The British pound clearly lost all its advantage gained after the bulls recovered the support at 1.2000. Things are not great right now, but we will talk about it below.
First, I would like to mention today's speech by Bank of England Governor Andrew Bailey, who told lawmakers that the UK government's plans to revise the insurance capital rules increase the annual bankruptcy risk in the life insurance sector by about 20%.
According to the BoE governor, the likelihood of a failure will rise to 0.6% from 0.5% if the government's plans to overhaul Solvency II rules are implemented. This was stated in a letter sent by Bailey to the Treasury Committee. The letter also noted that if the Bank's preferred set of reforms were adopted under the criteria proposed by the BoE, less than half of the expected failures would occur.
The BoE has long opposed sweeping changes to Solvency II and even argued that it should, on the contrary, be tightened in some areas. The government's proposed reforms, unveiled in November, contradict the advice by not tightening certain risk measures but, on the contrary, weakening them.
The changes are part of the government's plans to support Britain's flagship financial industry. Chancellor of the Exchequer Jeremy Hunt outlined about 30 reforms in December aimed at boosting the growth of banks, insurance companies and asset managers.
It is unlikely that such changes affected the prospects of the British pound, because today it will focus on Federal Reserve Chairman Jerome Powell and his statements in the U.S. Senate. An aggressive presentation of his future policy and a categorical rejection of any changes in monetary easing can surely weaken the demand for risky assets, including the British pound, which will bring down the GBPUSD pair in the short term.
As for the technical picture of GBPUSD, the bulls don't really have much to worry about. Bulls need to stay above 1.2010 to regain control of the situation. However, only the breakdown of 1.2060 can strengthen hopes of pushing the pair to 1.2090 then it will be possible to speak about a sharper breakthrough of the pound, to the area of 1.2140. If bears take away control of 1.2010, a breakdown of this range will strike a blow to the bulls' positions and will push GBPUSD back to the low of 1.1960 with the prospect of going to 1.1920.
As for the technical picture of EURUSD, there is still demand for the euro. The bulls have a chance to build a new uptrend. To do this, they need to stay above 1.0660 and go beyond 1.0690. From this level, it is easy to climb up to 1.0730, with the prospect of updating to 1.0770. In case it falls around 1.0660, I expect big bulls to be active. If there is no one there, it would be a good idea to wait for the pair to hit the 1.0630 low before opening long positions.