The GBP/USD currency pair started on Friday for health and finished for the repose. Like the euro currency, the pound managed to adjust to the moving average during the day, only to collapse downwards. Naturally, the fall of the British currency in the last quarter of the day was provoked exclusively by Jerome Powell. Recall that the current levels are 2-year lows for the pound/dollar pair. Absolute lows (over the past 35 years) lie around 1.1400. The current rate is 1.1735. The pair needs to go down only 335 points, which may take no more than a week. It should be noted that a cheap pound is, to some extent, good for London. After all, now the UK has left the European Union and can trade with anyone and according to its own rules, regardless of the opinion of Brussels. Therefore, a cheap national currency increases exports in the first place. At the same time, there is now a problem of a sharp increase in life in Britain, which is provoked by high inflation and rising energy prices. From our point of view, this problem is clearly overblown more than it should be. It should be remembered that high inflation is now observed both in the European Union and the United States, and energy resources are rising in price worldwide. However, there are very few angry cries about the rising cost of living. Europeans, Americans, and Britons are far from the poorest nations. Therefore, even a 10% drop in their income is not critical.
Nevertheless, this problem should at least be tried to solve. And how to solve it? It is necessary either to raise wages (which, in principle, are already growing) or to reduce the tax burden on citizens. The Kingdom seems to have decided to go this way.
Liz Truss is ready to cut taxes by a record value
We have already said in previous articles that the election of the Prime Minister of the United Kingdom continues. At the end of next week, the name of the new leader of the Conservative Party may be known. From our point of view, it will be Liz Truss, which we discussed in the first voting rounds. Rishi Sunak, who won all the election rounds, seems to be out of work since he lost all the election debates, and his figure is not as charismatic as the figure of Liz Truss. Many conservatives claim that the factor of commitment to Boris Johnson plays one of the key roles for them when choosing a new leader of the country. Truss is loyal to Johnson, ready to continue his path, ready to support Ukraine, ready to use nuclear weapons to defend the country, and worried about the British people. At least in words.
Just yesterday, it became known that Liz Truss could follow the path of Gordon Brown, who in 2008 lowered VAT by 2.5% as part of the fight against the economic consequences of the global crisis. However, Truss may even surpass his colleague and reduce the VAT rate by 5% at once. Naturally, if she becomes the new prime minister. It's no secret that the rising cost of electricity creates pressure on household budgets. According to experts, each household will miss 1,500 pounds due to increased electricity bills. And a 5% reduction in VAT will save about 1,300 pounds a year. However, electricity prices may continue to rise and by April next year will rise to a record 7,700 pounds per year. The VAT reduction can also help to reduce inflation by 2%, according to the Institute for Financial Research. And, of course, the British will be more supportive of a candidate who will ease their financial burden, even though they will not participate in the elections. However, after the election of the Prime Minister, there will be parliamentary elections, and the Conservatives will already need the support of the British population.
The average volatility of the GBP/USD pair over the last five trading days is 118 points. For the pound/dollar pair, this value is high. On Monday, August 29, thus, we expect movement inside the channel, limited by the levels of 1.1618 and 1.1853. The upward reversal of the Heiken Ashi indicator signals a new round of upward correction.
Nearest support levels:
S1 – 1.1719;
S2 – 1.1658;
S3 – 1.1597.
Nearest resistance levels:
R1 – 1.1780;
R2 – 1.1841;
R3 – 1.1902.
Trading Recommendations:
The GBP/USD pair continues to be located below the moving average on the 4-hour timeframe. Therefore, at the moment, you should stay in new sell orders with targets of 1.1719 and 1.1658 until the Heiken Ashi indicator turns up. Buy orders should be opened when fixing above the moving average line with targets of 1.1902 and 1.1963.
Explanations of the illustrations:
Linear regression channels – help to determine the current trend. If both are directed in the same direction, it means that the trend is now strong;
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which to trade now;
Murray Levels – target levels for movements and corrections;
Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators;
The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.