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June 2016

Sterling strong as Remain camp shows gains in polls

Published: Tuesday 21 June 2016

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  • Sterling strong as Remain camp shows gains in polls
  • RBA see low inflation but good growth

The big business drive for the 'Remain' vote is in full swing and it is hard to work out whether George Soros is involved in a long Sterling or short Sterling trade and whether his warning of Armageddon. If Britain votes to leave the EU is a bluff or a double bluff, I don't think it has much to do with his concerns over the welfare of the UK economy.
 
Sterling has held on to its gains overnight as the 'Remain' vote appears to be in the ascendance, with bookies taking the lead in the polling. However, be careful because the charts showed a gap in most GBP based exchange rates between the Friday closing price and the Monday opening price. From a technical perspective, gaps are almost always filled. I.e. the market will trade back to a level that covers the whole space between that close and open gap. When those gaps will close is never certain but in a market where history regularly repeats itself, I wouldn't bet against that happening.
 
There is a world outside the Brexit vote though. A world away, the Reserve Bank of Australia meeting minutes showed their confidence in positive economic data whilst also showing they see inflation staying low for now. Inflation and wage growth are both dire but employment levels and the level of economic activity are both at acceptable levels, so the RBA has a tough job to balance all of that whilst trying not to strengthen the AUD and damage export opportunities. The GBP-AUD exchange rate stayed at the A$1.96 high we saw on Monday. There is a gap in that chart though and a dip to A$1.94 wouldn't be any kind of surprise. 
 
Today brings UK government borrowing data which could be quite positive for the Pound. We also get a testimony to the Senate Banking Panel by Federal Reserve Chairwoman, Janet Yellen. Her views on the timing and necessity of US interest rate hikes will be very keenly watched. Meanwhile, the US Dollar is range trading on most fronts.
 
We are expecting poor ZEW economic expectations indices from Germany this morning, so the Euro may come under pressure but that may be overshadowed by the 'B' word.
 
I think the text I received this morning is perhaps taking things too far. It read 'Seems they arrested the only sane man at the Trump rally'. That's harsh! However, I was struck by the fact that there were metal detectors screening everyone who attended the rally. It seems the 'right to bear arms' does not extend to rallies where Mr Trump might be in danger. If guns are so safe, why is that a problem Mr Trump?
 

Benny

 
A tourist accidentally drives his car into a deep ditch on the side of a country road. Luckily a farmer came by in a cart with his big old Clydesdale named Benny. The man asked for help. The farmer said Benny could pull his car out without a problem. So he unhitched the cart and backed Benny up before hitching him to the car's towing hook.  He got back to the long reigns before yelling “Pull, Nellie, pull.” Benny didn't move. Then he yelled, “Come on, pull Ranger.” Still, Benny didn't move. Then he yelled really loud, “Now pull, Major, pull hard, go on big fella.” Benny just stood. Then the farmer nonchalantly said, “Okay, Benny, pull.” Benny pulled the car out of the ditch with consummate ease. The man was very appreciative but curious. He asked the farmer why he called his horse by the wrong name three times. The farmer said, “Oh, Benny is my favourite old boy but he's blind. If he thought he was the only one pulling he wouldn't even bother.” 
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Public sector net borrowing 6.6B 9.5B
EUR 10:00 German ZEW economic sentiment 6.4 5.1
EUR 10:00 ZEW economic sentiment 16.8 15.3
EUR 14:00 ECB President Draghi speaks    
USD 15:00 FED Chair Yellen testifies    

FX Research by David Johnson
Daily Currency Analysis with Joe De Berniere

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