The British pound has returned to the highs of last week and is looking at its breakdown. All this is happening against the backdrop of the return of investor confidence, which was supported by expectations of the cancellation of the package of unjustified tax cuts proposed by Prime Minister Liz Truss at the beginning of the month, provoking the collapse of the national currency.
The new Chancellor of the Exchequer, Jeremy Hunt, said in an interview on Sunday that all discussions regarding the potential rejection of additional measures planned by the Prime Minister are over. In the near future, the new Finance Minister is expected to make a statement on the detailed measures of the medium-term financial plan. At the same time, the British Prime Minister also agreed to postpone her proposal to reduce income tax until 2024.
We may have reached those minimums that will allow us to avoid a new tantrum. Any good news in finance and economics can help the pound recover. However, let us suppose pension funds or other holders of securities do not meet the needs for collateral or do not increase liquidity. In that case, the sell-off in the British bond market will resume, pulling the British pound down with it.
Let me remind you that the pound collapsed at the beginning of the month amid rumors about a potential series of changes in the tax system by the Treasury but then rose against the dollar when the Bank of England intervened.
Nevertheless, as I noted above, the pound remains vulnerable. The end of the Bank of England's emergency bond purchase program on Friday could lead to further turmoil in the securities market, as uncertainty remains about how debt-focused investment funds have recovered from the impact of a jump in bond yields. We will no longer see the excessive surge in volatility observed recently, and the pound will begin to return to normal. Despite a good bounce up, its attractiveness remains fairly high.
As for the technical picture, it is evident that buyers will now focus on protecting the support of 1.1240 and the resistance of 1.1350, limiting the upward potential of the pair. Only a breakthrough of 1.1350 will open prospects for recovery to the area of 1.1420, after which it will be possible to talk about a sharper jerk of the pound up to the area of 1.1480 – the maximum of this month. It is possible to speak of the return of pressure on the trading instrument after the bears take control of 1.1240. This will blow the bulls' positions and completely negate the prospects of the bull market observed since September 28. A breakout of 1.1240 will push GBPUSD back to 1.1160 and 1.1090.
As for the technical picture of EURUSD, the bears retreated a little, and the bulls reached the resistance of 0.9800. The euro managed to maintain its balance and hold its position, allowing us to make good forecasts for the future and the pair's recovery in the short term with a return to parity. To continue the growth, it is necessary to break above 0.9800, which will take the trading instrument to 0.9840 and 0.9880. However, the upward prospects will depend entirely on new US data. A break of 0.9755 will put pressure on the trading instrument and push the euro to a minimum of 0.9713, which will only worsen the situation of buyers of risky assets in the market. Having missed 0.9713, it will be possible to wait for the lows to update around 0.9680 and 0.9640.
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