Cable Shows Resilience Outside Of Heavy USD Tone

Another day, another central bank decision (2 in fact with the SNB) and another surprise result as the BoE’s MPC voted 5 to 3 to keep rates unchanged. 2 more members of the committee joined the outgoing Forbes in calling for a rate hike despite the soft run of data against rising inflation, which is clearly unnerving the policy makers despite their reported tolerance for an overshoot due to exchange rate factors. In light of the data releases this week, all and sundry were surprised by today’s revelation, with the election result alone cause to keep the accommodative stance in place, in spite of assurances that politics is not a major factor in determining appropriate measures.

Through the week, we have seen a resilience in cable outside of the heavy USD tone, which has now been tamed as the major counterparts concede ground. That said, the mid to low 1.2600’s look to be drawing in some decent demand, and we put this down to the mindset leaning towards a softer Brexit given Theresa May’s reduced mandate. The PM continues to battle for a hard stance, but her chancellor is reportedly pushing for a softer approach, so the tables have turned somewhat. The talks are still scheduled for Monday, so along with today’s hawkish outcome, the upside remains under pressure though the mid 1.2700’s look to be serving as base-camp for now.

EUR/GBP is also treading with heavy feet, and we are now looking a little vulnerable here, with the initial support ahead of 0.8700 now in sight. Below here, we look to the 0.8625-30 area, and with EUR/USD now below the 1.1150 mark, it all depends on the strong demand in the spot rate in front of 1.1100. Looking to Friday’s session, we have the final reading of the EU wide CPI numbers for May, and in the current environment, the timing of any revision lower could see EUR/USD calls for a return to the 1.0900-1.10000 zone.

Ahead of this, we have the final central bank meeting of the week, and we do not feel we are tempting fate when we say the BoJ announcement will offer no surprises, with QQE and yield control set to remain unchanged despite reduced bond buying garnering some attention this week. This was said to be down to the Fed rate path, which has been somewhat enhanced by last night’s FOMC decisions.

USD/JPY continues to push higher under the radar and in an orderly manner. Pre 111.00 is where we expect the first instance of selling interest to stall gains, beyond which the next figure level at 112.00 has proven to be a strong cap.

US data later in the day is limited to housing starts and building permits, but along with today’s capacity utilisation and production stats falling short of expectations, there is little to derail the USD recovery under way.

Gains vs the AUD, NZD and CAD in clear evidence, but less so in the former after the healthy jobs report overnight saw a risk of 42k in May. That said, through 0.7600 we have come up against some resistance ahead of 0.7650, but this is partly down to the USD aspect as we see AUD/NZD sitting above 1.0500 for now.

Cross rate gains are as much to do with the miss in Q1 GDP in NZ as anything else, contributing to the pullback in NZD/USD from 0.7320 highs to 0.7186 today. We felt the NZD rally on the back of the healthy government finances and economic outlook thereon was a little overstretched on its own merits, but given the other side of the equation has also been bolstered, we could see 0.7100 before more 2 way trade emerges. AUD/NZD through 1.0500 still faces some near term resistance ahead of 1.0600, but a strong end to the week will reinforce the weekly rising base line we highlighted either side of last weekend.