Brexit (Again), German ZEW Surprises To The Upside

Forex News and Events

Markets blinded by Brexit vote

An FX market that is not driven by the release of US economic indicators or speeches from Federal Reserve’s members is not exactly a common sight these days, yet this has been the case for the past week. The market has now almost exclusively switched its focus to Thursday’s Brexit vote and seems to be almost immune to any other event. Obviously the latest batch of economic data from the US has not helped the situation as it comes roughly in line with market expectations. Janet Yellen’s testimony before a Senate panel later today will likely go practically unnoticed. Indeed, even if the market pays more attention to the latest Brexit rumours, the Fed Chairwoman is not expected to drop any hints concerning the Fed rate path. The press conference, which concluded the June FOMC meeting, was dovish enough to rule out any potential move from the US institution at the July meeting.

The market will however push the Fed story front center as soon as next week, once the referendum result is known. Moreover we’ll have a busy week in terms of economic news with June Markit PMIs, Dallas manufacturing index, Q1 GDP and personal consumption, personal income and spending, PCE inflation gauge and ISM manufacturing.

German ZEW unexpectedly increases

Financial markets are closely scrutinising German economic indicators and will be paying close attention to the ZEW, due to be released later this morning. This will provide insightful economic sentiment for June, including the current situation and expectation figures. ZEW current situation data has print above expectations May’s figure with a print above 54 vs 53 a month prior. One year ago, the indicator was above 70. Now, as it approaches the 50 mark, economists grow nonetheless increasingly pessimistic despite some rebound

In general, sentiment remains negative and the European outlook is clearly uncertain, especially due to the Brexit referendum this Thursday. The impact of a Leave vote on the German economy would be colossal in view of the trading relationship between both nations. A Brexit would likely cause next year Germany’s GDP to shrink. To add to the uncertainty, the global economic slowdown as well as the efficiency of the ECB’s monetary policy are also of concern.

Currency-wise, volatility should decrease substantially until the result of the Brexit referendum becomes clear and then it should take some time for markets to appraise the potential impact of this result.

AUD/USD Chart

Today’s Key Issues

The Risk Today

EUR/USD EUR/USD is pushing higher after breaking the horizontal range between the support at 1.1200 and the resistance at 1.1303. Hourly resistance can be found at 1.1416 (09/06/2016 high). Hourly support is located at 1.1302 (20/06/2016 low). Expected to further weaken. In the longer term, the technical structure favours a very long-term bearish bias as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBP/USD GBP/USD continues to push higher confirming the underlying bullish trend. Resistance is given at 1.4770 (03/05/2016 high). There is no decent support before can be located at 1.4013 (16/06/2016 lower. Expected to further consolidate. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY USD/JPY‘s recent strength has thus far been unimpressive. As a result, the technical structure continues to favour a second leg lower. Monitor the test of the hourly support at 103.55 (16/06/2016 low). An hourly resistance stands at 104.85 (20/06/2016 high). The medium term momentum is clearly oriented downwards. Expected to continue weakening. We favour a long-term bearish bias. Support is now given at 103.56 (28/08/2014 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now very unlikely. Expected to monitor support at 103.56.

USD/CHF USD/CHF is consolidating below former hourly resistance at 0.9679 (13/06/2016 high). Hourly support is given at 0.9572 (16/06/2016 low). Expected to show growing selling pressures. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias since last December.

Resistance and Support

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