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29.09.2022: Has UK chance to save its economy from crisis? Outlook for EUR/USD and GBP/USD
The energy support plan developed by UK’s Prime Minister Liz Truss has met strong resistance. Initially, it was disapproved only by British banks. Yesterday, the Bank of England and the International Monetary Fund also manifested their discontent with the presented measures. Even the House of Commons, where most places belong to the Conservative party led by Liz Truss, severely criticized the plan and demanded to revise it drastically. This news somehow calmed down markets, thus causing a rebound in the pound sterling, which dragged other currencies, including the euro.
However, today, Liz Truss said that she had no intention of abandoning the plan. Notably, the IMF supposes that measures described in the document may spur a grave financial crisis like the one we saw in 2008. After that, panic swept across markets again, thus boosting the US dollar. It seems that in the next few days, the market situation will be determined by events in the United Kingdom. What is more, the current problems may balloon into another political crisis.
Meanwhile, traders continue pricing in extremely negative data from the eurozone. According to the survey performed by experts at the European Commission, in October, the eurozone economic sentiment dropped to 93.7 points, touching the lowest level since November 2020. Business sentiment was strongly affected by the risk of higher inflation and interest rates as well as a gloomier economic outlook. What is more, the situation in Ukraine is aggravating the energy crisis.
On the chart, we see that the euro reached a new low against the US dollar. However, it failed to settle below it. A bit later, the pair rebounded, thus causing an inertial movement. As a result, the price added about 2.2%.
During the Asian trade, the euro resumed falling and returned to 0.9650 amid high speculative activity, which may spur new price swings. If the euro/dollar pair settles below 0.9650 on the four-hour chart, it may slide to the low of the current downtrend. If the price manages to rebound from 0.9650, it will have a chance to hit yesterday’s high.
Meanwhile, the pound sterling continued moving amid market speculation. At the beginning of the previous trading day, there was a downward impulse that pushed the price below 1.0600. After that, an upward impulse allowed the pair to jump to the high recorded on Monday.
Under the current conditions, the pair formed an untypically wide range of 1.0630/1.0930. Such a situation could be explained by high speculative interest among traders. It is quite possible that the pair will continue trading sideways until a particular trend forms.
Traders may apply a breakout strategy or a method based on a rebound from either limit. Notably, a breakout should be confirmed at least on the four-hour chart.
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