FX Commentary – Sterling Plunged On Huge Government Borrowing

Market Talk
– Sterling tumbled as much as 4.9% to a record trough of 1.0327 before stabilizing around $1.0540, 2.9% below the previous session’s close on Monday as traders scampered for the exits on speculation the new government’s economic plan will stretch Britain’s finances to the limit.

– It dropped 3.6% on Friday, when British finance minister Kwasi Kwarteng laid out a plan of historic tax cuts paid for by huge increases in borrowing, which sent British government bonds into freefall and the pound sharply lower.

– The euro also touched a fresh 20-year trough at 0.9528 to the dollar on Monday Asian trade on simmering recession fears, as the energy crisis extends toward winter amid an escalation in the Ukraine war. A weekend election in Italy was also set to propel a right-wing alliance to a clear majority in parliament weighing on the Euro.

– The greenback added 0.39% to 143.95 yen, continuing its climb back toward Thursday’s 24-year peak of 145.90. It tumbled to 140.31 on Friday after Japan conducted yen-buying intervention for the first time since 1998. On Monday, Japanese Finance Minister Shunichi Suzuki repeated that authorities stood ready to respond to speculative moves in currency.

– Gold prices retreated further on Monday reaching as low as $1626.35 as the dollar index notched a new 20-year high amid growing fears of rising interest rates from a hawkish Federal Reserve and a potential economic recession.

Chart Focus XAG/USD – Silver

Key Points

1. Sell Silver recommendation.

2. Sell Silver at $18.65 Stop at 18.90 and profit target at 18.00

3. A hawkish Federal Reserve and a potential economic recession are both weighing on Silver.

4. A Double Top chat pattern and bearish MACD are both hinting at a price decline.

Fundamental Comments

1. A hawkish Federal Reserve bent on hiking interest rates is likely to weigh on Silver.

2. A potential economic recession in Europe and US is likely to weigh on Silver demand.

Technical Comments

1. Price broke below the neckline of a Double Top chart pattern, hinting at a likely price decline.

2. MACD remains bearish and is hinting at a bearish price trend.

Key Levels


Technical Overview

USD/JPY – Price reached a high of 145.90 on Friday before BOJ intervention sent it down to 140.35. Price has recovered to 144.18 at the point of this writing. Stochastic is rising, MACD is moving up and 20EMA is also hinting at a price rally. All three indicators are hinting at a price rally. We are likely to see price test the 145.00 level again but fear of another intervention is likely to cap price around the previous high.


EUR/USD – Price declined to a low of 0.9525 early this morning. This is also the Fibonacci 261.8% price projection from the decline of 1.0197 to the low at 0.9944. It is possible the decline has reached its target. Stochastic is in the oversold zone. However, 20EMA is pointing down with a steep slope hinting at a strong bearish price trend. MACD is also hinting at a strong bearish price trend.


GBP/USD – Price had declined on Friday as a result on fear of high debt from UK latest budget as well as rising UK interest rate. The decline continues this morning to reach a low of 1.0322. Stochastic is in the oversold zone and is hinting at a limited upside. MACD remains bearish while 20EMA is hinting at a strong bearish price trend. We see price being capped at 1.0840 and another decline in the next few days.


XAU/USD – Price reached a low of $1626.35 this morning and the low was accompanied by a divergence warning from the MACD indicator. Stochastic is also in the oversold zone and is hinting at a limited downside. 20EMA is also pointing down with a steep slope, hinting at a strong bearish price trend. We remain bearish as price will need to move above $1654 to regain its bullish impetus.


EUR/JPY – We had a sell call last Thursday at 142.95 but price rose to a high of 143.69 and our stop at 143.30 was triggered. Price has since decline to a low of 137.20 and we think price may have reached a bottom. MACD is starting to warn with a divergence. Stochastic is in the oversold zone but 20EMA is pointing lower with a steep slope hinting at a strong bearish price trend.


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