Fear of Systemic Risk from Brexit

GBPUSD – technical overview

Despite signs of the potential for a medium-term base, rallies continue to stall out ahead of 1.4800, keeping the overall pressure on the downside. This latest topside failure has opened a drop back below key support at 1.4333, exposing a more direct retest of critical psychological barriers at 1.4000 in the sessions ahead. Rallies should be very well capped ahead of 1.4500 with only a break above 1.4770 to force a shift in the outlook.

• R2 1.4333 – 16May low – Medium
• R1 1.4266 – 14Jun high – Medium
• S1 1.4115– 13Jun low – Medium
• S2 1.4091 – 14Apr low – Strong

GBPUSD – fundamental overview

The Pound continues to take its hits, breaking back down towards 1.4000 as the leave camp gains further momentum in the referendum polls. Many polls are showing leave out in front, while the betting houses have tightened odds up, showing a less confident 65% chance of remain, down from over 80% a couple of weeks back. EU referendum headlines are expected to continue to dictate flow in the Pound, right up to the referendum result next week, with economic data taking a secondary role. Unless today’s UK CPI data comes in much hotter or colder, don’t expect much of a reaction. Later today, we get an important US retail sales reading out of the US.

USDJPY – technical overview

Overall, the pressure remains on the downside after the market recently stalled out ahead of the previous lower top at 111.89. A fresh lower top is now potentially in place at 111.45 ahead of the next major downside extension through 105.55 and towards 100.00. Ultimately, only back above 111.89 would negate and take the pressure off the downside. Look for any intraday rallies to be well capped ahead of 109.50.

• R2 107.39 – 8Jun high – Strong
• R1 106.86 – 13Jun high – Medium
• S1 105.55 – 3May/2016 low – Strong
• S2 105.00 – Psychological – Strong

USDJPY – fundamental overview

The risk of a UK exit from the EU is a risk that extends well beyond the borders of the UK, with the fallout projected to have a major impact on the global economy. This has fueled a fresh wave of risk off trade, which in turn has opened downside pressure in the major pair on its traditional correlation with risk appetite. Looking ahead, referendum headlines will continue to dictate flow, while the market will also be looking to US retail sales and upcoming policy decisions from the Fed and BOJ later this week.

EURCHF – technical overview

The market has come back under intense pressure in recent trade, with the cross gravitating towards critical medium-term support in the 1.0800 area. Previous dips into this area have been well supported and with setbacks starting to look extended on the daily chart, it’s quite possible the market will once again look to bounce around the 1.0800 area. A daily close below 1.0800 would however hint at a more significant bearish structural shift.

• R2 1.0986 – 8Jun high – Strong
• R1 1.0938 – 9Jun high – Medium
• S1 1.0840 – 13Jun low – Medium
• S2 1.0810 – 29Feb low – Strong

EURCHF – fundamental overview

Renewed downside pressure on this cross rate over the past few sessions, with the price action starting to turn heads. We are coming off the weakest week for the cross rate since the January 2015 collapse, and while this doesn’t even come close to comparing, it’s definitely worthy of attention. Ongoing Brexit risk and exhausted monetary policy have been sourced as primary drivers behind the Franc appreciation, which could soon force the SNB off the sidelines and into action to defend against unwanted appreciation in the local currency.

AUDUSD – technical overview

The market has entered a period of correction after recently breaking down to fresh multi-day lows at 0.7145. However, any additional upside should be well capped below 0.7500 on a daily close basis, with a lower top sought out ahead of the next major downside extension below 0.7145 and towards the 2016 base at 0.6827 further down. Last Thursday’s bearish outside formation strengthens the bearish outlook.

• R2 0.7504 – 9Jun high – Strong
• R1 0.7438 – 10Jun high – Medium
• S1 0.7359 – 13Jun low – Medium
• S2 0.7315 – 6June low – Strong

AUDUSD – fundamental overview

A quiet start to the week for the Australian Dollar, coming off Monday holiday trade. The early Tuesday Aussie data was offsetting with NAB business confidence sliding, but NAB business conditions improving. Looking ahead, the key focus will be on EU referendum headlines and an upcoming US retail sales release which should dictate direction for the remainder of the day.

USDCAD – technical overview

The market could finally be in the process of establishing a meaningful base following this latest impressive reversal out from multi-month lows below 1.2500. However, the current round of setbacks will need to hold above 1.2655 to keep this prospect alive. An eventual break back above 1.3189 will confirm the basing outlook and accelerate gains towards 1.3500 further up. Back under 1.2655 negates and opens a direct retest of the yearly low.

