The Latest Two UK Polls Tilts to Brexit; Pound Plunges

The currency markets have been mixed on Tuesday ahead of the non-farm payrolls report on Friday. The U.S. personal spending rose more than expected in April while the consumer confidence plunged below market’s estimate and last month’s figure.Euro area remained in deflation and high unemployment while in UK, the sterling declined as the latest polls have been reversed, in favour of Brexit.

U.S. dollar has been choppy on mixed data
The U.S. dollar has been in a choppy session on Tuesday with significant gains against the pound as there were not major surprises on the U.S. economic data released. The personal income confirmed analysts’ forecast of 0.4% in April while the personal spending rose by 1.0% versus 0.1% the month before and 0.7% expected recording its biggest jump since August 2009. The consumer confidence for May fell short of forecasts and declined further to 92.6 from last month’s figure of 94.7, while the market expected an increase up to 96.0. The single-family home prices rose more than expected in March, with the Case-Shiller index climbing by 5.4%, beating the 5.2% estimate. Overall, the dollar ended May 2.96% higher against the basket of majors according to the U.S. dollar index.

Euro Area Remains in Deflation with High Youth Unemployment
The euro has experienced a range bounded session and was virtually unchanged against most of the G10 currencies. Eurozone’s unemployment rate remained at 10.2% for the second consecutive month, as expected, while the youth unemployment continues to be the headache of the 19-nation union. The youth jobless claims dropped to 21.2% from 21.6% in February but stills very high which means many people under-25s out of work across the region.

The inflation rate across the Euro area remained in the negative territory at -0.1% yoy in May from -0.2% before while the consumer prices remained compared to the month before remained unchanged. The core inflation rate improved to 0.8% from 0.7% before.

EUR/USD – Technical Outlook
The EUR/USD pair has been choppy the last few days as it remains above the significant zone of 1.1060 – 1.1100, which coincides with the 200-SMA and the ascending trend line which started back in December 2015. Therefore, it leaves the outlook unchanged for now ahead of tomorrow’s ECB policy meeting. Technical indicators remain bearish since the MACD is moving in a negative territory and the RSI crossed below 50, suggesting a risk of a downward movement. Additionally, the 50-SMA is heading lower and aims to meet the 200-SMA. Technically, the 115 point range on the week leaves the outlook pretty much unchanged although the 4-hour chart does suggest that further losses could be in store. The pair has so far fallen to meet the aforementioned obstacles and if it does head lower, then below the significant zone of 1.1060 – 1.1100 would open the way towards 1.0960 and then to 1.0820, although probably not today, considering that some traders would wait for the reaction after the ECB meeting to take action.

Pound plunged on Brexit polls Reversal
The British pound plunged against the G10 basket on Tuesday as the support of Brexit voters appears to be increasing after two polls. The referendum is almost three weeks ahead and after the Brexit campaigns took place the two last polls carried out showed a 52-48 leave – remain result while the previous poll on last Wednesday showed a 50-50 result.

GBP/USD – Technical Outlook
The GBP/USD pair surged up to 1.4700 this Monday, its highest in three weeks, but reversed course during yesterday’s session, as a Brexit poll showed the "leave" vote ahead, three weeks to go before the referendum. The pair continues to lack directional strength and consolidating near its recent lows, at 1.4350. Moving forward, downward pressure may eventually return, following the aggressive sell-off after the failed attempt above the 1.4750, a strong technical and psychological level over the short and the medium terms. The key to watch today will be the 50-SMA, slightly above the 1.4350 barrier, which includes the ascending trend line which started back in mid-February. So, a break of these obstacles would strongly suggest there’s been a change of bias in the markets. On the upside, the 1.4750 will remain a strong obstacle for the bulls and it will need a lot of effort from the bulls to go above there.

EUR/GBP – Technical Outlook
The EUR/GBP pair fell down to 0.7550 at the beginning of the day, but quickly recovered ground and surged more than 100 pips over intraday basis. The pair presents a modest upward potential in the short-term, however, considering that the EU referendum is due in three weeks and ahead of tomorrow’s ECB economic policy meeting and the U.S. Non-farm payrolls on the dock for later this week, we should be more cautious than usual. There is no change to current neutral view despite the strong recovery yesterday.

What to watch today
Wednesday is a Markit day. The Markit manufacturing PMIs for Eurozone, Germany, UK, France and U.S. will be released. In Germany and Eurozone as a whole, the expansion of the manufacturing sector is expected to remain stable at 52.4 and 51.5 respectively in May, as the month before. In UK, the sector will expand more by 49.8 versus 49.2 before.

In U.S., the ADP survey showed shows the pace of hiring in the private sector is forecasted to jump at 180K versus 156K in April. On Friday’s speech, Fed Chair Janet Yellen said that a rate hike is probably appropriate in the “coming months” and as we know that Fed’s moves are heavily data dependent, the employment report will be released on Friday, as well as the ADP survey, which is a small forecast for the non-farm payrolls report, will be closely watched.

Meanwhile, the Institute for Supply Management (ISM) is expected to show that the national factory activity index fell to 50.6 in May from 50.8 in April. The construction spending is expected to have increased by 0.5% in April from an increase of 0.3% the month before. In the evening, the U.S. Federal Reserve will publish its latest Beige Book, a summary of conditions across the 12 Federal Districts. In New Zealand, the Fonterra dairy auction will take place.