I wonder if the PM and her team just conclude they’ve got nothing to lose. If they don’t make an immediate and noticeable impact they’ll be out in 2024 anyway. So might as well go all in on Conservative fiscal principles. At least that way they keep their own voters onside.
I too was surprised the GBP fell so heavily.
However, the consolation is that 22 of the 28 pairs are probably going to close in line with their respective prevailing D1 trends.
Plus also I have been short GBP/USD for over 2 weeks…
I like the short - not a political statement but most guys have been wary of the Truss economics.
Problem is that Conservatives coined the phrase ‘balance the books’ back in M. Thatcher’s days - it was always Labour who liked to borrow and spend taxpayers’ money - this Government is doing both things - borrowing more yet cutting taxes.
Your comment up above is very apt where you hoped that new policy would stimulate growth - this is key.
In business we sometimes take a gamble and borrow in order to grow - I know the Chancellor would disagree with the wording but hopefully it will work.
One other thing - re the US Trade Deal that was promised but that we didn’t get.
I suspect that before the next election there is an increased chance that such a deal will materialize - involves EU/Ireland/US/UK - but more on that later.
Today the BOE made and announcement of longer term UK Bond buying - they have been due of off load their existing stock but the ‘mini budget’ has changed the dynamic.
It’s an unusual scenario whereby the CB has to act to ‘calm the market’ as a result of it’s own Govt economic policy - most often such action is caused by external source.
GBP initially reacted by jumping up to 1.0820 - but has since fallen back as the news is digested more fully.
Tomorrow apparently the PM and Chancellor will meet with the OBR - also unusual - seen as a further attempt to ‘calm the market’
The OBR confirmed today that they were not asked for a forecast pre the mini budget.
The OBR will give the Govt a complete forecast next week.
The meet with the OBR is a positive step and with the power of hindsight perhaps an earlier meet would have gone a long way to avert the recent turmoil.
That was 2 weeks back
That was 1 week back and a week is a long time in the market.
Then yesterday evening:
All well and good but bottom line is there any way a retail trader can get a sense of what’s up ahead, why did the market react negatively GBP price to the mini budget?
1st thing is understand OBR - Office for Budget Responsibility - Wikipedia
Notice ‘funded by Treasury’ - the 1st act of the new Govt was to fire the head of the Treasury.
The new Govt signalled well in advance of it’s economic policy, it also signalled a disdain for the Treasury - again all well and good - voters don’t need a Treasury.
So came the mini budget - and no input from the Treasury - on Sep 23rd.
Again, the question remains - could a retail trader have even a hint of ‘trouble ahead’?
.this month’s much larger measures, including the energy price guarantee, will raise borrowing significantly through the second half of 2022-23
Quote from OBR Sep 21st
Finally, today the OBR (and the Treasury) are back in the loop - markets duly calmed - for now.
Hi @peterma - Look, I realise the focus of the thread is on current events but your own question, “….could a retail trader have even a hint of ‘trouble ahead?…” was answered over a year ago. And the answer has not really changed since 01/06/21.
The charts said then, “Sell the pound”, and all they have done since then is say “Keep selling the pound”.
Events have said alternately - Sell, Buy, Sell, Buy, Sell, Buy - and I expect next week they will say the same.
I’m sorry to be trying to undermine your efforts.
Aye I’d agree re the long term analysis.
Thing is that the market is very much algo driven which accounts for the often-wild swings on news release - such as occurred the mini budget last Friday.
Oft times you’ll hear “ah it’s impossible to trade against these guys”, or “sure they have all the inside info before news”.
The trick is to trade with them - and believe it or not info is tight - they take up positions more readily based on what retail also has access to - key is where to look.
Back to the mini budget - the OBR were circumvented - they offered the Chancellor (Fin Minister) their services but were declined - that info was in the public domain - then 2 days before the budget the OBR published their statement as linked.
The algos were primed so to speak - I figured on release GBP negative but didn’t expect the rush - more algos on price.
The focus was sell side - but notice re mention of ‘calm the market’ - now the humans took over - the OBR became involved, and price returned up to where it started - the buy side took advantage.
