October 14, 2022 16:59:00
The British Pound fell more than 1%, below $1.1200, after testing a one-week high of 1.1381 on Friday. A shift in the market sentiment following the dismissal of UK finance Minister Kwasi Kwarteng and the Prime Minister’s Liz Truss announcement on income tax U-turn.
To add to the woes, an unstoppable US dollar makes recovery not impossible for GBP but difficult, certainly.
Every day there is an unfolding of new political drama in the U.K. The British Prime Minister said that they are going with the hiked corporation tax. The announcement came in the midst of chaos when Kwasi Kwarteng was replaced by Jeremy Hunt. The new tax announcement would increase corporation tax to 25pc as originally proposed by Rishi Sunak.
However, the market desired more assurance from the policymakers as Cable struggles to hold the grounds against the majors. Meanwhile, the Bank of England (BoE) ended the emergency bond-buying scheme. The yield on UK’s 10-year Gilt jumped back above 4.3%.
Meanwhile, the US dollar index (DXY) remained strong above 113.00, exerting pressure on GBP.
GBP/USD risks of falling below 1.1080
On the 4-hour chart, the GBP/USD pair trades inside a ‘rising wedge’ formation, this is a bearish continuation technical pattern. After testing the multi-year low on September 26 at 1.030, the pair rose to the high of 1.1480 only to meet the upper trend line of the parallel channel. This acted as a wall of defense for the bears.
The price took support near the lower trend line and moved above the 50-day ema, but the bulls lack the enthusiasm to sustain the gains. As the price struggles near the moving average.
A renewed selling pressure would be ended up destroying the support of the 50-day ema at 1.1160. If that happens, we could expect a drop toward 1.1000. Next, 1.0800 cannot be ruled out.
In the contrast, a daily close above 1.1240 would attempt a recovery toward 1.1360.
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