DON'T LOSE FOCUS - Monday's run of UK data was horrendous. There is no surprise to see the Pound under pressure in reaction. At the same time, the current view and expectation for Pound outperformance stands and the data from Monday does nothing to compromise this fact. The bigger picture is what has driven this position and the bigger picture is one in which I believe should benefit the Pound sooner than later. At the center of all of this is US protectionism and soft Dollar policy, in a world where the every country is battling for a weaker currency, leaving the UK as the only country out there that has operated well with a stronger currency and likely to benefit a great deal from all of this. UK data and Brexit bumps may slow the process a little but the result should be the same nonetheless. The market should also be thinking more about the Fed decision and if the central bank makes any additional gestures that signal a fourth rate hike this year. If the Fed fails to do this, we should expect some profit taking on USD longs in the aftermath, which should be a source of GBP demand.
STAY WITH THE CHARTS - Technically speaking, everything is still playing out nicely as far as the outlook goes for Cable. We have seen an intense setback off the 2018 high, but this setback was anticipated, with the major pair needing to reverse course for a higher low ahead of the next major upside extension and bullish continuation of an uptrend that started to take form in 2017 off the +30 year low from October 2016. Ideally, setbacks are now well supported ahead of 1.3000, with the higher low already in place around 1.3200. So technically speaking, the recovery should be already getting going and the greater risk from here is to the topside. We also saw a bullish bottoming candle off the 2018 low on the weekly chart a couple of weeks back, which was followed by some constructive price action and another bullish close this past week, to encourage the prospect. Nevertheless, the trade is in its infancy and we still need to see a push back above 1.3620 to truly strengthen the outlook. I will say this though....if the Cable rate can somehow get back above the high from Monday that was in place before the abysmal data, this will also be a very encouraging development. That level is at 1.3442.
WHERE WE'RE COMING FROM - Now I get that the drop is most unfortunate and it would be very easy to look at the data from Monday and exit the trade on fear the Pound is about to extend this run of declines off the 2018 high. But I think it's important to be able to see the forest through the trees here and understand that we've already seen a massive +10 big figure collapse from the 2018 high, a move that should have already priced most of the downside and a move that puts us back down at levels that are just off Cable trading with a 1.2 print, which in my view, would only be justified in a nightmare Brexit scenario that has already been avoided (ie even 1.29 is too low now). Throw in the soft US Dollar policy and all in all, while Monday wasn't great and the next few sessions may not be great, the big picture view is still intact.