Pound recovers with new PM in focus; Stocks little changed

Summary:

• Pound bounce from early weakness; voting closes for next UK PM

• EURGBP prints weekly reversal signal? 

• US and European indices mixed

• Trump and US-China trade talks make the news

The pound has gotten off on the back foot at the start of the new week with the currency sliding across the board as politics continue to weigh on sentiment. Sir Alan Duncan, the foreign office minister has stepped down and there could well be more to come as it seems opponents of Boris Johnson are quite literally resigning themselves to the fact that he is set to become the next PM. 

The deadline for voting amongst Conservative members is 5PM this afternoon with the result expected tomorrow. It would come as a huge surprise for the markets if Boris Johnson isn’t the winner of the contest and while his more hardline approach to Brexit is seen as less constructive for the pound, there’s already been quite a lot of bad news baked in. 

EURGBP is on its longest winning streak ever with 11 consecutive weekly gains. However, there has been some signs that momentum could be on the wane, with longer wicks above recent candles and the last complete weekly one printing a shooting star.

With Fed speakers now in the media black out period before next week’s rate decision there should be less focus on this for the coming sessions although Donald Trump has once more attacked the central bank for their policies. A series of 3 tweets from the US president posted around lunchtime followed a common theme with Trump again calling for deeper rate cuts as the markets have moved away from an expected 50 bps cut following the clarification to Williams’ speech last week. 

The beginning of the new trading week has been quite mild with major indices trading pretty flat despite quite notable losses seen in Asia - the Shanghai Composite has dipped 1.3% while the Hang Seng has fallen 1.1% so far today (both market have yet to close). However, looking ahead one may be almost sure that this week is going to be turbulent for stocks, bonds and currencies alike given what we have in the economic calendar. As far as Europen stock markets are concerned there is no doubt that the ECB may significantly affect them even as it is poised to hold rates unchanged. 

The S&P500 (US500 on xStation) moved up to its highest level of the day not long after the opening bell, as news hit the wires that US trade negotiators are likely to visit China next week for the first face-to-face talks since the G20 meeting in Osaka. The representatives led by Robert Lighthizer and Treasury Secretary Steve Mnuchin are expected to travel and this seems like a constructive development in the ongoing trade war between the world’s 2 largest economies.   

The S&P500 has moved below the Ichimoku cloud on the H4 timeframe in what could be seen as a sign that the intermediate trend has turned lower. Lows around 2974 could be seen as possible support and below that the gap higher from 2943 remains unfilled.