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End of Austerity After Brexit
Written by: PaxForex analytics dept - Tuesday, 30 October 2018 0 comments
The Chancellor of the Exchequer, Philip Hammond, never had an easy job from day one. Following the global financial crisis, the UK embarked on a path of austerity which squeezed the country as it tried to rebuild. Austerity measures remain in place, they are unpopular and are in the way of the UK economic expansion. After the Brexit vote, austerity became an even bigger burden. Now with the potential of a no deal Brexit and more economic uncertainty, all measures which may hinder the UK from reaching full economic potential must be removed.
Hammond delivered the UK budget yesterday. He caught a nice tailwind as the Office of Budget Responsibility (OBR) noted that the government will borrow less this year than previously expected. In addition the OBR announced the largest upward revision to economic growth in the past five years and referred to it as “the largest discretionary fiscal loosening at any fiscal event” over the past eight years. Hammond initially found out about the huge surplus on September 21st, one day after Prime Minister May was handed a bitter defeat by the EU during the Salzburg summit.
With the extra money Hammond decided to do what he can to appease voters and drum up support for the Conservative government. He decided to allocate the largest part of the windfall to the National Health Service (NHS) which will make a lot of voters happy. Leaving the EU was supposed to free up money in the budget and improve the NHS across the board. In addition he announced a tax cut for 32 million Britons as he increased the tax free allowance starting April 2019. This will leave more disposable cash in the pockets of consumers.
Hammond also announced that the UK will spend £420 million on infrastructure improvements and a one-time payment of £400 million to primary and secondary schools. Internet gaming operators will see an increase in their tax rate to 21% while a new digital tax was announced for services provided which is expected to increase revenues by £400 million. Hammond also set aside an extra £500 million for a no Brexit deal contingency plan while an increase in defense spending was also part of the budget. It appears that for now Hammond managed to make a wide range of individuals and groups happy with what appears to be an end to austerity after Brexit. There is no end in profits for your portfolio with these three forex trades.
The GBPUSD crashed into its horizontal resistance area, but recorded a higher low which resulted in the formation of a secondary ascending support level. This is now applying bullish pressures on price action which is expected to result in a short-covering rally. This currency
pair faces no obstacles for an advance back into its next horizontal resistance level which as been intersected to the upside by its primary ascending support level. Forex traders are recommended to buy the dips in the GBPUSD down to its secondary ascending support level.
A more advanced bullish British Pound trade can be found in the GBPZAR. Price action is currently trapped between its primary and secondary ascending support level which is likely to guide this currency pair to the upside. A breakout above its primary ascending support level is expected to gather enough bullish momentum for a second breakout above its primary descending resistance level from where the GBPZAR can advance into its next horizontal resistance area. Spreading buy orders between its primary and secondary ascending support level is favored from current levels.
The short-covering covering rally in the EURGBP has reached its secondary descending resistance level which is located beneath its horizontal resistance level. Price action is unlikely to push much higher from current levels given the continued release of bearish Eurozone data. A move back into its horizontal support area on the back of profit taking is favored from current levels. Forex traders are advised to sell the rallies in the EURGBP from current levels.