It’s not been a great night for the pound or the pollsters as against most expectations the Conservatives failed to win an overall majority in an election they were widely expected to stroll.
With Brexit talks due to start in a few days’ time there is now some doubt about the Prime Minister’s future, but also the strength of the UK’s negotiating position with respect to the Brexit talks. The admission by Brexit secretary David Davis that the loss of the Conservative majority would mean that the mandate to leave the single market and customs union has gone, throws into doubt whether Brexit will now happen at all.
The uncertainty that this new situation has now created doesn’t look as if it will spill over too much into the equity markets when European markets open later this morning, with the FTSE100 set to open higher, though the FTSE250 might lag behind, due to the uncertainty created by this new political environment. This could change further depending on the makeup of any new minority government.
On the data front attention will turn to the latest industrial and manufacturing production numbers for April which are expected to show a significant improvement on the weak numbers in March. Gains of 0.7% and 0.8% respectively are expected to show that after a weak Q1 that this part of the UK economy is starting to pick up the pace, along with the rest of Europe.
The trade balance for April is also expected to show a deficit of -£3.5bn an improvement of -£4.9bn on the March numbers.
Overnight in the US the Dow hit more record highs after testimony from ex FBI director Comey, which, while it may have made uncomfortable hearing for the US President, there didn’t appear to be any smoking gun.
EURUSD – the November highs at 1.1300 remain within reach, with broader resistance at 1.1370. The current up move continues to remain stretched, which risks a pullback to 1.1170, and possibly even down as far as the 1.1020 area.
GBPUSD – the pound has slipped back sharply, below still finding support at higher levels with the key resistance at the recent highs at 1.3040 area. We need to see a consolidated move through 1.3050 which has the potential to target the 1.3320 area. Only a move below 1.2750 argues potentially back towards the 1.2600 area.
EURGBP – rebounding from the 0.8650 level the slide in the pound has seen the euro push back above the 0.8720 area and towards the highest levels this year, above the 0.8800 level. Pullbacks are likely to find support at the 0.8720 area.
USDJPY – the rebound from 109.10 has seen the US dollar pull back to the 200 day MA at 110.40. The downside towards the April lows at 108.00 remains open while below this level. We need a break back above the 110.40 level to stabilise and reopen a move back to 111.60.
