Cable eyes 1.2800, EUR/GBP through 0.8400

A major turnaround as UK’s PM May calls for snap election (08 June). GBP shorts turned sharply as Cable eyes 1.2800. EUR/GBP through 0.8400. USD fading away across the board however; even the risk-heavy EUR higher on the day. CAD and AUD the exception.

Tuesday’s session was ignited by the surprise announcement from UK’s PM Theresa May that she will seek an early election, set for 8 June this year.  Early speculation (of this) was accompanied by some suggesting she may have opted to step down (on health concerns), but the former was confirmed as the government looks to take advantage of opposition disarray to solidify her mandate in parliament going into the Brexit negotiations.  Given the likelihood of attaining a stronger majority, GBP eventually ripped higher, with the Cable rate tearing through key trend line resistance at 1.2640 or so.  Heading into the London close, the move into the mid 1.2700’s puts the key 1.2800 level (initial Brexit low breached in the aftermath of the PM interview in October last year) in focus.

EUR/GBP has been pushed down through 0.8400 accordingly, with traders taking advantage of the pressure on the EUR due to (French) election risk ahead.  This does not seem to be impacting too significantly on EUR/USD or EUR/JPY, with the former benefiting from the USD fade in recent sessions.  EUR/JPY has held above 116.00 for most of the session, but GBP/JPY has been the big mover as we eye a move on 139.00 higher up, a day after we dipped below 136.00.

From a USD perspective, last Friday’s soft inflation and retail sales numbers have been instrumental in the near-term demise, with president Trump’s comments that the greenback is ‘getting too strong’ also adding weight. To this end, USD/JPY is struggling to find its footing, with USD/CHF also now under parity has been break the recent lows above 1.0000.  More recently, the Empire State manufacturing index fell sharply on Monday, while today’s housing starts have fallen more than expected with manufacturing production also soft.  USD bulls are heading for the exit door as US yields eye fresh lows for the year.

In the commodity currencies, the AUD has been knocked off its perch on the back of the dovish RBA minutes released overnight, but largely through the crosses.  That said, momentum on the downside slowed later in the day as focus has been on the GBP turnaround gathering pace.

NZD/USD has benefited from the pullback in AUD/NZD, which is now eyeing a move on 1.0700.  Today’s Global Dairy Auctions saw a 3.5% rise in WMP with the index up 3.1%.  Not too much reaction in NZD despite this falling short of the expectations reflected in the futures market (showing up 5-6% this morning).

The CAD is suffering again on what is a very modest dip in Oil prices, and going against the grain of near term USD weakness, sellers ahead of 1.3400 will likely assert their authority.