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05.10.2022: RBNZ boosts demand for greenback. Outlook for EUR/USD and GBP/USD

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Yesterday, the Reserve of Australia raised its benchmark rate just by 25 basis points, thus causing doubts about the decisiveness of the Federal Reserve. Today, the Reserve Bank of New Zealand showed that central banks have no intention to combat surging inflation. The RBNZ raised the key interest rate by 0 basis points. Now, investors suppose that in November the Fed will hike interest rates by 75 basis points.
Nevertheless, the US dollar remains weak due to disappointing macroeconomic reports. The most significant drop was recorded in the pair with the pound sterling. The fact is that the UK government has abandoned its plan on tax changes, which spurred a slump in the UK financial market.

We see that the pound/dollar pair surpassed the resistance level of 1.1410 thanks to a rapid correctional movement from the local low of the downtrend. This points to the fact that speculators may push the price even higher. Notably, the British pound gained more than 1,100 pips in 7 trading days.
Under the current conditions, long positions on the pound sterling became overheated. That is why the pair may stagnate or bounce. In fact, the pound sterling has already started falling. If the price returns below the level of 1.1400, the volume of short positions may increase.
Nevertheless, the speculative activity is still very high. Thus, the asset has every chance to continue rising if it exceeds 1.1525. In this case, the pair may climb to 1.1750.
Today, Liz Truss once again made an announcement that led to the pound’s depreciation. In other words, the existing drop was caused by both the overheating of long positions and traders’ reaction to Liz Truss’ speech. The UK prime minister said that the Conservative party is an adherent of low taxes. This is how Liz Truss confirmed her intention to reduce taxes in order to boost economic growth. Markets are puzzled. Although the situation is really curious, it may considerably boost speculative activity. Now, let us focus on the euro.

The euro/dollar pair accelerated its upward movement and reached the expected parity level of 1.00. Climbing from the local low of the downtrend, the euro gained slightly more than 450 pips. At the moment, parity is acting as a strong resistance level. That is why the pair inched down, allowing the US dollar to recoup some of its losses. If the price consolidates above 1.0050 on the four-hour chart, it is likely to continue rising.


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00:00 INTRO
00:13 Fed’s key interest rate
01:07 GBP/USD
02:07 LIZ TRUSS
02:45 EUR | USD
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