FOREX

Curtains close on Theresa May’s act

Summary:  FX markets were as dull as dirt until UK politics livened things up and Theresa May joined a somewhat crowded club of British prime ministers who resigned instead of losing their jobs in a general election.


Traders don’t know what it means for sterling. GBPUSD has traded erratically in a 1.2648-1.2715 range since the announcement, and it is still far closer to the bottom of the month of May’s range than it is to the top, and the outlook is bearish while prices are below 1.2745.

The US dollar is inching lower against the G10 major currencies as 1330 GMT, and if the trend continues today, it will close the week on a negative note, except against GBP. So far, USDJPY has been the biggest loser, which is due to a mix of safe-haven demand for yen and soft Treasury yields.

The weaker than expected US Durable Goods Orders data encouraged US dollar selling as it suggests next week’s US GDP result may be more fragile than forecast. Today’s report is clear evidence of the impact the China/US trade war is having on the American economy.

Wall Street opened with a bounce, recovering over half of yesterday’s losses. The day is still young; however, the weak Durable Goods data supports predictions that the Fed may need to cut rates, and that is underpinning prices.

It will be a short week for American traders and a long few weeks ahead for UK politics. The US is closed Monday for Memorial Day, suggesting a slow start but a busy end thanks to major US data Thursday and month-end portfolio rebalancing flows Friday.

The results of the European Parliament elections may give EURUSD headaches on Monday while US/China trade issue rhetoric keeps risk aversion sentiment alive. The Bank of Canada policy meeting is Wednesday, and it should be a non-event as improvements in Canadian data are offset by a deterioration in global risks. 
Chart: GBPUSD 5 minute around May’s resignation. Source: Saxo Bank
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