Sterling can get its Johnson on for a spell

A small window of certainty for sterling

As the curtains, finally, come down on one political episode, and sterling markets gird for the next cliff hanger, one thing at least quite certain. The pound is, paradoxically, due a short break against most currencies. And one of the clearest reversals around the corner looks to be against the euro.

The Westminster outlook has seldom had so many moving parts, with a long weekend news vacuum for the press to thoroughly masticate them. By Sunday, the Conservative Party will have hard evidence of how far to the right its ‘base’ has swung, when results of the European elections come through. All indications point to a drubbing for the Tories; and to an extent, Labour too. The most important takeaway form the perspective of the political outlook is how much the result increases the momentum of Boris Johnson’s leadership bid. Sterling has been quite agnostic to the person per se, just hyper-sensitive to the possibility that he might be the one to pull the no-deal trigger. Hence the irony of Johnson helping the euro achieve, with a well-timed speech, what appears to be a record fifteen-consecutive rising days against the pound. (Though it looks set to miss making 15-straight higher daily closes.)

After the weekend, there will actually be another ‘gap’, which is likely to be filled with further feverish speculation. Theresa May’s formal resignation is set for 10^th June. With the high chance that she will be succeeded by a right-leaning Eurosceptic, that would also require a Chancellor of the Exchequer of a similar colour. In turn, that possible new chief finance minister will oversee another critical succession, that of the Governorship of the Bank of England. However he or she conducts the recruitment process, they’ll be lucky to avoid sterling volatility. So net-net, sterling will continue to have few friends in high places for many months to come.

At the same time, all economic drum beats continue to pound the same message about Eurozone growth. If, as seems possible, signs that oil demand has reached a peak are corroborated, energy prices will be removed from an already anaemic euro-inflation equation. Sterling’s challenges are considerable. But for now, the long-term underlying economic picture for Britain’s main trading partner is far worse. The euro therefore stands to lose at least some of its stellar run against the pound fairly quickly.

Chart thoughts

Top-of-the-range significations are key. The long ascent has skidded into the region between two failure highs—88.62 and 88.40. Both protect the 86.76 pivot whose import is currently being flashed by confluence with the 200-day moving average and roughly 50% of the recent advance. The real prize lies beneath at swing lows between 84.72 and 85.03.

Chart: EUR/GBP – daily

Source: Tradingview/City Index

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.