Sterling resumes its decline
(Naeem Aslam – Avatrade)
Sterling has resumed its decline once again while the IMF is putting pressure on the UK that it needs to re-evaluate its tax structure. The fact that the IMF has been involved this closely with the UK has made the matter a lot worse. The UK is not an emerging economy where the IMF can dictate its terms, but the fact that now the IMF has started to see the UK as one of the emerging economies has made the situation a lot direr.
Traders believe that an unexpected announcement is highly likely going to come from the Bank of England, and it could take place even over the weekend if not before. This is because the scheduled meeting by the BOE is actually going to be on November 3rd, and if the BOE leaves things until then to make an announcement about its monetary policy, the Sterling will be even more shredded into pieces.
With the dollar index picking a lot of steam, the situation is only becoming worse for the Sterling as the UK’s borrowing cost is surging. So far, the BOE has pushed back to accept the terms set by the market. The Governor of the Bank of England made it clear on Monday that the Bank will make a full assessment of the situation during its next meeting, and that is in November. We believe that the Bank doesn’t really have that luxury, and it can continue to push back any expectations that it wants, but that would only make the situation even worse.
A full percentage point interest rate hike is very much baked into the price, and that is the only reason alone that pushed the price of the Sterling higher from its lows that it formed earlier this week. If the BOE continues to delay its decision or underdelivers, we could see a type of blood bath for the Sterling that we may not have seen evermore. There is no doubt that the type of situation of the Bank of England right now is far from ideal because if it actually lifts the interest rate by a full percentage point, it risks tipping the UK’s housing market further into a deep recession. This means that we will see a serious correction in the UK’s market housing market, and consumers will find it incredibly difficult for themselves to pull them out.
EUR/USD: Challenges critical confluence area [Video]
(Olimpiu Tuns – Learn 2 Trade)
The EUR/USD pair dropped as much as 0.9535 today registering a new lower low. The bias remains bearish despite temporary rebounds. Fundamentally, the USD received a helping hand from the US CB Consumer Confidence and New Home Sales data yesterday. On the other hand, the Euro took a hit from the German Gfk Consumer Climate which came in at -42.5 points versus -38.9 points expected. Later, the US Goods Trade Balance and Pending Home Sales could move the price.
Technically, the EUR/USD remains bearish as long as it stays under the downtrend line. Its failure to reach and retest the downtrend line signaled strong downside pressure. Taking out the dynamic support represented by the warning line (wl1) and making a new lower low activates more declines.
Daily recommendations on major – USD/JPY
USD/JPY – 144.67
Despite dollar’s brief gain to a fresh 24-year peak of 145.89 after BoJ’s dovish hold last Thursday, subsequent selloff to 140.36 on BoJ’s ‘unilateral’ yen buying intervention suggests a temporary top is made, yesterday’s gain to 144.90 in New York signals correction is over but above 145.00 is needed to yield re-test of 145.89, break, 146.70/80.
On the downside, below 144.07 would revive bearishness fo weakness towards 143.26/28
Data to be released on Wednesday
U.K. BRC shop price index, Australia retail sales, Japan coincident index, leading index, Germany Gfk consumer confidence, France consumer confidence, Italy business confidence, consumer confidence, industrial sales.
U.S. MBA mortgage application, goods trade balance, wholesale inventories and pending home sales.