Tension Running High in Brexit Aftermath

GBPUSD – technical overview

The major pair has collapsed, taking out the entire year’s range in a single day this past Friday, in what could prove to be the most intense bearish outside day on record, after initially surging to a 2016 high. The drop below the previous multi-year base from earlier this year at 1.3836 has accelerated declines to +30 year lows. At this point, technical studies are extended, though the focus is now on next major psychological support at 1.3000. Any rallies should be well capped into the previous base 1.3836 base and ahead of 1.4000. A daily close back above 1.4000 will now be required to alleviate immediate downside pressure.

• R2 1.4000 – Psychological – Strong
• R1 1.3836 – Previous Base – Strong
• S1 1.3228– 24Jun/2016 low – Medium
• S2 1.3000 – Psychological – Strong

GBPUSD – fundamental overview

Plenty of volatility for the Pound into the new week, as the currency looks to settle into a new area code off fresh +30 year lows. There are still so many unknowns relating to the Brexit vote and the market will continue to try and digest all of the potential implications. Choppy trade is expected to continue over the coming days, though overall, the risks appear to be tilted to the downside, with plenty of offers reported into rallies. For now, the market will be wanting to know how long the UK, EU negotiation process to exit will take. