Tories Win the UK Elections, US and China Agree on “Phase One” Deal

GBP RALLIES AS CONSERVATIVES GAIN PARLIAMENT MAJORITY

The pound rallied against all of the other G10 currencies on Thursday and during the Asian morning Friday. It gained the most against JPY, CHF and CAD, while it eked out the least gains versus NOK, AUD and NZD.

GBP/JPY — TECHNICAL OUTLOOK

GBP/JPY skyrocketed after the UK election exit polls pointed to a large parliamentary majority for the Conservatives Party. The rate breached several resistance barriers in a row, to eventually hit resistance slightly below the 148.05 level, marked by the high of March 20th. In the somewhat bigger picture, the pair is trading above an upside support line drawn from the low of November 22nd, which keeps the near-term outlook positive.

RISK APPETITE BOOSTED FROM US-CHINA TENTATIVE DEAL

Elsewhere, the weakening of the safe-havens JPY and CHF, as well as the relative strength of the commodity-linked AUD and NZD suggest that risk appetite was supported. The initial boost came after US President Trump twitted that the US is getting very close to a big deal with China, with the euphoria extending following news that the world’s two largest economies have reached a “deal in principal”, an earlier-than-expected step towards revolving a nearly two-year trade war. All three US indices hit record highs, while the Chinese yuan hit its highest since August 1st against its US counterpart. Today, during the Asian morning, Japan’s Nikkei 225 and China’s Shanghai Composite gained 2.55% and 1.78% respectively.

AUD/CHF — TECHNICAL OUTLOOK

AUD/CHF rallied yesterday, breaking above the key resistance (now turned into support) zones of 0.6780 and 0.6795. The advance was stopped slightly below 0.6840 and then it retreated somewhat. That said, the move has confirmed a higher high on the 4-hour chart, which suggests that the short-term outlook has now turned somewhat positive.

AS FOR TODAY’S EVENTS

During the US session, we get the US retail sales for November. Both the headline and core rates are expected to have increased somewhat, to +0.5% mom and +0.4% mom, from +0.3% and +0.2% respectively.

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