- GBP/USD bulls are moving into a major short run.
- The short squeeze could go as far as 1.1050.
It has been another day of volatility in the US session and the GBP/USD has risen from a low of 1.0538 to a high of 1.0911 in what has been a massive turnaround for the pair, breaking previous day’s highs and now embarking on week’s highs.
Sterling initially fell more than 1% against the dollar and the euro on Wednesday, after the Bank of England, concerned about margin calls in the gilt market, said it would intervene to calm frantic euro bond markets. United Kingdom. The pound was on track for its biggest monthly drop since October 2008, just after the Lehman Brothers bankruptcy. However, the Dollar has tumbled from all-time highs of 114.778 to post a new session low of 112.588 so far this session, as US yields sink, with the 10-year Treasury yield losing more than one 5.4% at the time of writing this article.
UK financial markets have been rocked by moves by Finance Minister Kwasi Kwarteng, who has announced plans to cut taxes and increase borrowing. The fiscal statement – and Kwarteng’s promise of more – sent global markets into a panic and sent sterling plunging to a record low on Monday, despite soaring gilt yields. However, the Old Lady’s intervention seemed to calm the market as the benchmark 30-year gilt yield dipped more than 50 basis points at one point, despite the BoE only buying £1bn, mainly concentrating on in the July 2051 bond.
However, the aggressive fiscal program is likely to continue to weigh on the pound in feverish market conditions, with the focus now on the UK mortgage crisis, as well as the energy crisis: “Mortgage deals for new Clients are now presenting rates of around 5-6%, a sharp increase from the norm of around 2% over the last five years, which is prompting growing concern of a housing market collapse further down the line,” Reuters reported. on Wednesday.
The property market is the backbone of the British economy, and a leading economic indicator closely related to consumer spending in the UK, all of which goes into the value of the pound which, to date, has fallen almost 22% against the dollar this year, the most since 2008, and more than 7% against the euro. The British pound fell by more than 15% in 2016, when the Brexit vote took place.
GBP/USD technical analysis
GBP/USD has rallied towards Monday’s highs of 1.0931, taking off yesterday’s highs of 1.0836 which could be retested in the next few hours which have a 23.6% Fibonacci confluence. This level guards a deeper correction towards the 50% mean reversal zone which has a confluence with the London structure around 1.0730. In that move, the price will mitigate the price imbalances (gray areas) of the strong bullish momentum. On the other hand, 1.1050 and price imbalances may target the upside, completing a 61.8% Fibonacci retracement on the daily chart after the 50% mean reversal:
Source: Fx Street
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