England Down, Pound Up

England's World Cup hopes took a hit on the weekend but the pound opened within striking distance of 1.70. Last week the kiwi was the top performer while the euro languished. The week begins with UK house prices and an RBA speech.

The early focus on Monday will be cable as it edged about 6 pips higher to 1.6974 shortly after trading started for the week. Attempts to break the level failed on Friday and in May but unless the bears begin to mount a defense, a break is inevitable.

There is talk of an options-related barrier defense but Carney's comment about rate hikes coming sooner than markets expect that was delivered on Thursday is a game changer. The OIS market is pricing in a 50% chance of a hike before year end but that factor is liable to rise and take the pound along with it.

The focus will stay on the pound because at 2301 GMT, Rightmove releases its June house price index as UK officials zero in on housing. In May, prices were up 8.9% y/y.

Weekend news was limited but the focus remains on Iraq where rebels were halted and government forces mounted a pushback. That could cool oil prices in the early going but last week's breakout is a bullish signal.

Coming up later, at 0320 GMT, the RBA's Kent speaks in Sydney. Look for some anti-AUD jawboning but it's a longshot to have any effect. If anything, optimism about the economy is more likely to boost the aussie.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -57K vs -33K prior JPY -82K vs -74K prior GBP +36K vs +35K prior AUD +28K vs +22K prior CAD -24K vs -23K prior CHF +3K vs +2K prior NZD +17K vs +18K prior

The thrust higher in EUR/USD didn't spook the bears (nor us) and euro shorts continued to add to positions. More of a squeeze would have made us more comfortable holding shorts but the net short still isn't at an extreme.