Will the GBP Continue to Decline after the "Tax Reduction Plan" Is Digested?

Summary:

Since last Friday, while investors continue to pay attention to the developments of the Federal Reserve, the Bank of England (BOE) has taken the lead and decided to buy bonds. The news had a real impact on financial markets. The yield on the 10-year bond fell the most since 2009 as yields on UK bonds fell. The British government on Monday withdrew plans to scrap the top rate of income tax after strong public opposition and market turmoil.

SELL GBPUSD

Close Time

CLOSED

1.14400

Entry Price

1.05300

1.17380

1.26449 +0.00196 +0.15%

157.1

Pips

Profit

1.05300

1.12829

Exit Price

1.14400

Entry Price

1.17380

Fundamentals

The new government announced a series of tax cuts just weeks after taking office, but financial markets reacted poorly. In the days after their announcement, the GBP fell to an all-time low; Mortgage trading was forced out of the market and British government bonds began to sell at a historic rate, causing the BOE to begin a temporary purchase program to calm volatility.

On Monday, Finance Minister Kwasi Kwarteng confirmed that the government would cancel the tax cuts for the UK's highest earners. The GBP surged on Monday morning. The GBPUSD rose 0.8% but fell to 1.1212 after the news was confirmed.

The bond yield rose after the announcement of the bond purchase scale of the BOE, highlighting the pressure on the bond. This time, the BOE purchased only GBP22.1 million of treasury bonds, while the sellers provided as much as GBP1.89 billion, 86 times the purchase size, which indicates that the pressure in the UK bond market still exists.

The different policies of the BOE and the neoconservative government shocked investors. The purpose of raising interest rates is to curb demand, while the purpose of reducing taxes is to increase demand. The fiscal stimulus should further push up inflation, so a rapid rebound in British bond yields should come as no surprise.

The GBPUSD has moved away from its daily high or struggles to expand this rally as markets begin to digest the prospect of a U-turn in British government policy. On options, while the GBP has rebounded since last week's record low of US$1.0350, traders are becoming more pessimistic about the GBP as the risk reversals beyond the three-month period reach levels never seen since the UK's Brexit referendum.

GBPUSD: Will the GBP Continue to Decline after the "Tax Reduction Plan" Is Digested?_1

Technical Analysis

In the 1H timeframe, the GBPUSD has completed its upward structure with a target of 1.1275. The GBPUSD will then fall to 1.0880 and start to rise again to 1.1447. Technically, this situation is supported by the stochastic oscillator. Its signal line is falling below 80 and possibly below 50. After that, the line will resume its growth to 80 after testing the completion of 20 to form oversold.

In the 4H timeframe, after completing the downside retracement of 1.1275, the GBPUSD formed a new consolidation range at that level. If later the price breaks out of the range to the downside, (targeting 1.0880) forming an upward structure towards 1.1447, and then starts another decline, it will reach 1.0185. Technically, the MACD oscillator confirms this situation. Its signal line is moving above 0 and will continue to grow and reach new highs soon. However, the upside is limited. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 1.1440

Target price: 1.0530

Stop loss: 1.1738

Deadline: 2022-10-17 20:00:00

Support: 1.1275, 1.0880, 1.0630

Resistance: 1.1362, 1.1447, 1.1589

Risk Warnings and Investment Disclaimers

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Go Short at the Highs while not Going Long on Bullish Trend

Eva Chen

Summary:

There are rumors that OPEC+ will announce a cut in production at this week's meeting, and WTI crude oil jumped to a higher level on Monday. On the other hand, the failure to reach an agreement will mean more bearish pressure on crude oil prices as it succumbs to a stronger USD and safe haven flows. Investors are still wary of the global economic downturn and worsening geopolitical tensions, depressing demand for riskier assets such as commodities.

SELL WTI

Close Time

CLOSED

85.500

Entry Price

76.000

89.000

75.683 +0.587 +0.78%

350.0

Pips

Loss

76.000

89.031

Exit Price

85.500

Entry Price

89.000

Fundamentals

Oil prices soared in the early Asian session this Monday. This comes after a representative said that OPEC+ is considering cutting crude oil production by more than 1 million barrels per day when it meets this week to curb the slide in oil prices; WTI crude oil jumped higher on Monday, up more than 3%, recording gains for the first time in three trading days.

