Intraday Market Thoughts

Cable Calamity Continues

by Adam Button
May 2, 2018 0:02

Sterling took another beating on Tuesday after the UK manufacturing PMI. The US dollar was the top performer once again while cable fell more than 1%. The US dollar is suddenly knocking down some major technical levels. A new USD trade has been posted to Premium clients. The member video is posted below, highlighting the rationale for existing and potential trade.

It was all about the 200-day moving average on Tuesday. EUR/USD, gold and the dollar index all fell below the key marker while cable neared it. It's part of the rapid reversal in the US dollar of the past two weeks. Disappointing US manufacturing ISM went unnoticed and so did conerns about the US expansion being in a late cycle.

The combination of higher Treasury yields and jitters about global growth started a trickle into the dollar that's grown into a flood as USD-shorts squeezed as the Fed remains hawkish while other global central bankers waiver.

The BoE will now almost-certainly blink at the May 10 meeting. The probability of a hike has fallen to 16% from 96% two week ago. Cable has fallen 800 pips in that time starting with some less hawkish hints from Carney and followed by a series of poor data releases and Brexit woes. The latest was a drop in the UK manufacturing PMI to a 17-month low on Tuesday. Cable fell more than a full-cent on the day and came within a half-cent of the 200-dma.

It was a cascade of US dollar technical victories to start the month. The euro fell below 1.20 for the first time since January 10, albeit on a day with large parts of Europe on holiday. AUD/USD broke the December low to the worst since June in a move that was helped by an altogether dovish stance from the RBA.

Going ahead, the question is whether this was a blow off move or a continuation? The dollar has three tailwinds at the moment, depending on what comes next in markets. If jitters continue, it benefits from a save-haven bid, especially from emerging markets. If Treasury yields rise, it benefits from rate differentials. And if the momentum continues, it can benefit from a continued short squeeze.

Act Exp Prev GMT
PMI Manufacturing
53.9 54.8 54.9 May 01 8:30
Construction PMI
50.5 47.0 May 02 8:30
Final Manufacturing PMI [F]
56.5 56.5 56.5 May 01 13:45
ISM Manufacturing PMI
57.3 58.4 59.3 May 01 14:00
Eurozone Final PMI Manufacturing [F]
56.0 56.0 May 02 8:00

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