With the recent uptrend easing, there is a likelihood that the GBP/USD pair will fall as sellers target the next key support at 1.0780.
Sell GBP/USD pair and set a take-profit at 1.100.Add a stop-loss at 1.1358.Timeline: 1-2 days.
Set a buy-stop at 1.1230 and a take-profit at 1.1360.Add a stop-loss at 1.1100.
The GBP/USD price held steady on Monday as investors focused on the measures that Lizz Truss has put to solve the recent challenges. The pair was trading at 1.1180, which is about 8% above the lowest level this year. This price is a few points below this month’s high of 1.1488.
UK tax hikes ahead
The UK economy has been in a difficult period after Chancellor Kwasi Kwarteng unveiled his mini-budget recently. UK stocks have plunged while the bond market has come under intense pressure since then.
As a result, the Bank of England (BoE) has been forced to intervene in the market by buyibg long-dated government bonds. On Friday, the bank concluded its emergency bond-buying program and then created a new “Temporary Expanded Collateral Repo” facility that will run until November 2010.
Another big change is that Prime Minister Lizz Truss replaced Kwasi Kwarteng with Jeremy Hunt. In his initial statement, Hunt said that the government will still favor a low-interest rate environment. However, he said that he will repeal some of the main tax cuts that were unveiled by Kwarteng.
The main challenge for Kwarteng’s tax cuts was that they were to be funded by more borrowing at a time when the country’s debt has surged. Therefore, Kwarteng committed to maintain a balance between borrowing and taxes.
Therefore, all these issues will be much more important than the country’s inflation data that comes on Wednesday. These numbers are expected to show that the headline inflation rose from 9.9% to 10% while core inflation rose from 6.3% to 6.4%. UK’s inflation has been supported by the government’s support in the energy market. Without this support, analysts believe that the country’s inflation will rise to over 15% in 2023.
The UK will also publish the latest retail sales data scheduled for Friday. Analysts expect that sales tumbled by another 5% in September after falling by 5.4% in August.
The four-hour chart shows that the GBP/USD pair has made a strong recovery from its lowest level in September. It has moved slightly below the 38.2% Fibonacci Retracement level. The pair is also consolidating at the 50-day and 25-day moving averages while the MACD moved slightly above the neutral point.
Therefore, with the recent uptrend easing, there is a likelihood that the pair will fall as sellers target the next key support at 1.0780. A move above the resistance level at 1.1358 will invalidate the bearish view.