10 Sep

The Week Ahead – UK Household Spending Vulnerable To Tax Raise

September 10, 2021

By Orbex

GBP

GBPUSD hit by fiscal pressure

GBPUSD

The sterling slowly recovers after the UK government’s decision to raise taxes.

Britain’s budget deficit has hit a peacetime high due to pandemic-related spending. Prime Minister Boris Johnson announced a 12 billion-pound annual increase to plug the hole.

The markets are concerned that the tax burden could hinder consumer spending, slowing down a fragile recovery in the process. Fiscal tightening may also front-run the BOE’s wish to tie up loose ends on its own, much to the pound’s expense.

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1.4250 is a major hurdle ahead. A failure to lift offers may send the price to revisit the double bottom at 1.3600.

USDCAD rallies on cautious BOC

USDCAD

The Canadian dollar drifted lower after the Bank of Canada hit the pause button on tapering. Economists anticipated this move, especially after growth contracted in Q2. The central bank stayed cautiously optimistic in its forward guidance.

Despite uncertainty over the covid situation and federal elections, analysts expect the economy to strengthen in the second half of 2021. This in turn would warrant further monetary tightening.

An upbeat inflation reading this week would encourage another trim in the QE program in October and boost the loonie’s appeal.

The US dollar is climbing towards 1.2950. 1.2500 is the key support should the loonie bounce back.

NAS 100 steadies on vaccination push

US100

The Nasdaq 100 held onto its all-time high as President Joe Biden laid out stricter measures to revamp the vaccination campaign.

In an effort to lift the US out of the pandemic spiral, the administration mandates widespread tests and inoculations. The aggressive move arrives in a timely manner amid growing concerns over a slowdown in the recovery.

As corporate America starts to return to the office, investors would expect gradual normalization without any hiccups.

Overall sentiment remains positive despite short-term jitters. The index is heading to the milestone at 16000. 15100 is the first support in case of a pullback.

UKOIL supported by Ida disruptions

UKOIL

Brent crude rallies on supply constraint in the Gulf of Mexico.

Hurricane Ida has knocked out almost 80% of US offshore production. With outages expected to last for weeks, crude prices may have found an effective floor.

The EIA’s report of a slight dip in US inventories could support price action. However, the uncertainty for demand lingers.

While a rebound in China’s exports in August may offer some support, Saudi Arabia’s latest move to cut the price for Asia is a reminder that this is still a buyer’s market. 64.60 is a critical support in a correction and a break above 76.00 may resume the rally.

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