No significant move expected today unless G7 speaks up.

Fundamental

The week’s main fundamental drivers have played out leaving both GBP and USD strong and consequently little price action is expected today.  The G7 is meeting in Japan but there are no scheduled releases: sideline interviews may help move the markets with comments suggesting global stability likely to help the dollar, as it would reinforce conditions required for a Fed rate hike sooner rather than later.

The strong pound rally during the week might slightly reverse as bulls take profit.

By way of recap:

Tuesday May 17: the UK missed its CPI forecast (0.3 vs 0.5) and US beat (0.4 vs 0.3)

Wednesday May 18: UK employment met expectations and FOMC released hawkish minutes.  Brexit poll data pointing towards a “Bremain” vote (55%) boosted GBP.

Thursday May 19: UK retail data beat expectations and the Phladelphia Fed Manufacturing Survey missed suggesting a slight contraction in the sector.

One learning point was that the pair is currently very sensitive to Brexit data.  Relatively small surveys with a “Bremain” forecast had the ability to shift the pair significantly, suggesting a Brexit risk discount still exists on the GBP.

As Brexit is gradually priced out, presumably news suggesting that Brexit is back on the cards will have a stronger bearish effect on the pair.  More surveys are to be released before the end of the month and some have previewed a brexit forecast.

Technical

With no major US or UK economic releases today the pair looks set to stay in its 1.45 support to 1.46 resistance range today (Chart A).  With the pair technically bullish, any dips into resistance can be seen as buying opportunities.  With the H4 stoch approaching oversold territory the pair will be positioned to rise in the early part of next week until the daily becomes overbought mid week at which point bears will have an opportunity to take control.

Chart A

Chart A

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