GBP Sees Major Price Correction Following Governments U-Turn

It’s not everyday you see a government give in to criticism, but yesterday was one of those rare and embarrassing moments for the UK government. The UK has partially U-turned on the “rescue package” which was made public last week. The price of the GBP/USD has now almost formed a full price correction.

The US Dollar Index has also declined for a fifth consecutive day and is now trading at 111.34 which is 0.36% lower than the daily price open. However, traders should keep in mind that the price will be influenced by the upcoming Non-Farm Payroll (NFP) and next week’s inflation figure.

Crude oil also continues to increase in value as we approach tomorrow’s OPEC meeting. The expectation is still that the group will decide to cut production by up to 1 million barrels. According to sources, OPEC is aiming at stabilizing the price between $85 and $90. However, economists have advised that this is only possible if the economy does not fall into a major global recession, specifically in China and the US.

GBP/USD

GBP/USD has formed its sixth consecutive day of price increases. The price has climbed by 6.5% since 27th September, which has taken the price closer to the “support flipped to resistance” level. This can form a key breakout or resistance level. Traders are monitoring this strongly. Currently, the Moving Average Crossovers are indicating a potential further bullish price movement.

GBP/USD 2-hour chart on October 4th

The GBP is mainly supported by the government’s decision to partially cancel the “rescue” package which was negatively received by both investors and citizens. Despite the fact that, according to officials, the project is designed to stimulate economic growth in a crisis, it caused a negative market reaction and a serious weakening of the national currency. It should be noted that the fiscal change will remain in place except the decrease in the higher rate tax band, which will remain at 45%.

The pair’s price movement, of course, will also strongly depend on the US Dollar which has also been declining against most currencies. The ISM Manufacturing PMI unexpectedly declined to 50.9 from 52.8. A number above 50.0 still indicates growth but many investors fear that a lower manufacturing PMI can push inflation higher and pressure the employment sector.

Nonetheless, the Federal Reserve members still remain hawkish and have not given any indication of a softer policy. Of course, a major factor will be next week’s CPI figure. Unless the CPI figure is significantly below 0.0%, the Fed is expected to remain hawkish.

Today investors will mainly be concentrating on price action, a speech by FOMC’s Ms Mester, and the JOLTS Job Opening Figure.

NASDAQ

There were both positive and negative aspects to NASDAQ’s price action. Yes, the price had increased by 2.90% which is considered a positive increase, but the price did open on a noticeable negative price gap. This morning, the price has increased higher during the futures market, but still remains lower than previous wave highs.

NASDAQ 1-hour chart on October 4th

The price is taking advantage of the weakening US Dollar which is positive for the US stock market. This is something which investors will monitor alongside the next inflation figures. If inflation continues to increase and triggers a restrictive monetary policy it can result in potential large declines in the stock market. The CPI figure on the 13th can be a major game changer.

The largest decline within NASDAQ was seen with Tesla, which dropped by 8.61% ($22.85). The decline was triggered by the car manufacturer delivering fewer than expected cars and confirming “logistic problems”. The highest price increase was seen by Regeneron Pharmaceuticals Inc which increased by 6.72% and MercadoLibre Inc. which increased by 6.59%.

Quick Summary:

• GBP/USD close to forming a full price correction after UK government U-turns.
• Crude Oil prices continue to increase ahead of potential OPEC cuts.
• USD and US Stock market prices will largely depend on next week’s CPI figure.
• NASDAQ increases in value but remains lower than previous price waves.
• Tesla saw the largest decline amongst NASDAQ components.