It’s all about Sterling
With the conservatives eight seats short of forming a government, PM May has turned to the Democratic Unionist Party (DUP) for support in a bid to stay in power. Although Sterling could find itself buoyed in the short term if May secures a deal with the DUP, it may have little impact on the longer term bearish bias. Even if Conservatives are able to achieve the eight seats needed to pass laws in parliament, this is still a far cry from the strong and stable government which was promised in the election campaign.
Recent reports of the EU’s Chief Negotiator, Michel Barnier, and the UK’s Secretary of State for Exiting the European Union, David Davis, failing to reach an agreement on an official date for opening Brexit talks has fanned fears of complications in the early stages of the negotiations. With political instability in Westminster potentially complicating and adding more pressure to Brexit talks, which already has a tight deadline, the UK remains in a vulnerable position. With negotiation dates now up in the air and the UK government desperately attempting to stabilise, it will be interesting to see how the EU reacts.
the UK’s consumer-driven economic growth.
The bearish price action on Sterling since the election outcome last week suggests that those who were passionately bullish on the currency could be having second thoughts. With Theresa May’s gamble to strengthen her hand ahead of the Brexit negotiations backfiring and sparking chaos in Westminster, the Pound remains vulnerable to further downside.
From a technical standpoint, the GBPUSD is heavily bearish on daily charts. Previous support around 1.2775 could transform into a dynamic resistance that encourages a decline towards 1.2600. regarding future monetary policy and interest rate hike timings may pressure the US Dollar further. From a technical standpoint, the Dollar Index remains pressured on the daily charts. A break below 97.00 should encourage a further depreciation towards 96.50.
Oil prices were slightly supported on Tuesday after Saudi Arabia stated that it would make export cuts in July in an effort to tighten oil markets. While short term bulls may benefit from the speculative boosts in prices caused by Saudi Arabia’s statement, this does not change the longer term bearish dynamics. With oversupply concerns a key theme, and there still being a risk of US shale production sabotaging OPEC’s efforts to rebalance the oil markets, sentiment towards the commodity remains bearish. Technical traders may see the price fail to stabilise above $46, with repeated weakness below opening a path to $45.