While delegates said a final decision on the size of the cuts would not be made until a meeting of ministers on Wednesday, the cut would be the largest since the COVID-19 outbreak. Earlier, crude oil prices hit their first quarterly decline in more than two years on Friday as concerns about a global economic slowdown weighed on the outlook for energy demand. Banks, including JPMorgan Chase, recently said OPEC+ will need to cut production by at least 500,000 barrels a day to stabilize oil prices.

WTI crude oil is still trending lower in its bearish channel, but it looks like the commodity is starting the week strongly bullish.

Nonetheless, the Department of Energy's upcoming inventory report will bring some volatility to crude around the middle of the week. And an unexpected decrease in inventory data, like last week's report, will be enough to boost crude oil prices. This is because it indicates an increase in demand.

WTI: Go Short at the Highs while not Going Long on Bullish Trend_1

Technical Analysis

WTI crude oil jumped higher on Monday and retested channel resistance above US$80. If a bullish breakout occurs, then crude oil prices will reverse from the sell-off.

However, the 100 SMA is still lower than the 200 SMA, so the path of least resistance is still to the downside; in other words, the top of the channel is more likely to hold than to break. In this case, the bears will send the price back to the bottom of the channel to US$70 or lower.

Meanwhile, stochastics shows a return of bullish pressure, but oscillators are overbought to reflect the exhaustion of bulls. The RSI is in the middle position and currently provides few strong direction clues.

It is recommended to go short at the highs, instead of going long on the bullish trend.

Trading Recommendations

Trading direction: Short

Entry price: 85.50

Target price: 76.00

Stop Loss: 89.00

Deadline: 2022-10-17 20:00:00

Support: 82.00, 81.63, 78.68

Resistance: 84.00, 85.71, 86.47

Risk Warnings and Investment Disclaimers

Bullish Trend Remains with Mixed Messages from Indicators

Eva Chen

Summary:

The USDJPY rose for the seventh straight week, marking the second straight month of strong gains for the USDJPY. The USDJPY tested the 145 threshold again earlier on Monday after indicators signaled mixed messages or more consolidation.

BUY USDJPY

EXP

EXPIRED

142.700

Entry Price

147.210

139.900

148.338 -0.292 -0.19%

Pips

EXPIRED

139.900

148.605

Exit Price

142.700

Entry Price

147.210

Fundamentals

The Bank of Japan's (BOJ) quarterly short-view survey shows a rather disturbing outlook. The large business manufacturing index unexpectedly fell from 9 to 8. The outlook for large manufacturers also fell from 10 to 9. The assessment for large non-manufacturers rose slightly from 13 to 14, but the outlook is starting to deteriorate.

On the other hand, the Japanese industry expects capital expenditures to exceed expectations in FY22, reaching 21.3%. Large manufacturers have also indicated that they want to consider the average exchange rate for the current fiscal year (122.73 USD/JPY). This is much higher than the current rate of nearly 145.00. Regarding currency weakness, Japanese Finance Minister Suzuki warned again this morning that Japan is prepared to take decisive action to prevent excessive volatility in the foreign exchange market.

The BOJ is buying government bonds to keep yields down. The BOJ's yield curve control tool only limits yield on 10-year Japanese government bonds, so as the BOJ uses the tool, rising yields will seep into other maturities. As a result, the BOJ has purchased ultra-long-term government bonds for two consecutive days in an attempt to curb rising yields.

Market Observation: Despite the fact that Japanese authorities have been talking about the JPY's strength and even spending huge amounts of money to support it (last week the Japanese Ministry of Finance spent JP￥3.6 trillion to intervene in the currency market), it is widely believed that the JPY will continue to remain weak while the BOJ's policy remains ultra-easy. The unplanned bond purchase operations are a sign that the ultra-loose policy is continuing, so the pressure for a weaker JPY will continue.

The USDJPY (bulls) recently moved to a three-week high after hitting a new 24-year high (145.90) on September 22 and was strongly rejected, before the pullback found a solid foundation above the psychological support of 140.00.

Although the 1D structure remains bullish overall, the bullish momentum is weakening and the overbought stochastics are warning that the bulls will face some consolidation or pullback before recovering; however, the USD remains firm on strong fundamental support and is expected to hit new highs again, with a break above the previous highs signaling a bullish continuation.

