Morning call: Sterling firmer as dollar eases, OPEC and trade in focus

"Sterling remains well supported against the dollar following yesterday's Bank of England decision, which seemed to put an August hike back on the table. Whether it happens or not, for the moment this has put a floor under the cable. Haldane's hawkish turn may be about auditioning for the governor's job, but it certainly has the market considering the possibility of an Aug hike.

The dollar has faded off its highs with the dollar index now retreating back towards the 94 level. Yesterday's Philly Fed manufacturing index, which hit a one-and-a-half year low, was a good reason for dollar longs to get out. That arguably leaves a bit of room for fresh dollar longs and we await today's flash PMI data from the Eurozone this morning as a potential driver. The PMIs have been slipping all year and after a soft Q1 the second quarter could be even softer, further complicating the picture for the ECB.

Trade wars continue to weigh – US indices were lower yesterday as the Dow notched an eighth straight loss. Tellingly, the Nasdaq also suffered. Asian stocks overnight skidded to 6-month lows. The Philly Fed survey showed a drop in new orders and this has investors arguably starting to see some evidence that trade concerns is seeping into confidence and activity already.  European tariffs on US imports come into effect today and the pressure does seem to be building on equities now. The Dow's beating back down has it close to its key support on the 200-day moving average - another weak session today could see this breached. 

OPEC is the big focus for oil/energy markets of course, with the usual conflicting reports, rumours and mis-information fuelling some volatility in crude etc. After a consensus seemed to have been built, Iran is now once again opposed to any production uplift - though this is liable to change at any moment. But trying to cut through all the noise, it looks as if some kind of production hike is likely, but it should be fairly limited in order to avoid a price shock. If Iran decides to hold out, Saudi Arabia and Russia can go it alone, and in any event, they are really the only producers who can quickly ramp up output.  A split would however be damaging and leave the market wondering whether OPEC quite has the control over output that it says it does. The bizarre thing is that members have greatly exceeded the cuts they were required to make so it won't take much of a compromise for production levels to rise again.We also note that Saudi Arabia has been increasing production already.

On the charts, yesterday's GBPUSD candle is a bullish outside day reversal and this suggests a move higher from here with bulls looking at the 23% retracement of the mover lower off the April highs at 1.34, before the Jun 7th high looks to be a big test at 1.3470. There is also a bullish signal coming from the daily slow stochastics. EURUSD tested support at 1.1510 again and has bounced off that level to trade up above 1.16 and is finding bid this morning. Gold seems to have rejected a low of 1260 and is climbing a bit this morning. This rejection could foster some bid back up 1280 region again."