GBPUSD, H1
Sterling has rallied on weekend polls showing PM Johnson’s Conservative Party having extended its lead in opinion polls. This strengthens the odds for the party to win the December-12 election and return to Parliament with a working majority, which in turn suggests that the Brexit deal on the table will be implemented in January, when the UK will then enter a transition phase through to the end of 2020. The Pound rose by over 0.56% in making a 17-day high versus the Dollar at 1.2960. The UK currency also posted a new five-month high against the Euro and breached 141.00 against the Yen for the first time since May. Politicos poll tracker now indicates the Conservatives with 41% support, up 2 points from Friday, with second-spot Labour some way behind with 29%.
The Euro lifted on the coattails of the Pound. EURUSD printed an 11-day peak at 1.1067, while EURJPY and EURCHF both posted six-day highs. Both the Dollar and the Yen, meanwhile, ebbed against most other currencies amid a risk-on backdrop. The three main US equity indices all scaled new record highs on Friday, and S&P 500 futures are showing a 0.2% gain in overnight trading. Most Asian markets have lifted. The PBoC surprised by trimming seven-day reverse repurchase agreements by 5 bp to 2.50%, while state media in China said over the weekend that it had “constructive talks” with the US on trade in a high-level phone call. This was a fresh indication that there is more momentum and serious intent than in previous rounds of talks. Highlights from the week ahead include the release of the Fed FOMC minutes (Wednesday), the first speech by new ECB president, Lagarde, on Friday, prelim November PMI data out of the Eurozone (Friday), and various trade reports out of Asia. We retain a bullish view on the Dollar, expecting both the Fed’s minutes and US data to overall maintain the view of the Fed being on hold now with the economy in a “good place.”
Technically, in the short term, Sterling has moved into the overbought zone today. Cable has RSI at 78 and short-term Stochastics over 80. However, the higher time frame (Daily) still suggests more upside with RSI at 65 and rising, the MFI at 68 and rising and the Stochastics at 69 and rising. Daily resistance for Cable comes at the psychological 1.3000 and the 2019 high at 1.3270. 24 days to Polling Day.
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Stuart Cowell
Head Market Analyst
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