Residents of the world’s largest onshore tax haven, or as it has been amusingly described by Ambrose Evans Pritchard, a rainy version of the Cayman Islands in the North Atlantic, are getting set for belt tightening as the government is chopping away at entitlement programs and getting rid of 500,000 public sector workers in the coming three years or so.
But the borrowing continues with record public deficits - in September alone the UK required more than £15bn to plug the gap between revenues and expenditures.
However, it is heartening to hear the political leaders talking about how "we’re all in this together", but as I commented on Twitter yesterday, there are quite a lot of MPs that will have to clean up their own tax avoidance (evasion) shenanigans before that slogan becomes too laughable.
Anyway, enough of politics and let’s take the higher ground - and in this case it looks almost certainly higher ground for $EURGBP as targets above 0.90 are now alive and well. On the contrary, it is lower ground for $GBPUSD with imminent targets in the $1.5640 region. But as FX traders can attest, sterling sometimes takes the long way home, and whipsaw behavior is to be expected as the whiz kids in the towers at Canary Wharf engage in their passion for "bouncy castles".
Click to enlarge charts
Continuing with the theme of both fibonacci retracements and Great Britain as it is sometimes referred to (especially by George W. Bush as I recall), the chart for EWU shows that the MSCI UK index also faces a challenge to remain above the 62% retracement level. It has been turned back already three times so far in 2010.
One of the more novel ways that the UK government may try to dig out from its mountain of debt is by selling off "bits" from the public sector in a 2010 version of Margaret Thatcher’s privatization. Going even further back into modern UK history, and with reminiscences of Edward Heath, three day weeks and power cuts, if the government does decide to "privatize" some bridges and other bits of infrastructure, serious thought should be given to a re-issue of the classic 1973 Genesis album Selling England by the Pound.