FTSE -20 points at 7127
DAX +15 points at 12015
CAC -2 points at 4988
Euro Stoxx -1 points at 3408
The pound spiked to 1.2905 against the US dollar after UK Prime Minister Theresa May called for a snap General Election on June 8th. The election call was a pure surprise for both the MPs and the markets. The Parliament will vote today; 2/3 majority is needed to approve the election and May is not expected to encountering resistance.
It is said that through an early election, Theresa May seeks to counter opposition that makes ‘harder for her negotiating with Europe.’ She is expected to win the election.
Markets have welcomed the snap election and bought the sterling on expectations that the GE could give Theresa May a mandate for a ‘softer’ Brexit, by helping her to encounter the hardest ‘Brexiteers’. As Tuesday’s rally sent the GBP/USD to the overbought market (RSI (72%), we could expect correction and consolidation before a renewed attempt to the 1.30 mark. The support to the positive trend is eyed at 1.2717 (minor 23.6% retracement on March – April rise), 1.2600 (major 38.2% retrace).
Likewise, the EUR/GBP tanked to 0.8312, the lowest since December 2016. Combined to rising tensions pre-French election, the pair could extend to 0.8232 (major 61.8% retracement on post-Brexit rise) before considering a further slide to the 0.8000 mark. The 50-day moving average is about to cross below the 100-day moving average, which should give an additional technical justification to the bearish trend. Resistance is eyed at 0.8570 (100-day moving average).
The FTSE 100 recorded the biggest one day slump since the Brexit referendum. The key mid-term support to the post-Brexit/Trump rally is eyed at 7038p (minor 23.6% retracement since June 23rd 2016). The MACD index (Moving Average Converge Divergence) turned negative for the first time since December. A pound recovery above the 1.30 mark against the US dollar and the euro pullback below the 0.80 level should further dent the appetite in the FTSE, which has benefited from the cheap pound since many months. The FTSE is expected to open softer in London.
European stock are set for a mixed open. Automakers are expected to see some demand at the open, on news that car sales in Europe rose by 11% to record in March.
In the US, the Federal Reserve’s (Fed) George said that there could be a ‘tradeoff between shrinking the portfolio and hiking rates’, bringing us back to the idea that the Fed could slightly step on the brake for rate normalization, to avoid a sharp tightening in the US monetary conditions, especially given that the US Secretary of Treasury Mnuchin warned that Donald Trump’s ‘phenomenal’ fiscal plans could be ‘unrealistic’.
The US dollar retreated against all of its G10 counterparts in Asia. The US 10-year yields tanked below 1.17%, the lowest levels since November US election. The probability of a June Fed rate hike plunged to 43.7%.
Gold rebounded from $1278.87 on Tuesday and consolidated gains between $1286 and $1291. Trend and momentum indicators remain comfortably positive for a further recovery to $1300 and $1315 (minor 76.4% retracement on July – December 2016 decline). Dip-buyers are touted at $1278 (major 61.8% retrace) and $1272 (minor 23.6% retracement on March – April rise).
The aggressive USD sell-off sent the EUR/USD above the 1.0700. The pair rallied on stops before topping pre-1.0740. Traders remain seller on rallies as position trimming is expected moving into the first round of the French election due on April 23rd. There is mixed option expiries at 1.0700 that could enhance the price volatility near this level.
Limited risk appetite kept the USD/JPY under pressure, despite softening US yields. The USD/JPY traded below 108.70 in Tokyo. Put options are waiting to be exercised at 108.20/108.00 today. Breaking the 108.00-support could pave the way toward 106.33 (minor 76.4% retracement on post-Trump rally) before the 105.00 mark.
Nikkei (+0.07%) and Topix (+0.10%) traded flat in Tokyo, outperforming their Chinese and Australian peers.
The Aussie remained offered as iron ore futures traded at the cheapest levels since November, bringing up worries on whether the Trump’s reflation rally is over. Even the softer US yields couldn’t revive the carry traders’ appetite. The AUD/USD could extend weakness past 0.7500, before 0.7454 (50% level on the reflation rise). Option barriers trail below 0.7575 at today’s expiry.
Quick glance at technicals on LCG Trader:
EUR/GBP intraday: under pressure. Short positions below 0.8395 (pivot) with targets at 0.8335 & 0.8310 in extension. Above 0.8395, upside potential to 0.8430 and 0.8460
EUR/JPY intraday: long positions above 116.00 (pivot) wit targets at 116.60 & 116.85 in extension. Below 116.00, downside potential to 115.70 and 115.45. RSI lacks downside momentum.
Crude oil intraday: downside prevails. Short positions below 52.70 (pivot) with targets at 51.91 & 51.70 in extension. Above 52.70, upside potential to 52.94 and 53.17.