Originally updated: 08:00
Trading Bias: neutral
Currency pair: –
Today we will be watching for movement in the GBP with the UK elections.
The two major parties (Conservatives and Labour) are neck and neck and it seems there will be no clear majority in parliament. This uncertainty may provide selling opportunities on the GBP. Movements in the pound are exceedingly difficult to predict lately and as such we will be watching from the sidelines until closer to the UK elections result. The bias is to the downside and should there be a hung parliament we would be looking to short GBP against JPY, CHF, AUD or CAD.
Yesterday’s session was relatively mixed. Further weakness was seen in the USD with the catalyst being a low ADP Non-Farm Employment change reading. EURUSD rallied over 150 pips in the North American session.
Today in the Asian session we had Australian employment figures where the rate came out as expected and the change was slightly below median estimates. This saw an immediate dip down in Aussie but was not enough to keep it pressured. It subsequently rallied 80 pips, with the prior reading being revised upward and against the backdrop of greenback weakness. A better than expected Services PMI number yesterday kept Cable well-buoyed. It further muddied any downward bias.
The USD remains the strongest currency in the longer term, but the medium-term direction depends on data. The larger than expected trade deficit has increased weak sentiment on the dollar. Friday’s NFP figure will provide direction in the USD should it be outside estimates. If the ADP NFP figure is any indication, then we may be looking at a lower reading. This will cause USD to sell off on speculation of later rate hikes.
The EUR remains fundamentally weak . The Greek debt issue, although seems to have taken a back seat, is ongoing. The Euro can easily get a boost on any new USD weakness, which has been witnessed lately.
GBP is proving resilient despite election uncertainty. Expect some volatility on GBP pairs and protect any trades with stops and smaller trade sizes if unsure. UK Elections are today and volatility may persist after the vote count.
AUD is neutral now that the rate cut has passed. In relative terms, Australia has a reasonably strong economy especially with excellent employment figures last month. The major drag on AU is very low commodity prices. The jobs figures today gave little in the way of insights into the health of the Australian economy.
NZ has a greater chance of easing monetary policy with a rate cut since the poor employment figures were released. We will watch data to indicate the chance of a cut in the near-term.
CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. Oil rallied again yesterday which gave CAD strength.
JPY remains weak but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is uncertainty in the markets; watch GBPJPY for the elections.
CHF is a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%. CHF may also strengthen on uncertainty and dollar weakness.
We await news flow to enter new positions using support and resistance levels as a guide.
Other Market Moving News:
Apart from the huge event of UK elections, we have a light European session.
The North American session has CAD Building Permits which is not expected to have a huge impact. However, it may produce a trade if there is a deviation in the same direction as the price of WTI. At the same time we have the weekly USD Unemployment Claims. This could precipitate another dollar sell-off if the data comes in much worse.
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