Sterling Recovers as Latest Poll Show Conservative Having 11 pt Lead

Sterling recovers mildly today as last Guardian/ICM poll showed that the Conservative is still having 11 pt lead over Labor ahead of Thursday’s election. The poll showed that 45% of respondent would vote for Conservatives, unchanged from last week. Meanwhile, 34% would vote for Labour, up 1% from last week. FTSE continues it’s negative correlation with Pound and trades mildly lower today, down -0.3% at the time of writing. Technically, 1.2925 minor resistance in GBP/USD and 0.8654 minor support in EUR/GBP will be watched for indication of strength in the Pound.

Looking at other poll results, according to a poll by Survation for The Mail on Sunday, support for Conservative dropped further to 40%, while that for Labour rose to 39%. That is, the Tories are only have a 1-point lead over Labour. On other hand other, a ComRes poll showed that support for Conservatives rose one to 47% and that for Labour also rose one 35%. In that case, Tories still maintained a 12-point lead. In the middle, Opinium poll for the Observer found that support for Conservatives was down 2 points to 43%, and that for Labour was up 2 to 37%. That was a 6-point lead.

Turnout pattern weighs on election results

However, according to an article by Patrick Sturgis and Will Jennings of University of Southampton these polls tend to be wrong with historical tendency to "over-state Labour support". One of the key factor is that support for Labour appears to be "soft" and they may change their mind before election day. Also, the turnout rate and pattern would have a huge impact on the actual results. Based on their model, the ever lead of Conservatives over Labour could be doubled from 5 to 10 pts after applying turnout weight.

UK PMI services missed

UK PMI services dropped sharply to 53.8 in May, down from 55.8 and below expectation of 55.0. Markit noted in the release it’s seeing "a renewed slowdown in business activity growth across the UK service economy, following the four-month peak achieved in April." And, "optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households".

Eurozone PMI services revised up

Eurozone PMI services was revised slightly up to 56.3 in May. Overall composite PMI was unchanged at 56.8. Markit noted that "the outlook for the Eurozone economy seems to be tilting to the upside, and it seems likely that we’ll start to see many forecasters’ expectations for 2017 growth revised higher." Also, "with the rate of job creation rising to one of the highest seen over the past decade, the recovery is also becoming more sustainable, as the improved labour market should feed through to higher consumer spending."

Also from Europe, Germany PMI services was revised up to 55.4 in May. France PMI services was revised down to 57.2 in May. Italy PMI services dropped to 55.1 in May.

China PMI services improved

China Caixin services PMI rose to 52.8 in May, up from 51.5, beat expectation of 51.4. Zhengsheng Zhong, director of Macroeconomic Analysis at CEBM Group noted that "the improvement in the services sector bolstered the Chinese economy in May." But he also warned that "the rapid deterioration in the manufacturing industry is worrying. We need to closely monitor whether the diverging trends in manufacturing and services will widen further." Released last week the Caixin PMI manufacturing dropped to 49.6, the first contraction reading in nearly a near.

RBA in upcoming Asian session

RBA will announce rate decision in the upcoming Asian session. The central bank is widely expected to keep the key interest rate unchanged at 1.50%. Most economists expect RBA to stand pat at least through 2017. But there are some who warned of the risk of a cut this year as the economy under performs RBA’s forecast. AUD/NZD’s fall from .1017 accelerated to as low as 1.0389 last week but rebounded from there since then. The corrective three wave structure of the rise from 1.0234 to 1.1017 suggests medium term bearishness. Hence we’d expect recovery to be limited by 1.0608 resistance to bring another fall through 1.0234. There is prospect of a test on 2015 low at 1.0016 in medium term.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2854; (P) 1.2879; (R1) 1.2913; More…

GBP/USD recovers again today but at this point it’s staying below 1.2926 minor resistance. Intraday bias remains neutral and deeper fall is still in favor. Break of 1.2768 will turn bias to the downside for 1.2614 resistance turned support first. Break there should also indicate completion of whole consolidation pattern from 1.1946 and target a retest on this low. However, break of 1.2926 will turn focus back to 1.3047 instead.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. The rejection from 55 week EMA is maintaining bearishness in the pair. Also, at this point, as long as 1.3444 resistance holds, fall from 1.7190 is still expected to continue. Break of above mentioned 1.2614 support will affirm this bearish case.

Economic Indicators Update