The Pound drops more than 150 pips on the back of Boris Johnson's resignation as Foreign minister; the former pro-Brexit cabinet member joins David Davis in leaving Theresa May's administration. Political uncertainty in Britain forces investors to reduce their exposure to the UK currency worried that the British PM might not survive this crisis. On the flip side, the Euro receives bullish stimulus from Mario Draghi helping it to withstand the pressure from the recovering Dollar. Equities remain positive with traders setting their sights on the US earnings' season to provide fresh momentum to the upside.
The resignation of Boris Johnson is yet another blow on Theresa May's survival odds as Prime Minister following the departure of two cabinet members over the weekend. Cable broke its uptrend to decline as low as 1.32 yesterday and even though it bounced higher overnight the risk of further losses is still on the table. The Industrial and Manufacturing Production data pending for release today along with the monthly GDP estimate are unlikely to help the Pound change trajectory - a break below 1.32 will clear the path towards 1.31 unless PM May can find a way to change the narrative which seems difficult at this point.
The Euro is also in the red since yesterday as the Dollar was able to mount a small recovery. Having said that, fresh remarks from ECB President Mario Draghi helped the shared currency limit its losses and the uptrend still remains in place. The ECB President said that inflation is now on a self-sustained course to the upside and that the Eurozone should be in place to handle a reduction of fiscal stimulus - ECB's QE program - even with the threat of a trade war.
The Euro is trading just above the 1.1740 intra-day support and today's price action will also hinge on the way the ZEW Survey will print. Expectations are set for a softer reading so it will be crucial to see whether the prospect of a global trade war dampens sentiment. A surprise to the upside should help the Euro trend towards the 1.18 once again while a bearish reading will expose the 1.1680 area.
Commodities' price action diverged yesterday with Gold and Oil on different paths. The yellow metal attempted to break higher printing an $1,265 high but Dollar's recovery quickly cancelled the move and drove Gold $10 lower at $1,255 this morning. Now the focus is on the $1,251 support as a break below this will clear the path towards the $1,240 lows. Oil is again trading around the $74.50 level suggesting that the support behind it is still strong; the chances of a move towards $77 remain in place but for that to happen we will first need a clear break above $75 per barrel.
Equities enjoyed a positive day yesterday and the Asian markets are reflecting this upbeat sentiment this morning. The European and US futures are also pointing towards a bullish opening bell and the question now becomes whether this rally can be sustained. With the prospect of a positive earnings' season ahead of us, investors seem to have forgotten the threat of further trade tensions so we remain optimistic for the short-term in equities. Dow Jones hit our first area of interest at the 24,800 points' level and we could now see an extension towards 25,000 points again.
MARKET EVENTS TO WATCH
- UK Manufacturing/Industrial Production - 12.30pm
- German ZEW Survey - 1pm
All times are GMT +4.