The GBP turned massively bearish in late summer and September, as US gilt yields surged above 4%, which sent GBP/USD below 1.05. But after the intervention by the Bank of England, the situation calmed down and the sentiment improved in financial markets.

GBP/USD surged more than 20 cents higher, increasing above 1.24 by the middle of December, but then it reversed back down and fell below 1.19 until last Friday when the US ISM services showed that this sector fell into contraction in December. In the last two trading days, the GBP has rallied nearly 400 pips against the USD, while the Euro is up against the USD by only 250 pips.

So, EUR/GBP has reversed lower and lost 100 pips in the last two days. In the last several hours we saw a retrace higher, but moving averages are acting as resistance at the top and the previous hourly candlestick closed as a doji, which is a bearish reversing signal. So, we decided to open a sell EUR/GBP signal a while ago, which is looking good, as the price is reversing down.

Besides that, the fundamentals are looking in favour of the GBP, since inflation still remains high in the UK while in Europe it is slowing, and the economy is heading into a recession. ECB members are already speaking about a peak in interest rates which should be close.

Remarks by ECB policymaker, Mario Centeno

• Rates are close to peaking, if there are no further external shocks
• Today’s inflation data is quite positive
• Rates are to rise to the point that it will restore inflation back to 2% target

He is one of the few to mention any talk about a top in terms of the tightening cycle. The others tend to steer clear of any clear line/area when it comes to the supposed terminal rate. As for his take that the inflation data today is “quite positive”, he probably should take a look at the core reading. Pfft.

EUR/GBP Live Chart