EU Election Results Hold Few Surprises

As the markets digest the results of the pan European elections there’s been little reaction thus far to what was, after all and in truth, not much in the way of surprises across the continent.  The outcomes in Italy and France and in the UK for that matter were not exactly unexpected either given the backdrop in all three countries.

As far as the UK is concerned, the pound has so far barely moved after the the Brexit party stole the show. Naturally, such an outcome was pretty much baked into the price anyway. Perhaps more important to the currency now is the outcome of the soon to commence Tory leadership race and also the new composition of the EU commission. The latter being a key factor in determining whether or not further negotiation of the existing withdrawal agreement might be possible.

Consequently, the pound although steady at the moment, is not by any stretch out of the woods, and in any case, will most likely continue to be the main focus for the currency markets in the weeks ahead, as indeed has been the case all this year.

In respect of the GBPEUR, the price has continued to hold onto the 1.1300 support level I mentioned last week, rebounding from a low of 1.1299 on Friday. However, the rebound to around 1.1375 yesterday is hardly a resounding one thus far and the price is drifting back to around 1.1335 as I write this morning.

The GBPUSD price action since last week shows a pretty similar pattern too, with yet not much appetite for the upside either. Naturally, that’s hardly surprising seeing as the future is no more certain than it was ahead of the weekend and until it becomes so, then any rebounds in the currency will most likely be hard fought.

As far as I am concerned, and it doesn’t matter which side of the fence one sits, parliament must respect the will of the people and not continue to defy it, by questioning the judgement of such.  I say this with complete ambivalence and with no bias to any particular event or outcome either because right now I care much less about that than I do about the principle which is at stake.

The technically weak close for the dollar index last week which I commented on previously, has ensured that the EURUSD once again treads water as the new week gets underway. Granted, it did creep up to as high as 1.1215 yesterday, but once again the price action is tediously slow. Possibly there is enough lingering doubt following the EU election results in France and Italy in particular to stunt thatrise anyway as the price drifts back towards 1.1175 this morning. Beyond that though, I see no evidence yet that the usual suspects have been deterred in their determination to soak up downside EUR flow.

Meanwhile, equity markets generally speaking are tracking sideways as they await fresh news on the US/China trade front.

Personally speaking, I am somewhat baffled that many seem to think this is all still in the negotiation stage, where thefacts would suggest to me that the chances of any ‘agreement’ have clearly been overtaken by further ‘dispute’.

Despite being a shortened week there are some important releases due out in the coming days. The highlight of those is probably the latest Chinese manufacturing index, due in the early hours of Friday morning. The markets will be watching closely to see if this fell back below 50 again in May, remembering that any reading below that level signifiescontinued output contraction.

Beyond that, the other headline event is the latest monetary policy decision from the Bank of Canada at 3pm on Wednesday. Currently the BOC are expected to keep their benchmark rate of 1.75% unchanged, so any shift will definitely move the CAD. Personally, I have no expectation here, but as usual I will also be live to any accompanying BOC statement and how they might square the current global trade outlook with continued domestic outperformance.

The markets will also be keeping a keen eye on the latest US GDP data to see if there is any significant revision to growth in Q1 when that is revealed on Thursday. Ahead of that this morning, the markets are generally pretty quiet, with oil prices nudging higher and German bunds yields falling again.

I’ve previously outlined where I think that demand is coming from so I won’t repeat that again here. All I can say is that this, whilst perhaps a little unusual, still appears to have nothing to do with capital flight and much more to do with capital flow.

Important Economic Releases Due This Week

28/05- 3.00pm-US May Consumer Confidence Index

29/05- 3.00pm-Bank of Canada Monetary Policy Decision

(Consensus forecast-no change in current 1.75% benchmark)

30/05- 1.30pm-US Revision to Q1 GDP Estimate

30/05- 1.30pm- US Q1 PCE

31/05- 2.00am – China May Manufacturing PMI Index

31/05- 1.30pm- Canada Q1 GDP Estimate

31/05- 1.30pm- US April Annualized PCE Estimate

31/05- 2.45pm- US Chicago May PMI index

31/05- 3.00pm- US University of Michigan Consumer Sentiment Index