Sterling Sinks, Quadruple Witch Ahead

The pound remains the worst performing currency for the 2nd straight day after the Bank of England's decision to increase asset purchases came within expectations. Traders have not abandoned the idea of negative BoE rates once the govt assistance to furloughed workers ends in autumn -- assuming there is no destabilising Covid-19 2nd wave. The latest debt figures showing UK debt/GDP exceeding 100% of GDP for the 1st time since 1960s raises the question of who will absorb the UK govt's soaring borrowing.  EURGBP and GBPUSD are in flux. Canadian retail sales are up next. More importantly, it is quadruple witching hour today. A new Premium trade was issued on Thursday.

Ashraf touted selling GBP ahead of the Bank of England decision and that proved profitable with the UK currency sinking to its lowest levels since June 1. Cable breaks below the May trendline support, while EURGBP takes out the triangle resistance, nearing the final target from the Premium trade. 

The drop highlighted the importance of technicals in the market. There was nothing surprising or particularly negative for the pound from the BOE. On both the decision headlines and newswire comments from Bailey, the bulls tried to stage a reversal but were quickly swamped in both instances.

Bids at 1.2400 and 55-dam at 1.2413 finally halted a decline and those will be key levels to watch in the day ahead.  A break could open up a further quick fall to 1.2280.

The other side of the equation is the US dollar and it was broadly stronger on Thursday with commodity currencies and EM soft. That didn't spill over to equities but massive volumes of expiring options Friday could be holding stocks in place. Be cognizant that the latest equity rout was preceded by risk aversion in stocks and Treasury yields.

Quadruple Witching & gold

The quarterly expiration of index, options and futures expiration is due today, which is always a volatile session for US equity markets. US indices are all pointing higher, but it's crucial how we close the week. And take a look at XAUUSD, testing its trend line resistance. A break towards 1745 is in the cards. 

For Canada, the retail sales report is for April so it will be less insightful but Statistics Canada in selected releases has offered some insight into the month ahead, so that could be telling.

Aside from that, we continue to watch climbing state virus numbers. There wasn't a sharp acceleration in most metrics but California, Arizona, Florida all had record one-day increases in cases.