USDJPY: Bullish Trend Remains with Mixed Messages from Indicators_1

Technical Analysis

The USDJPY is back to the key mission ceiling of 145.00 for further upside for the bulls after fully recovering the losses from the 140.34 level last week (when the Japanese Foreign Ministry intervened in the market).

While stochastics is still bullish, RSI and MACD are sending some mixed messages. Among them, the RSI is struggling to make higher highs in the bullish zone, while the MACD holding steady below the 0-axis sends a key signal that the USDJPY failed to move further up after testing 145.00 again in the early Asian session today.

Nevertheless, for the bulls, 142.00 can still provide solid support for further upside; holding it will clear the way for another test of 145.00 and an encounter with the top level in 1998.

Overall, USDJPY is cautiously bullish in the near term. The next round of the bull-bear contest is expected to start above the 142.00 -145.00 level. It is recommended to go long at the lows.

Trading Recommendations

Trading direction: Long

Entry price: 142.70

Target price: 147.21

Stop loss: 139.90

Deadline: 2022-10-17 20:00:00

Support: 144.15, 143.90, 143.12, 142.46

Resistance: 145.31, 145.90, 146.40, 147.21

Risk Warnings and Investment Disclaimers

EUR Will Witness a Decline in the Short Term as Upward Space Is Limited

Jason

Summary:

Many bearish factors make the EUT weak. The short-term rise depends entirely on the weakening of the USD. Once the bearish factors in the USD disappear, the EUR will fall again.

SELL EURUSD

Close Time

CLOSED

0.98283

Entry Price

0.97374

0.98771

1.09727 +0.00242 +0.22%

13.9

Pips

Profit

0.97374

0.98144

Exit Price

0.98283

Entry Price

0.98771

Fundamentals

Due to the imminent release of inflation data from the eurozone and the U.S. last Friday, the market was dominated by a strong wait-and-see sentiment. The EUR was basically in a consolidation state during the Asian session and right after the opening of the European session. The eurozone's HICP then hit a new high of 10.0% in September, which will cement the ECB's decision to raise interest rates by a further 75 basis points at its October meeting. However, as European Central Bank (ECB) officials have said recently that a 75-basis-point interest rate hike should be made in October, the market has long expected this. The expected interest rate hike generated by HICP has little impact on the EUR. On the contrary, due to the further high inflation and a series of problems in the eurozone such as the energy crisis, the market has been worried about the eurozone economy and the EUR has plunged by nearly 100 points in the short term. US PCE data also unexpectedly rose a little later, and the EUR was able to rise at a low level and close slightly lower by 0.15% due to the "buy the rumor & sell the fact " market behavior after the market had already digested the expectation of the November interest rate increase.

At present, the eurozone is in turmoil. According to the French newspaper Les Échos, four economic research institutions have reduced Germany's economic growth forecast to 1.4% this year. Four institutions predict that a recession in Germany seems inevitable. The recession will start in the last quarter of this year and will further intensify early next year. Germany's GDP is likely to fall by 0.4% in 2023.

The leakage and repair of the Nord Stream pipeline will also delay the gas transmission time. This will undoubtedly aggravate the problem of energy shortage. In addition, many countries have also staged demonstrations to protest against the energy sanctions against Russia.

In addition, the possibility of economic recession in the eurozone is increasing. On the whole, the EUR is currently weak and abnormal. The short-term rise is entirely dependent on the weakening of the USD. Once the USD's negative interest rate is exhausted, the EUR will decline again.

Technical Analysis

In the 4H timeframe, the EUR rebounded after hitting the bottom of the downtrend channel and is currently blocked by the 38.2% Fibonacci Expansion Level (0.98283), recovering all the downturns since September 23, showing a V-shaped reversal pattern. The strong resistance from above was 0.99107. Since the EUR fell below this support on September 21, it has been heading all the way to the bottom of the downtrend channel. Only by breaking through this line can the EUR have room for further rise. The key support below is 0.95207, and a break below this line will open a new round of declines. As for indicators, Stoch, DMI, and Ichimoku chart all indicate that the EUR will fall in the short term.

