seen a correction.
Initial resistance is the Fib level of the July/October move at 150.54 and then 152.18. There is a zone of strong support around 149.
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