Cable printed a fresh one-week high at 1.3034, putting in some more space from the two-month low seen last Thursday at 1.2866. Sterling is also seeing some gains versus the Euro and Yen, among other currencies, recouping some recently lost ground, though the dominant dynamic is broad Dollar declines. Cable, for all the volatility in recent months, is near the midway point of a big 10-figure range that’s been unfolding since August last year.
The reprieve from Brexit anxieties continues, given the delay with a deadline of October 31, though there have been data and anecdotal evidence pointing to the detrimental impact on the UK economy, particularly in the business investment sphere. UK Prime Minister May is reportedly wanting talks with Labour on Brexit to conclude by the end of next week. It’s not clear if the two sides will be able to compromise.
Shifting political dynamics are afoot, and European parliament elections, due on May 23, have become a high profile political campaign in the UK between a remain-in-the-EU alliance versus the newly established Brexit Party, which will be a litmus test on current public support for Brexit.
The UK has April PMI survey data this week, with the manufacturing report being the first up, tomorrow. These follow weak readings in April, and will provide fresh indication of the extent that political uncertainty is having on the economy. Expectations are that the manufacturing PMI headline will come in at 53.0, down from 55.1 in March. There is downside risk to this release, as March activity had been boosted by significant stockpiling ahead of what was the March 29 Brexit deadline, before the extension had been agreed.
The 1.3030-60 area is a key zone for Cable to breach if it is to continue north. The 200-day exponential moving average at 1.3050 and the 20-day moving average at 1.3020 remain key levels. The psychological 1.3000 has proved troublesome for Sterling bulls as the Brexit uncertainty continues.
Head Market Analyst
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