Signs of life in the Pound?

Summary:

• Pound set for weekly gains across the board

• EURGBP close to bearish engulfing on W1

• FTSE start delayed; Set for 3rd weekly loss in a row

Sterling is on course to post a solid week of gains as the pound has recovered from recent lows, aided by a series of better than expected economic releases in recent days. Consumer spending, inflation and wage growth all came in above forecasts in the past week and while the importance of economic data remains diminished in the face of ongoing political uncertainty it has no doubt contributed to recovery in the pound.

The pound is rising against all its peers on the week with the largest appreciation seen against the Polish Zloty and the Euro, with gains in excess of 2% seen against both. Source: xStation 

Sterling is set to chalk up gains against all its major peers with the largest rise seen against the Euro. Monday saw the EURGBP rate rise to its highest level since 2009, but the pair has embarked on a remarkable U-turn since and is set to end its weekly winning streak. This market has posted an unprecedented 14 consecutive weekly gains but is now set to break this run, with a bearish outside week on the cards.  

A potential bearish engulfing pattern is forming on EURGBP after an incredible run higher that has seen 14 consecutive weekly gains. Source: xStation

EUR/GBP at a turning point?

Looking first at the single currency, there’s been some weakness of late after ECB member Rehn stated the importance of outlining a “significant” and “impactful” stimulus package that overshoots market expectations at the next central bank meeting in September. It’s no secret that the ECB intend to ease policy once more, but these remarks suggest that they are ready to act imminently and in a decisive manner. As far as the pound is concerned talk of a “No Deal” pact between Labour and the Liberal Democrats could be seen as positive, but if truth be told this at present amounts to little more than political posturing. 

The more likely cause of the appreciation seen in sterling is a slight alleviation of the doom and gloom that has plagued the currency of late - not so much due to any real positive developments on this front but largely because of the absence of any further negative ones! There’s currently a lot of bad news “baked-in” to the pound and with net short positioning close to its highest level this decade, simply the absence of any further adverse developments could lead to a recovery off the recent lows.           

LSE open delayed

A trading issue meant that the London Stock Exchange (LSE) had to delay its opening with the market finally beginning more than an hour and a half after the scheduled start of 8AM. The glitch impacted stocks listed on the FTSE 100 and FTSE 250.  The only real difference with opening later is that those who wanted to execute on the open have been delayed. Given that most of Europe is trading higher, the market in London has begun brightly so those wanting to buy may be ruing having to pay a higher price for certain securities than if they were able to trade on the open. On the flip side those looking to sell may find prices are preferential to what they would've been at 8AM. On balance it's not really too big of an issue as it's been a fairly quiet start anyway. If the markets were heavily up or down then it would have caused a larger inconvenience. The biggest problem that it could present is reputational damage but unless there’s a repeat anytime soon this seems like a freak occurrence and is unlikely to have any lasting ramifications.   

The FTSE has moved back below the 200 day SMA in recent trade but has just about held key support in the region around 7025. Source: xStation