Cable now trades near session highs around 1.2715
Expect plenty of this volatility to come about for the pound over the next month of trading as the focus now turns towards the Tory leadership contest and who will succeed May as prime minister. May's announcement earlier confirms that she will resign as Tory leader on 7 June but will stay on as caretaker prime minister until a new leader is elected.
The pound responded well to the news initially with cable rising to 1.2710 from 1.2690 before falling back to 1.2670 and then now climbing higher to 1.2715. For buyers, they have held a break above the 100-hour MA (red line) @ 1.2689 and will be looking to contest a break of the near-term trendline resistance @ 1.2708.
In doing so, it will open up the path towards testing resistance around 1.2742 (23.6 retracement level) and then the 200-hour MA (blue line) @ 1.2760 currently.
However, despite buyers establishing more near-term control, a move higher isn't really a given at this point in time. What matters now will be who is the favourite to succeed Theresa May as prime minister? The two front-runners are Boris Johnson and Dominic Raab, with the former being the current favourite.
Hence, expect the pound to trade in a manner that reflects the odds of the contestants wanting to run for prime minister. If Boris Johnson remains favourite in a couple of weeks, it'll be tough for the pound to hang on to any gains. More so given the fact that regardless of whoever takes over from May, the Brexit equation does not change.
As such, I'd still be inclined to fade pound rallies from here unless the near-term bias starts to change. That's the risk for sellers in my view.
