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The British pound flew higher today following the latest poll on voting intentions for the UK referendum on EU membership.

With just over a month to go the latest ORB poll for The Telegraph puts Remain on 55 per cent and Leave trailing on 42 per cent among people who definitely intend to vote. This gives the Remain campaign a 13-point lead over the Leavers.

As the graphic below from NatCen Social Research shows in their poll of polls, the momentum is with the Remainers (please note – this doesn’t include today’s poll result).
 
PM Bulletin

Investors piled back into sterling. A vote to remain preserves the status quo and removes the uncertainty that a leave vote would bring.

PM Bulletin

This is an updated version of the GBPUSD chart I highlighted back on 17th May. What has happened since then is that cable has rallied up to, and then pulled back from, resistance around 1.4640. This level marks the 0.38 Fib retracement of the sell-off from June 2015 to February 2016 and the 0.24 retracement of the bigger July 2014- February 2016 sell-off. Today’s bounce has taken the GBPUSD back up towards this resistance level once again.

If we look at the chart for the EURGBP we can see that today’s sell-off (euro down; sterling up) means that there’s been a break below the head and shoulders neckline which comes in around 0.7700/20

PM Bulletin

The question now is can sterling rally further from here, particularly if the polls continue to predict a significant win for David Cameron’s “Remainers”? Chart-wise, it does look as if the EURGBP could have further to fall. However, it has to be remembered that this pair is effectively a cross-rate. That is, it is a function of price movements in the EURUSD and GBPUSD. So, the first level to watch will be the 1.4640 resistance level in cable. A break above here opens up the prospect of a move towards 1.4880/1.4900. However, this would take cable back up to levels last seen in mid-December which is around the time that the threat of a Brexit began to get priced into the pair. This may be too much of a move so far ahead of the referendum. Looking at the EURUSD – this broke below 1.1200 earlier today opening up the possibility of further euro weakness. This in turn would put pressure on EURGBP.

But the leader of the pack is the US dollar. The greenback has been on a bit of a tear since last week’s outbreak of hawkishness from the US Federal Reserve. Every Fed member who has expressed an opinion since has toed the party line. That is, they’ve kept live the possibility of a summer rate hike. This should keep a bid under the dollar for now, making it more likely that cable will range-trade rather than break out. We may get some volatility this week on the back of US Durable Goods and updates for US and UK first quarter GDP. But investors could be unwilling to stick their necks out too far until they’ve heard from Janet Yellen on Friday evening.


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Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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