Sterling delays the inevitable

It’s easy to predict things will have to get a lot worse before they return to any semblance of ‘better’.

On Thursday though, having been positioning for a grand finale of the latest episode in Britain’s political epic, the main question for traders was whether a sense of anti-climax is the bigger risk. Any remaining doubts that May has accepted her political demise was erased with the revelation that a debate of the new, improved, withdrawal agreement initially planned for in the first week of June, was absent from the list of items to Parliament will cover that week.

Yet having ground to a fresh four-month low of £1.2605 at the European open, the pound rose for four hours, last standing at £1.2637. Admittedly, the perception of an imminent change at the top alone might be what’s lightening sentiment a bit after rapid-fire events of late. The pound, still the best reflector of how markets perceive Britain’s economic prospects, destroyed most consensus ranges laid down since August. In other words, regardless of any marginal lift on Thursday morning, traders have priced serious economic consequences back in for May’s probable exit.

That said, there’s still a for now enough of a distance between current prices and 2^nd January ‘spike low’ at $1.2373 to keep the biggest bears in check, even if an almost 3% slump this month shows there has been little reason for the bulls to charge either. A continuing barrage of weighty headlines will keep any buyers on their toes. The final destruction of sterling’s promising range so far this year, like Theresa May’s departure, looks like a matter of ‘when’, not ‘if’.

Other key headlines on Thursday

The government has said it still hopes to put the withdrawal agreement to a vote in the first week of June
EU election results will be out on Sunday night; they’re expected to show the Tories getting less than 10% of the vote
The Telegraph has called for May to step down, citing a “national emergency”
A hard-line Eurosceptic Conservative replacement for Theresa May is widely expected by the press

Chart thoughts

All eyes down, with the year’s $1.2373 spike low magnetic
It was only in the middle of this month that sterling selling became orderly enough to form a declining channel, but some corroboration for the tendency to sell rallies came after the failure to break above the upper line on Tuesday. A $1.2812 high was marked
A day later, the pound also notched a lower higher on soft side of the $1.27 handle, at $1.2694, the minimal resistance to beat

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.