Relief Rally Continues As ‘Remain’ Vote Gains Traction

Market Brief

During the night the sterling consolidated yesterday’s gains and is set to start the European session on firm footing. The cable is currently testing the resistance area at around 1.47-1.4740 (psychological level and previous low), sitting on its 200dma at around 1.4683. However, we would rather remain cautious, holding long GBP positions as we get closer to Thursday’s vote simply because of the magnitude of the downside potential in the event of a Brexit. On the downside, a short-term support can be found at 1.4454 (Fibonacci 38.2% on the last 4 days rally).

G10 Advancers And Global Indexes

The Japanese yen was the biggest loser on Tuesday losing 0.42% against the USD dollar, 0.70% against the Australian dollar and 0.60% against the single currency. In spite of today’s recovery the worsening risk sentiment of the last few days has boosted the Japanese currency to multi-year highs with USD/JPY hitting 103.55 on Thursday last week. CFTC data showed that speculative net long JPY positioning continued to increase substantially during last week, reaching 40% of total open interest. The risk of JPY sell-off is therefore very high given the mounting probabilities of Britain staying within the European Union but it however remains one of the safest trades in the event of a Brexit.

EUR/USD got some colour back as it stabilised above the 1.13 threshold. Developments in Brexit polls also had a strong impact on the pair as a “leave” vote will send Europe’s political uncertainty through the roof, as investors turn to safe haven assets. This morning the single currency is trading at 1.1340 against the greenback, up from 1.1302 in the early Asian session.

In the equity market, equities were on fire yesterday as the “leave” seemed to have lost traction. The Euro Stoxx 600 surged 3.30%, the Footsie was up 3.04%, while the Swiss performance Index rose 2.39%. In the US, the S&P 500 was up 0.58%, the Nasdaq 0.77% and the Dow Jones 0.73%. Overnight, most Asian indices followed Wall Street and London’s lead and moved deeper in positive territory, with the exception of mainland Chinese stocks. In Japan, the Nikkei was up 1.28%, while the broader Topix index rose 1.15%. In China, the Shanghai and Shenzhen Composites were down 0.40% and 1.10% respectively.

Today traders will be watching the ZEW survey from Germany; an interest rate decision from Turkey; mid-month inflation data from Brazil; Draghi’s speech before the European parliament; Yellen’s testimony before a Senate panel, Fed’s Powell will also speak in New York.

Today’s Calendar

Currency TechEUR/USDR 2: 1.1479R 1: 1.1416CURRENT: 1.1342S 1: 1.1131S 2: 1.1098

GBP/USDR 2: 1.4849R 1: 1.4770CURRENT: 1.4714S 1: 1.4006S 2: 1.3836

USD/JPYR 2: 106.58R 1: 104.85CURRENT: 104.47S 1: 103.55S 2: 100.78

USD/CHFR 2: 0.9920R 1: 0.9783CURRENT: 0.9599S 1: 0.9533S 2: 0.9444

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