EURUSD: EUR Will Witness a Decline in the Short Term as Upward Space Is Limited_1

Trading Recommendations

Trading direction: Short

Entry price: 0.98283

Target price: 0.97374

Stop loss: 0.98771

Support: 0.97550, 0.97134, 0.96764

Resistance: 0.98283, 0.98518, 0.98771

Risk Warnings and Investment Disclaimers

Disagreement within the Fed Can Affect the Dollar's Rally

Jason

Summary:

Disagreement within the Fed on the rate hike size may cause a divergence in market expectations. The dollar rally may be affected.

BUY USDX

Close Time

CLOSED

111.750

Entry Price

112.670

111.200

103.043 -0.209 -0.20%

23.5

Pips

Profit

111.200

111.985

Exit Price

111.750

Entry Price

112.670

Fundamentals

The dollar swung to the upside last Friday, ending losses for two consecutive days and closing up 0.36%. It also capped off the third quarter. The dollar rose 6.7% during the quarter, gaining for five consecutive quarters.

The current market has fully digested the news of the Bank of England's intervention in the bond market, which has made the biggest driver of the dollar's decline in recent trading days "disappear". At the same time, due to the unexpectedly high U.S. PCE, inflation showed its stickiness, and fighting against inflation is not easy. The market expects the Fed will continue to maintain the current rate hike size. It should be noted that the speeches of Fed officials last Friday showed that there has been disagreement within the Fed. While the unified opinion is to continue to raise rates, it is divided between continuing to maintain aggressive rate hikes and slightly slower rate hikes (that is, from 75 basis points to 50 basis points).

According to Mester, aggressive rate hikes must continue to win the battle against inflation, even if it leads to a recession. It may be better to take more aggressive action because taking aggressive and pre-emptive action can prevent the worst scenario from actually happening.

In addition, Brainard gave a slightly softer assessment that moving forward cautiously and acting in a data-driven manner will allow us to understand how economic activity and inflation will respond to cumulative rate hikes.

From the speeches of officials last week, the Fed can be broadly divided into two factions, one advocating "aggressive rate hikes" and the other advocating "careful advancement." This divergence can be seen in the dot plot released at the September meeting, where eight officials forecast a range of 4% to 4.25% at the end of the year, while 9 officials forecast 25 basis points higher.

Several Fed officials with voting rights this year are scheduled to speak this week, which means that the market may no longer look in general terms at what the Fed officials will express, but rather look for disagreement, that is, the disagreement between Fed officials. It also means that market expectations will probably diverge again.

For two weeks in a row, a large number of Fed officials spoke, and even a "wave" can describe the situation, which is very rare. This may be the Fed's intentional arrangement. Last week's speeches were to express the determination to fight inflation. And this week's speeches are likely to "save" the market to avoid a precipitating decline in the stock market.

If there is a different expression on the speed of interest rate hikes this week, it will bring a hint of variability to the market trend.

Technical Analysis

In the 4-hour chart, the dollar is still hovering around the 50.0% Fibonacci retracement at 112.372. If it stands firm under this line, the dollar will have the conditions for a deep retracement, which needs to be focused on. The strong support below is 111.30, which is the last support when the dollar retreated from the 120 high in 2001 and 2002. The long-short divide is 109.178, and the dollar will open a downtrend below this line. Although the dollar closed up last Friday, in the current situation, it can only be considered to stop falling, and only to re-break above 113.942 can open a new round of rallies. In terms of indicators, Stoch, DMI, and the Ichimoku cloud are showing that the dollar will start to rise after a short-term decline.

USDX: Disagreement within the Fed Can Affect the Dollar's Rally_1

Trading Recommendations

Trade direction: Long

Entry price: 111.75

Target price: 112.670

Stop loss: 111.200

Support: 111.853, 111.300, 110.873

Resistance: 112.372, 112.906, 113.500

Risk Warnings and Investment Disclaimers

Oscillating in a Range without Market Reversal

Damon

Summary:

After more than a week of adjustment, the oscillating trend in a range has been formed. Before the release of non-farm data this Friday, ETH is unlikely to be volatile.

