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MARKET DEVELOPMENT – GBP PLUNGES AS RESIGNATIONS SPARK LEADERSHIP CHALLENGE FEARS

GBP: Brexit turmoil has seen the Pound plunge over 1.5%, hitting lows of 1.2750. Much of the losses had stemmed from the announcement by Former Brexit Minister Raab that he would step down. Since then, several ministers have also handed in their resignation as Theresa May fails to unit her party over her Brexit plans. Consequently, PM May looks set to face a leadership contest with ministers beginning to submit their letters of no-confidence, most notably from key Brexiteer, Jacob Rees Mogg. Given the Brexit turbulence, money markets have priced out a BoE rate hike for 2019, while the FTSE 100 has erased its morning gains and looking to test the 7000 level.

How Does a No-Confidence Vote Work

USD: The US Dollar is marginally higher this morning, yielding support from the Federal Reserve’s balance sheet unwind. Typically, this has boosted the USD, while risk assets have dropped amid the net negative impact on USD liquidity. Elsewhere, on the data front, US retail sales had been relatively mixed with the headline figure printing above analyst estimates, however, matched with a downgraded revision to the prior months figure..

Crude Oil: Brent and WTI crude oil continues to trade at elevated levels. However, with yesterday’s API report producing another build, oil glut worries may begin to weigh on prices. If the EIA inventory data confirms an increase in stockpiles. This will represent an 8th weekly consecutive build, which in turn may limit the upside in prices. Elsewhere, in response to OPEC sources suggesting they are looking at a 1.4mbpd cut, Russia have stated that they will not be looking at joining OPEC in reducing production. This in turn may reduce the influence than an OPEC production cut would have given Russia’s dominance in the oil market.

GBP Drops as Brexit Turmoil Sparks Leadership Challenge Fears - US Market Open

DailyFX Economic Calendar: Thursday, November 15, 2018 – North American Releases

GBP Drops as Brexit Turmoil Sparks Leadership Challenge Fears - US Market Open

DailyFX Webinar Calendar: Thursday, November 15, 2018

GBP Drops as Brexit Turmoil Sparks Leadership Challenge Fears - US Market Open

IG Client Positioning GBPUSD Chart of the Day

GBP Drops as Brexit Turmoil Sparks Leadership Challenge Fears - US Market Open

GBPUSD: Data shows 68.1% of traders are net-long with the ratio of traders long to short at 2.13 to 1. In fact, traders have remained net-long since Sep 20 when GBPUSD traded near 1.30463; price has moved 1.8% lower since then. The number of traders net-long is 16.2% higher than yesterday and 27.5% higher from last week, while the number of traders net-short is 1.7% lower than yesterday and 11.0% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias.

Five Things Traders are Reading

  1. Bitcoin, Ethereum, Ripple Prices Continue to Collapse” by Nick Cawley, Market Analyst
  2. EURUSD Selling Likely Amid Fed Balance Sheet UnwindbyJustin McQueen, Market Analyst
  3. How Does a Leadership Challenge to a UK Prime Minister Work?by Justin McQueen, Market Analyst
  4. Brexit Latest: Sterling Slumps as Brexit Minister Resigns, PM Leadership in Doubt” by Nick Cawley, Market Analyst
  5. London’s FTSE 100 Index Loses Early Gains Despite GBP Plunge” by Martin Essex, MSTA , Analyst and Editor

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX