GBP sell-off sends FTSE to 7545p

The result of the UK snap election has been dramatic for Theresa May, who was seeking a larger majority for Tories when she announced a snap general election in mid-April. May’s Conservatives obtained 306 seats, far behind the 326 seats necessary for majority. The Labour Party displayed a surprisingly solid performance with 258 seats.

Not only the UK citizens refused to further back up Theresa May’s Party, but the election results point at a hung Parliament, which will of course do all but smoothen the formal Brexit negotiations with the EU due to begin this month. Some already call for Theresa May’s resignation before or during the weekend, others believe that she may not last beyond two to three months.

The pound was again squeezed heavily. Cable plunged to 1.2636, as the EURGBP jumped to 0.8859. From a technical point of view, the GBPUSD broke below the critical 38.2% Fibonacci retracement on March – May rise, 1.2688, suggesting a mid-term bearish reversal. On the topside, the minor 23.6% retracement level, at 1.2824, provided the first resistance. Political uncertainties and dovish Bank of England (BoE) expectations could further weigh on the pound in the continuation of the post-election sell-off. The next important levels stand at 1.2578 (50% retracement) and 1.2515 (200-day moving average).

In  the medium term, the soft pound will certainly bring forward the concerns about rising inflation in the UK and cool down the BoE-doves. Therefore, we could expect a U-turn toward the $1.30 moving into the second half of 2017.

The FTSE 100 (+1.21%) strengthened on the back of a weakened pound. All sectors, except financials (-0.09%), opened upbeat. Industrials (+2.08%) and mining stocks (+1.81%) lead gains in London.

However, the political uncertainties are expected to weigh on investor sentiment once the pound related rally is exhausted. Big banks called for lower allocation in the UK stocks in the dirt of political visibility.

Money flows out of risk haven

All G10 majors weakened against the greenback, as the US 10-year yields climbed to 2.1937% after Theresa May’s unsuccessful election attempt remained nothing more than a UK domestic story.

Money flew out of risk haven assets; gold (-0.44%) and yen (-0.34%) softened against the US dollar. Nikkei gained 0.52% in Tokyo, as the USDJPY traded above the 110.00 level.

GOLD eased to $1’271 on stronger US yields. The yellow metal is considered in a mid-term bullish zone above the $1’265, the major 38.2% retracement on May – June rise.

Euro-bulls disappointed again

The EURUSD retreated to 1.1179 as the European Central Bank (ECB) lowered its inflation forecasts at its monetary policy meeting on Thursday.

Again, the ECB stayed clear of the Quantitative Easing (QE) taper discussions. President Mario Draghi’s silence on the QE taper, combined to weaker inflation forecasts, revived expectations that the ECB would delay the QE exit toward the end of 2017 the earliest, versus September seen as consensus previously.

The next EURUSD support is eyed at 1.1115 (minor 23.6% retracement on April – June rally) and the critical 1.1011 (major 38.2% retrace) which should distinguish between a consolidation in the mid-term bullish zone and a mid-term bearish reversal for a further slied below the 1.10 mark.

Chinese producer prices grew softer, AUD undecided

In China, the consumer inflation rose to 1.5% year-on-year in May, from 1.2% printed a month earlier. The producer prices eased to 5.5% year-on-year from 6.4%, versus 5.7% expected by analysts.

The AUDUSD saw support above the 200-day moving average, 0.7518. The US dollar appetite into the Federal Reserve’s (Fed) June meeting, should determine the short-term direction in the Aussie. Waning Fed expectations beyond the hypothetical June hike could revive the carry appetite. The key resistance is eyed at 0.7588 (major 61.8% retracement on March – May fall).