FTSE +40 points at 7490
DAX +7 points at 12720
CAC +9 points at 5273
Euro Stoxx +2 points at 3565
The result of the UK snap election has been dramatic for Theresa May, who was seeking a larger majority for Tories when she announced a snap general election in mid-April. May’s Conservatives obtained 306 seats, far behind the 326 seats necessary for majority. The Labour Party displayed a surprisingly solid performance with 258 seats.
Not only the UK citizens refused to further back up Theresa May’s Party, but the election results point at a hung Parliament, which will of course do all but smoothen the formal Brexit negotiations with the EU due to begin this month. Some already call for Theresa May’s resignation before or during the weekend.
The pound was again squeezed heavily. Cable plunged to 1.2695, as the EUR/GBP jumped to 0.8824. From a technical point of view, the GBP/USD held the ground above the critical 38.2% Fibonacci retracement on March – May rise, 1.2688, which still keeps the pair in the mid-term positive trend. On the topside, the minor 23.6% retracement level, at 1.2824, provided the first resistance. Political uncertainties could further weigh on the pound during weeks ahead.
All G10 majors weakened against the greenback, as the US 10-year yields climbed to 2.1937% after Theresa May’s unsuccessful election attempt remained nothing more than a UK domestic story.
Money flew out of risk haven assets; gold (-0.21%) and yen (-0.11%) softened against the US dollar. Nikkei gained 0.39%, as the USD/JPY traded above the 110.00 level.
FTSE futures (+0.24%) strengthened on the back of a weakened pound. The FTSE rolling index traded shortly at 7380p before bouncing back to the pre-election levels (7467p at the time of writing). The FTSE 100 is set for a flat-to-positive open in London.
Gold eased to $1’273 as the stronger US yields counterweighed the risk-off trades. The yellow metal is considered in a mid-term bullish zone above the $1’265, the major 38.2% retracement on May – June rise.
The EUR/USD retreated to 1.1179 as the European Central Bank (ECB) lowered its inflation forecasts at its monetary policy meeting yesterday. Once again, the ECB stayed clear of the Quantitative Easing (QE) taper discussions. President Mario Draghi’s silence on the QE taper, combined to weaker inflation forecasts, revived expectations that the ECB will delay the QE exit to the end of 2017 the earliest, versus September seen as consensus previously.
In China, the cpi rose to 1.5% year-on-year in May, from 1.2% printed a month earlier. The producer prices eased to 5.5% year-on-year from 6.4%, versus 5.7% expected by analysts.
The AUD/USD saw support above the 200-day moving average, 0.7518. The US dollar appetite into the Federal Reserve’s (Fed) June meeting, should determine the short-term direction in the Aussie. Waning Fed expectations beyond the hypothetical June hike could revive the carry appetite. Resistance is eyed at 0.7588 (major 61.8% retracement on March – May fall).
Quick glance at technicals on LCG Trader:
EURGBP intraday: upside prevails. Long positions above 0.8715 (pivot) with targets at 0.88.25 & 0.8850 in extension. Below 0.8715, downside potential to 0.8675 & 0.8640.
USDJPY intraday: upside prevails. Long positions above 109.65 pivot) with targets at 110.40 & 110.80 in extension. Below 109.65, downside potential to 109.35 & 109.15.
Cocoa (ICE US) (N7) intraday: bullish above 1951. Long positions above 1951 (pivot) with targets at 2000 & 2033 in extension. Below 1951, downside potential to 1927 & 1904.