03.03.202111:07 Forex Analysis & Reviews: UK budget: start or end of trend?

The sterling has recently shown signs of a possible corrective move, rolling back from the peak of the trend by about 360 points, which, on the one hand, is quite a lot, but still not enough for a full-size correction in the market.

We will have time to talk about the technical aspect, now the focus is on the UK budget, where the Chancellor of the Exchequer, Rishi Sunak, has already announced a number of stimulus measures.

Sunak says his priority is protecting jobs during the pandemic. He promised to support citizens and businesses, as the isolation measures are gradually being lifted.

On Tuesday, the chancellor announced that the flagship furlough program, in which the state pays workers 80% of their regular wages, up to a maximum of £2,500 a month, would continue. Let me remind you that it is to expire at the end of April, but it will be extended until the end of June, and then the benefit will be reduced over the next three months.

Algorithm of actions:

• The government will continue to pay 80% of the wages of laid-off workers until the end of June, with a monthly amount of £2,500

• In July, the employer is required to deduct 10% of wages for hours, the government must pay 70%, limited to £2,187 per month

• In August and September, proportions change to 20% and 60%, capped at £1,875 per month

The action plan is quite good, it will support the population, but it is not yet clear how it will affect the long-term perspective, because the longer citizens will sit on benefits, the harder it will be for them to get a job in the future. A double-edged sword, this is where the next point of business support begins, which says that the areas of activity especially affected by the pandemic will be extended benefits, rent taxes, etc. All this is great, but in the end, we get a budget deficit, which the Chancellor of the Exchequer is going to fight against.

"If we do nothing, borrowing will remain at a very high level even after we recover from the Covid, debt will continue to grow indefinitely," Sunak told Sky News on Sunday.

"This is not a very good situation," he added.

Sunak may announce some tax increases as early as today, or he may detail which taxes will be abolished in the future. Here are some potential measures:

An increase in corporate income tax seems most likely. Officials are signaling that the planned rate hike will allow the UK to raise its own rate in the coming years from 19% to 25%, while maintaining the lowest level among the largest economies.

According to The Sunday Times, Sunak plans to freeze the thresholds at which people start paying basic and higher rates of income tax, pushing 1.6 million people to the higher bar by 2024. This would still count as the Conservative Party's election promise not to raise the three main tax rates - income tax, national insurance, and value-added tax - for five years.

According to the Times, Sunak is drawing up plans to freeze the lifetime pension savings allowance at just over £1 million, meaning those who exceed it will be required to pay more tax on income from their pension pot.

Everything is not easy, following from the material on the budget, today it is worth being particularly vigilant to the statements of Rishi Sunak, as this can provoke a new wave of speculation in the market.

Exchange Rates 03.03.2021 analysis

What happens on the trading chart?

A pullback from the local maximum of the medium-term trend returned the quotes below the psychological level of 1.3950/1.4000/1.4050, which is a good signal for sellers who still hope that common sense prevails in the market and that the overbought pound sterling will move to full-size correction.

Hope dies last, this is how I can characterize the prospects for correction, which are indicated by technical and fundamental factors. If you work on a clock cycle with insane speculators, then you should proceed from the current location of the quotes and the incoming information flow.

In simple words, if the quotes are kept above the psychological level, and from the information flow, tales are told about how everything will be fine in Britain, then common sense will submit to the speculative majority, no one will pay attention to other economic problems and the high level of overbought of the sterling in the market.

Expectations and prospects

As long as the quotes are below the psychological level of 1.3950/1.4000/1.4050, sellers still have hope for a full-size correction with a priority move towards the level of 1.3750.

Everything can change if market participants again consolidate within the boundaries of the psychological level, but the most dangerous scenario of the market development will arise after the price has been kept above 1.4050 for a four-hour period since in this case, it will be impossible to exclude the renewal of the local maximum of the trend.

Exchange Rates 03.03.2021 analysis

What is happening in the market in terms of indicator analysis and market dynamics?

Analyzing different sectors of timeframes, we see that technical instruments are unanimously signaling to buy. The minute intervals have a variable signal, while the hourly interval is focused on the pullback from the 1.3858 low. The daily period, as before, is focused on the main trend since the size of the correction is not so significant.

Exchange Rates 03.03.2021 analysis

In terms of market dynamics, an acceleration is recorded, although the market does not show sharp price changes that would lead to dramatic consequences. The speculative ratio is high, as evidenced by market volatility.

Exchange Rates 03.03.2021 analysis

Key levels

Resistance zones: 1.4000 ***; 1.4350 **; 1.4550; 1.4700; 1.5000 ***.

Support Zones: 1.4000 ***; 1.3750 **; 1.3650 **; 1.3300; 1.3000 ***

* Periodic level

** Range level

*** Psychological level

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Gven Podolsky,
Analytical expert
InstaForex Group © 2007-2021
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