By Justin McQueen

May 22 (Reuters) - Cable drifting sideways to close out the week, remaining pinned between the 200-day moving average cluster at 1.3410-24. Tone stays heavy for now. UK retail sales wrapped up a hat-trick of soft prints – UK jobs, CPI, now this – and spot is struggling as a result, thus risks remain lower for now. Remarks by Federal Reserve Governor, Christopher Waller were the key event risk today. On balance he was hawkish, by opening the door towards a rate hike, albeit in the far distance. He did push back against near-term tightening, which does restrain the hawkish rhetoric. That said, the direction of travel has shifted materially from where we were a few months back. If the data keeps pointing towards tightening and the Strait of Hormuz stays shut, the argument against a Fed hike gets harder to make, meaning the USD bid becomes more durable, paving the way for a deeper retracement in cable.

Offsetting that however, is the pickup in geopolitical noise. Chatter around a U.S.-Iran deal is getting louder, and the lean in the market is that we get something done rather than not. Nothing confirmed, it is still headline-driven but the rumour mill is seemingly heading in one direction. Should a deal get done, cable is likely to receive a lift, but with domestic risks stacking up, both economically and politically, upside looks capped.
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Justin McQueen is a Reuters market analyst. (The views expressed are his own) ((Email: ))