Forex Market News | Monday 27th June, 2016
The widespread reaction to the United Kingdom’s decision to leave the European Union (EU) has dramatically changed the technical conditions across the Foreign Exchange market. While the “Brexit” was clearly a political event, it has acutely altered the market’s “group psychology”; which is the cornerstone of technical analysis.
For example, the GBP/USD traded from a new yearly high, at just above 1.5000, to its lowest level in 30 years in less than 8 hours; the widest trading range in the history of the pair. From a technical perspective, it’s reasonable to believe that stop levels and option positioning were all wiped out on Friday. In this sense, if price support is where buyers are enticed, and price resistance is where sellers offer supply, then technical levels of the GBP will have to be rebuilt over time.
As a result of the breakdown of many technical components, volatility looks to be the name of the game for the short to mid-term. Fears that the UK’s exit will inspire other nations to do the same are not unwarranted, and FX investors should be cognizant that Brexit is not an uniquely European problem. All global financial markets have been propped up by central bank policy makers; especially from the ECB, FED and the BoJ.
As such, the FX market may show a blithe response to most of the economic releases on this week’s schedule. However, now that the FED FUNDS futures market has entirely priced out any rate normalization for 2016, Tuesday’s US GDP report could get a rate adjustment back on the radar. The final reading for Q2 GDP is forecast to print at 1%, which is twice as strong as the last GDP data. In addition, US Consumer Confidence is due early Wednesday morning and is expected to show a sharp rebound to 93.1%.
On balance, today’s price action is still driven by the post-referendum confusion but a rebound in global equities would provide an opportunity to take positions based on a broader set of fundamentals and previous technical inflection points.
As such, we suggest medium-term traders look to sell the EUR/USD into the 1.1180 level with an initial target of 1.1010 and a 1.1265 stop. These levels may seen way out of range at the moment but the currency market has a tendency of reverting quickly after sharp, event based moves.
The USD/JPY has held above the 100.00 level on a steady flow of comments from Japanese government and BoJ officials. After Friday’s brief plunge below 100.00, the bar for central bank intervention has been lowered significantly. With a full slate of Japanese economic data scheduled for later in the week, the outlook for growth, inflation and capital spending could all turn more gloomy.
We suggest that medium-term traders can work bids in the 100.60/70 area for an initial target of 102.75 with a 99.40 stop.
The AUD/USD has held well above Friday’s .7305 low and is still above the 30 day moving average at .7340. The Aussie has worked as a fairly reliable risk barometer in the past and the fact that it hasn’t fallen through .7300 suggests the heighten volatility may be transitory. We suggest short-term traders look to buy AUD/USD at .7420 with an initial target of .7570 with a .7345 stop.
The GBP/USD has started the week below 1.3300 as speculation about the negotiations around Article 50 continue without much clarity. Several MPs resigning over the weekend, a new petition calling for a second referendum vote and mixed comments from EU members in Brussels have all weighed on the Sterling. However, the probability that the Pound will find a base in the next 24 hours is worth having a buy order in the market.
We suggest short-term traders can look to buy GBP/USD at 1.3240 o/s with an initial target of 1.3460 and a 1.3160 stop.