Market suddenly directionless

It was all going so well.

It is entirely appropriate that the FX market has reacted in such a subdued manner following the horrific events on Monday night in Manchester. Recriminations, apportioning of blame and support for victims are the overriding sentiments and they are as far removed from the currency market as it is possible to be.

Sterling has paused in the middle of its recent range having risen by 4% following the announcement of the June 8th election. With little in the way of new influences a period of consolidation and correction is likely.

It has been unable to remain above the 1.3000 level although this was a psychologically important level rather than anything more technical.

The serious support comes in at 1.2920. Looking back to its last rise to these levels, in September last year, the market showed a similar consolidative phase as it is now.

The “Brexit fall” from 1.5020 to 1.3120 in a single month will still attract an attempt at a reversal but it will take an unprecedented event like the Brexit shock for that to be achieved.

Central Bank Meetings to determine direction

Although we will still have the “cappuccino froth” of the U.S. Employment report next week, the main events in the coming weeks are the Central Bank meetings in the U.K., U.S., and Eurozone, together with General Elections in the U.K. and France.

A total 25bp hike is all we can hope for!

As a prelude to the FOMC meeting to be held on June 14/15, today’s release of minutes from the meeting held on April 26/27 are now a little superfluous. It will be interesting to see how the conversation around a rate hike ebbed and flowed but in the past month the dynamic of the major economic influence has changed out of all recognition.

It remains to be seen if President Trump can mend the bridges he has destroyed between him and the legislature to be able to pass the reforms and policies he has promised.

Sterling facing Headwinds.

Once the election is out of the way, attention will turn to Brexit. The stance of the U.K. Government will have been determined but the mandate it receives from the people. More fundamental to the performance of the pound is economic activity and the consumer and whether he/she decides to buy that new car/pair of shoes/holiday.

So far, portents of gloom have been exaggerated and the longer the consumer is happy to continue spending in this economy, the less likely they are to stop.

Inflation is rising, of that there is no doubt, but it is the driver of inflation that is in question. The effect of the fall in Sterling on factory gate prices has been clear for all to see, but that effect is now waning and yet inflation has risen from 2.3% in March to 2.7% in April.

Hovering around 1.3000, Sterling is now in a corrective phase. It is hard to see where the next positive driver will emerge from but equally, there are several supports that should be firm enough to withstand all but the most concerted of selling