When David Davis walked the plank from PM May’s cabinet yesterday it may not have been seen as cause for concern. BoJo’s cannon ball off the ship however, caused far larger ripples that threaten to turn into waves and consume the UK government and totally sink the ship. The pound had slowly gained momentum through yesterday morning following the Brexit secretary’s departure, the market’s stance was that it would favour a softer Brexit and thus better for GBP. Boris Johnson’s decision to leave has given rise to greater concern. The threat of an all our revolt and potential leadership challenge which threatens to derail negotiations was on people’s minds and GBP sold off over 1% through yesterday afternoon. The rapid sell off once again highlighting the pounds fragility to Brexit, and its exposure to soft/hard exit news. GBPUSD had traded up as high as 1.3363 yesterday and dropped sub 1.3200 by the close of the European markets. EURGBP was sitting just above .8800 before shooting back above .8900 on sterling weakness. The pound has since recovered as it would appear for now may will not face a confidence vote but you can be sure that there’s action in the background and we wouldn’t be surprised to see additional turmoil for the UK government in the coming weeks.
It wasn’t just the pound facing selling yesterday, in fact the euro was under pressure earlier in the day as comments coming from ECB’s President Mario Draghi were taken as being on the dovish side. Recent ECB rhetoric, certainly from its President anyway, has been on the cautious to dovish side and this hasn’t changed at all. Draghi still saying the ECB need to remain cautious and he’s see’s rates being kept at current levels until at least the end of summer 2019. Eurozone ZEW confidence data headlines this morning’s European calendar and signs of fading confidence could well see euro facing marginal selling, however it’s unlikely to see a total shift in the single currencies outlook. The big failure ahead of 1.1800 yesterday was interesting technically, 1.1720/1.1730 area holds as light support for now, a break below there favours a drop back towards 1.1650 area.
Plenty of UK data on the cards shortly, Trade balance, industrial production, manufacturing production, index of services data and a new monthly GDP estimate. All have the ability to move the pound and given the uptick in data through Q2 we may well see GBP face some slight support but in the bigger picture of things UK data will continue to play second fiddle to Brexit news and overall GBP pairs hold within ranges albeit at the weaker end of GBP. EURGBP will still find some support above .8800 which should hold for now, a break below that level opens up .8780 and .8730 below that offering firmer support. Any rally towards .8900 has found sellers since the beginning of July, we’d expect this to continue. Not too much action stateside today, 1.3365/55 offering resistance to topside moves and 1.3200 area providing support.