BUY ETH-USDT

Close Time

CLOSED

1288.24

Entry Price

1360.00

1240.00

2034.23 +31.32 +1.56%

344.8

Pips

Profit

1240.00

1322.72

Exit Price

1288.24

Entry Price

1360.00

Hot News

1. Japanese Prime Minister: Will vigorously promote the use of Web3 services such as metaverse and NFT.

2. Pro-Russian groups are raising funds in crypto.

3. A U.S. senator introduces the "No Digital Dollar Act" to prohibit the U.S. Treasury and the Federal Reserve from interfering with Americans' use of paper money.

Sentiment

The Crypto Fear and Greed Index is at 24, representing extreme fear. The index was 24 yesterday and 21 the day before yesterday. The market now is in a period without important news released. And as U.S. stocks decline several times, mainstream cryptocurrencies have resisted the pressure. Although the sentiment has not improved, it is clear to see that cryptocurrencies are more supported in the short term.

Technical Analysis

ETH has been going down since the merger in September, once hitting the lowest in the 1220-1250 range which was the starting point of the previous big rally. After more than a week of adjustment, the oscillating trend has been formed, with the resistance above in the 1360-1420 range and the support near 1250. Before the release of non-farm data this Friday, ETH is unlikely to be volatile. So it is recommended to buy low and sell high in this range.

ETH 2-Hour Candlestick Chart

ETH-USDT: Oscillating in a Range without Market Reversal_1

ETH Daily Candlestick Chart

ETH-USDT: Oscillating in a Range without Market Reversal_2

Trading Recommendations

Trading direction: Long

Entry price: Market price

Target price: 1360

Stop loss: 1240

Support: 1250, 1000

Resistance: 1360, 1420

Risk Warnings and Investment Disclaimers

Rally Will End as Dollar Stands Firm

King Ten

Summary:

After a week of rallies, the euro meets strong resistance again. Our focus will be on the resistance around 0.99000.

SELL EURUSD

Close Time

CLOSED

0.99000

Entry Price

0.95000

1.01000

1.09727 +0.00242 +0.22%

194.1

Pips

Profit

0.95000

0.97059

Exit Price

0.99000

Entry Price

1.01000

Fundamentals

The S&P Global Eurozone composite Purchasing Managers' Index (PMI) fell further in September. German business activity saw an increased slump as higher energy costs hit the largest economy in Europe. Companies also recorded a drop in new business. The entire euro area faces a bigger test of economic decline as winter approaches.

The U.S. second-quarter GDP data released last week was in line with expectations, but the PCE price index was revised upward. Upward revisions to some indices also suggested that the output gap was even more negative than previously thought, thus increasing the need for further tightening to bring spending into line with supply. In addition, the unexpected drop in initial jobless claims was another sign of a tight labor market. Economic activity remained very buoyant. The dollar has also stabilized, so perhaps this wave of EURUSD rally is basically over and a new round of downside is imminent.

Technical Analysis

In the daily chart, the EURUSD is still in the downside channel but approaching the upper edge and there is relatively great resistance. Our focus should be on the resistance effect around the 0.99 mark.

EURUSD: Rally Will End as Dollar Stands Firm_1

Trading Recommendations

Trading direction: Short

Entry price: 0.99000

Target price: 0.95000

Stop loss: 1.01000

Support: 0.97000, 0.95000

Resistance: 1.00000, 1.02000

Risk Warnings and Investment Disclaimers

Eva Chen

Analyst

Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

Ranking

Articles

836

Win Rate

69.20%

P/L Ratio

0.56

Focus on

WTI, XAUUSD, GBPUSD

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Will the GBP Continue to Decline after the "Tax Reduction Plan" Is Digested?

Fundamentals

Technical Analysis

Trading Recommendations

Go Short at the Highs while not Going Long on Bullish Trend

Fundamentals

Technical Analysis

Trading Recommendations

Bullish Trend Remains with Mixed Messages from Indicators

Fundamentals

Technical Analysis

Trading Recommendations

EUR Will Witness a Decline in the Short Term as Upward Space Is Limited

Fundamentals

Technical Analysis

Trading Recommendations

Disagreement within the Fed Can Affect the Dollar's Rally

Fundamentals

Technical Analysis

Trading Recommendations

Oscillating in a Range without Market Reversal

Hot News

Sentiment

Technical Analysis

Trading Recommendations

Rally Will End as Dollar Stands Firm

Fundamentals

Technical Analysis

Trading Recommendations

Risk Disclosure