For the long term guys nothing happened - for the short term guys 2 opportunities, buy and sell, - all based on Current Affairs.
A lot has happened since the above post - in a nutshell the BOE did their best but the UK Govt insisted on no U turns on fiscal policy - .i.e. massive borrowing and spending.
Initially the UK Bond market reacted positively but by Oct 5th investors gave up and the selling resumed.
That selling stalled 4 days back - same time as a new Finance minister, Jeremy Hunt, appointed by UK PM
Hunt immediately signalled a U turn in policy and yesterday laid out the terms - almost all tax cuts gone plus a curtailment on Public Spending.
Stock markets have reacted positively although early days yet for UK Bond market but so far so good.
On the FX front it’s possible to see some selling on GBP in expectation of a lesser hike on rates than has been signalled by BOE - but again early days.
There is more disruption in UK Govt tonight with resignation of Home Secretary.
Today GBP lost around 120 pips - good chance that Gbp Asian traders will be unsettled in the incoming session - further downward pressure possible.
Important to keep an eye on UK gilts (Govt bonds) in the coming days - price on 10yr has been reaching for the Oct4 highs today - instability has the potential to reverse this.
Edit: the disruption tonight in UK politics has the potential to cause the PM’s resignation - it’s that serious.
So far so good - the 10yr, although gapped down is continuing up and has broken yesterday’s high (before all the political upheaval).
Gbp is holding it’s nerve also - it’s now a case of wait and see what happens in the political arena.
The new home secretary like the new Finance minister was a supporter of the PM’s rival in the recent leadership contest and didn’t support the proposed tax cuts.
Which has just happened.
Markets reaction is positive and will remain so if it is the case that MP’s alone get to decide the next leader and PM.
Well that’s what happened - no election, just the MP’s got to decide.
The UK Bond market has thus far reacted positively - conversely GBP has fallen - soundbites from BOE are that as long as the Bonds continue to recover the better - implication is that a lesser rate increase than what was feared.
Early days yet - the new PM has worked in the market so he’ll have some ideas on a positive way forward.
Horiz lines and arrows are mostly on my charts - the down arrow on the UK 10yr was the day before the mini budget - by that time the market knew well what it contained.
So how has the market reacted in the past week?
Well again so far so good, just a little reluctance to plug the drop today - so all eyes next week on how Gilts perform - there is a positive expectation given the soundbites from the UK Treasury, the UK Fin Minister and the BoE - all of whom reaffirmed the Central Bank’s independence this past week.
How long do you guys think the bear market will continue ?
There are 2 markers to watch for.
1st one is the Russian war - a resolution will help not only the market but also the human suffering.
2nd one is now only being talked about on the internet but has been on the radar of many businesses - China’s zero covid policy - when that comes to an end (not an if) then it will be a positive for global trade.
The UK has mostly undone the effects of the disastrous “mini budget” of the most recent Govt.
The new Govt have indicated a more orthodox approach to fiscal management - it has taken a week longer than was expected but finally the market appears to have regained a confidence that was lost in days.
Anyways - back to horiz lines - often called ‘levels’ - they are in fact ‘targets’ - a place to set an order.
Over time it becomes a little easier - reaction becomes the target - Livermore thinking.
Always think to the right side of the chart - having hit the reaction level as posted back 2 weeks and fallen back - what are the chances of price going North or South?
Btw - the yellow horiz is the same line as posted back on the daily - zoomed in now on hr1
Current Affairs effect on the market - this is a FX site - so what possible connection has the waffle re the UK 10yr Gilt (bond) that I’ve posted back 2 wks to do with the currency market?
Look again at the 10yr over this past week - then have a tiny peek at cable - remember Murphy and his Market Correlation thesis - fancy word for just one market
Not sure whether this is allowed but will go for it anyhow.
Just read this post on the Musk board - it’s very apt - from an oldie
A professional trader always thinks to the right of the chart - oft times we as retail think to the left.
In the week ahead the UK Fin minister will set his fiscal management for the UK in the weeks and months to come - if you live in the right side then it will be important.
The date is Nov 17th - expect back to basics - “balance the books” - good chance UK gilts will head north as a result.