• R2 1.2915 – 3Jun low – Medium
• R1 1.2840 – 7Jun high – Strong
• S1 1.2750 – 13Jun low – Medium
• S2 1.2655 – 8Jun low – Strong

USDCAD – fundamental overview

The Canadian Dollar has come back under pressure in the new week, with most of the selling driven off risk liquidation flow from Brexit headlines and this latest pullback in the price of OIL. But today’s economic calendar is also likely to play a part, as the market digests an important US retail sales reading.

NZDUSD – technical overview

The latest break to fresh 2016 highs beyond 0.7055 suggests the market could be in the process of a more significant structural shift. Still the market will need to establish above critical previous support around 0.7175 to strengthen the bullish prospect, while inability to do so could invite another topside failure. Daily studies have recently traded into overbought territory, though a break back below 0.7000 would be required to take the immediate pressure off the topside.

• R2 0.7148 – 9Jun/2016 high – Strong
• R1 0.7082 – 13Jun high – Medium
• S1 0.7000 – Psychological– Strong
• S2 0.6945 – 8Jun low – Medium

NZDUSD – fundamental overview

The recent surge in the New Zealand Dollar has been an unwelcome development for local exporters, with the strength of the currency ultimately dragging on the economy. This is something the RBNZ has been mindful of, but at the same time, hasn’t done anything to help itself with after a less dovish decision in the previous week. However, we are seeing renewed downside pressure into Tuesday after May food prices came in cooler than expected, which should give the RBNZ more of an excuse to think about cutting rates at its next policy decision. Looking ahead, US retail sales is the major standout on today’s calendar.

US SPX 500 – technical overview

The market continues to show signs of exhaustion on rallies above 2100, with the most recent attempt once again stalling out ahead of the 2133, 2015 record high. Monday’s daily close below 2085 takes the immediate pressure off the topside and now opens the door for deeper setbacks ahead. But ultimately, a break below 2020 would be required to officially force a shift in the structure.

• R2 2121.00 – 8Jun/2016 high – Strong
• R1 2099.00 – 13Jun high – Medium
• S1 2073.00 –14Jun low – Medium
• S2 2050.00 – Psychological– Strong

US SPX 500 – fundamental overview

The stock market is once again looking vulnerable at lofty heights, with 2016 rallies continuing to feel like they have very little behind them. The fact that monetary policy is exhausted on a global scale is not something that should be a comfort to investors, especially after dovish implications from the June US employment report have done little to bolster sentiment. The upside follow through has been unimpressive and it doesn’t look like the market will be able to push much higher on this lower for longer monetary policy fuel. The systemic risk associated with Brexit is only adding to a further deterioration in risk appetite. Looking ahead, US retail sales comes into focus.

GOLD (SPOT) – technical overview

The market has done a formidable job recovering out from an intense round of setbacks into the 1200 area. Overall, while the price holds above critical previous medium term resistance at 1191, the structure remains constructive, with scope for the formation of the next medium term higher low ahead of a resumption of gains back through 1300 and towards 1400 further up.

• R2 1303.90 – 2May/2016 high – Strong
• R1 1287.35 – 13Jun high – Medium
• S1 1234.95 – 7Jun low – Medium
• S2 1199.90 – 30May low – Strong

GOLD (SPOT) – fundamental overview

GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium-term players on the back of fears over the limitations of exhausted monetary policy, a downturn in risk sentiment and extended global equities. All of this will almost certainly continue to keep the commodity supported ahead of of an eventual push beyond the 2015 peak at 1307 and towards 1400 further up.

Feature – technical overview

USDTRY remains exceptionally well supported on dips, with the latest round of setbacks propped around 2.8800. From here, look for a higher low in favour of the next major upside extension through 3.0120 and back towards a retest of the 2016 high from January at 3.0610. Ultimately, only a daily close below 2.8800 would delay the constructive outlook.

• R2 3.0120 – 24May high – Strong
• R1 2.9685 – 30May high – Medium
• S1 2.8795 –8Jun low – Strong
• S2 2.8435 – 4May low – Medium

Feature – fundamental overview

Last week’s better than expected Turkish GDP figures and narrowing in the deficit have done little to inspire additional bids in the Lira, with the emerging market currency moving in the opposite direction and tracking lower in the early week as broader macro flows dictate trade. Brexit risk, exhausted monetary policy, and worry over the China outlook are some of the major drivers behind this latest exodus from emerging market FX.