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.
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.
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.
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
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.
@peterma Agreed, a trader should look at both the left and right of the chart.
How do you think this new economic budget would impact the forex market, especially GBP/USD? The market sentiment seems 50:50. I believe it’s not going to be very profitable to trade this pair as I see high changes of dollar reaching parity with the USD.
The Fin minister said yesterday that everyone will have to pay more tax - also indicated that there would be no increase in govt spending.
This is the reverse of the previous fin minister’s ‘mini budget’ therefore when thinking about GBP reaction over the next few weeks then good idea to see how pound traders reacted to that budget and then perhaps at the very least there will not be similar reaction to this one.
Keep an eye on UK gilts (govt bonds) to help get a sense of investor sentiment/reaction.
Today the UK Treasury will announce a review of all financial regulations governing the country.
There will likely be a relaxing of some regulations re banks who both engage in retail and in investments, there will also be changes to rules from the EU era.
These changes have been well telegraphed in advance and are seen as a response to Amsterdam’s continued growth as the main European share dealing hub.
Not likely to affect GBP to a great extent - may have a minimal impact on Gilts which have been stuck at the pre-mini budget level this past couple of weeks.
In other news China’s continued dismantling of it’s covid zero policy, echoed by HK, has had a continuing positive impact on Asian stock market.
HK’s Hang Seng Index had solid gains last night - in excess off 2%
The action by the Chinese Govt could have a positive effect on US and European stock markets - early trading in Ftse and Dax is in the opposite direction right now - will make for an interesting US session
One thing that I’d like to draw attention to for guys learning the market - I’ve mentioned it many times - it’s the phenomenon known as the 50% fib - the half way mark.
In Fibonacci there is no such level as 50% yet in the market it holds true - why?
Because it’s simple - and in the market simplicity rules - don’t let the gurus tell you otherwise.
Anyways - end of week - keep it simple - see where price has come to a close:-
End of week - not much to report in Current Affairs - or is there?
Eur/Gbp is a large slice of my thinking - well actually in FX terms it sums what i need to take on board.
As I’ve mentioned a few times in FX the CB rules - thus every nuance of their respective statements are seized upon by the algos - but as always there is also context.
And context is simple - just like the market.
Yesterday both the BoE and ECB announced their respective rate increases - both equal - yet the market reacted more positively to the ECB - could we have known in advance?
EG chart shows the context way easier than I could with a thousand words - the rising trendline was drawn on the 3rd hit in mid August:
While since i posted - EG continued Northward since, reaching a high of 89.60 beginning of this month and has fallen back now to 88
Today the long awaited announcement of another post brexit agreement between EU and UK - will likely be positive for both currencies given that without such agreement more argument. legal action, extra trade restrictions etc etc was the alternative.
Here in NI business has access to the EU internal market unlike our colleagues in GB - my personal hope is that access will not be watered down.
