British Pound Breaks Down on BoE’s .75% Hike: GBP/USD, GBP/JPY

British Pound Talking Points:

• The British Pound is breaking down after the Bank of England’s largest rate hike in 33 years. But, once again, it was the guidance as the BoE suggested that rates won’t be hiked as high as previously thought, speaking to the ‘terminal rate.’
• The Bank of England press conference was sobering as Andrew Bailey remarked that the U.K. is already in recession and that significant headwinds remain. There’s not much confidence around the matter at the moment.
• The US Dollar and global risk assets will remain in the cross-hairs of markets as tomorrow brings the Non-farm Payrolls report out of the US. And given the Fed’s focus on employment, this could have a large impact on markets when it’s released tomorrow.
• The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

The British Pound is breaking down against the US Dollar after the Bank of England’s largest rate hike in 33 years. GBP/USD was already stretched to the downside coming into this morning following the FOMC rate decision. And that breakdown hit after a descending triangle formation had showed up earlier in the week, which we looked at in the US Dollar Price Action Setups article published on Monday.

Perhaps it was the sobering outlook offered from Andrew Bailey, highlighting a ‘very challenging’ outlook ahead, while also pointing out that the U.K. was already in a recession. The bank also indicated that this recession could last for two years. This all taking place as the BoE plans for more rate hikes in effort of tackling inflation, so we now have confirmation from the Bank of England that they’ll be hiking rates into a recession.

In GBP/USD, prices are now trading at fresh near-term lows. There was a support zone that attempted to hold a bounce during the early portion of the rate decision at 1.1180-1.1210 but that’s being traded through at the moment. Below that, there’s another spot of support around 1.1112-1.1134. After that, the psychological level of 1.1000 comes back into the picture.

GBP/USD Four-Hour Price Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/USD Longer-Term

This two-day push has already made a mark on longer-term charts. Last week saw a bearish trendline come into play to help hold the highs and since then, sellers have started to take a heavier and heavier hand in the matter. This also has pushed for a violation of the recovery trendline that showed after the September plunge found a higher-low in October.

GBP/USD Daily Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/USD Shorter-Term

Expect noise on shorter-terms as we’ve just had the FOMC and BOE rate decisions and tomorrow brings Non-farm Payrolls. So, tensions are high. But – if we can see a bit of a bounce, there’s a few areas of interest for lower-high resistance potential. And for bears, this may be a better or more attractive test than simply chasing the move and hoping that it continues.

From a short-term basis we can see the 1.1180-1.1210 zone still in-play. Sellers pushed-below, but weren’t able to get down to next support around 1.1134 yet. This is still very early – if buyers can push a bounce, then this will look like a support inflection with an extended wick on longer-term charts. If a bounce does show, there’s resistance potential at 1.1282 and then 1.1349, and there’s where bears can look for lower-high resistance to play-in off of longer-term charts.

GBP/USD 30-Minute Chart

Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/JPY Major Zone at Play

There’s a long-term level of note at-play in GBP/JPY at the moment, and it’s the 38.2% Fibonacci retracement of the 2011-2015 major move, plotted at 165.69. And just below that we have the 165.00 psychological level which helped to mark the October lows.

This level had helped to set resistance for about six months this year until finally being broken-through last month.

GBP/JPY Weekly Chart

Chart prepared by James Stanley; GBPJPY on Tradingview

From the four-hour chart below, we can see where this zone has already helped with multiple inflections, showing as support two weeks ago after coming in as resistance earlier in October.

GBP/JPY Four-Hour Price Chart

Chart prepared by James Stanley; GBPJPY on Tradingview

Going even shorter-term, we can see where that level is in-play as buyers have been trying to establish some form of support above the psychological level. It’s slipping at the moment, but, as noted earlier, if bulls can force a bounce, particularly back-above the 165.69 Fibonacci level by the end of the day, this could take on the appearance of an extended wick on longer-term charts, which will then look like a successful test of support. And if buyers can’t pose a bounce, then pullback plays are pointless and the pair is vulnerable to a deeper pullback. That would keep the door open to breakout scenarios on breaches below the 165.00 big figure

GBP/JPY Two-Hour Price Chart

Chart prepared by James Stanley; GBPJPY on Tradingview

— Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX