GBP/USD and a Look at $1.21 in the Hands of the Autumn Statement

It is a big day for the GBP/USD. The UK Chancellor of the Exchequer, Jeremy Hunt, will deliver the heavily anticipated Autumn Statement.

There has been plenty of hype surrounding the Autumn Statement. It will also be the first litmus test. Former Prime Minister Liz Truss and Chancellor Kwasi Kwarteng left UK politics in tatters after the release of the mini-budget.

Jeremy Hunt will look to plug the hole by delivering a combination of tax hikes and spending cuts. The UK Chancellor warned of ‘difficult announcements,’ with the UK electorate likely to feel the impact of today’s measures.

For the UK Government, there is the risk of lawmakers and the electorate likening the Autumn Statement to the 2010 austerity measures. Prime Minister Rishi Sunak will need to manage in-party fighting, with some Tory MPs against raising taxes.

Delivering a workable budget and reuniting the Tory Party are big asks, and the markets will react to today’s budget.

With the Bank of England forecasting a grim economic outlook and inflation at the highest level in 41 years, it could boil down to when the government introduces the measures. Softer-than-expected measures and a window to allow the UK economy to shoulder the worst of the economic slowdown would likely be GBP positive.

While the Autumn Statement is the main event, Bank of England Chief Economist Huw Pill will also speak today. This week, wage growth and inflation figures have placed more pressure on the Bank of England to take a more aggressive path to bring inflation to target. However, Pill will likely play second fiddle to Jeremy Hunt and the Tory Party.

GBP/USD Price Action

At the time of writing, the Pound was down 0.33% to $1.18732. A mixed start to the day saw the GBP/USD rise to an early high of $1.19205 before falling to a low of $1.18661.

Technical Indicators

The Pound needs to move through the $1.1895 pivot to target the First Major Resistance Level (R1) at $1.1959. Uncertainty over the Autumn Statement could test GBP/USD support ahead of the announcement.

In the case of an extended rally, the GBP/USD would likely take a run at the Second Major Resistance Level (R2) at $1.2006. The Third Major Resistance Level (R3) sits at $1.2117.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.1848 in play. However, barring a risk off-fueled sell-off, the Pound would likely avoid sub-$1.1750. The Second Major Support Level (S2) at $1.1784 should limit the downside.

The Third Major Support Level (S3) sits at $1.1673.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.16971. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.1848) would support a breakout from R1 ($1.1959) to target $1.20 and R2 ($1.2006). However, a fall through S1 ($1.1848) would bring S2 ($1.1784) and the 50-day EMA ($1.16971) into view. The 200-day EMA sits at $1.14871.

The US Session

It is a busy day ahead on the US economic calendar, with the weekly jobless claims and Philly Fed Manufacturing numbers due.

Barring an unexpected jump in jobless claims, the Philly Fed figures will likely have more influence. We expect the markets to look beyond the headline figure, with sub-components, including the Employment Index, to provide direction.

With the probability of a 75-basis point December rate hike sitting at 14.6% despite the upbeat consumption numbers, FOMC members will also need monitoring. FOMC members Bowman, Bullard, and Mester will speak later today.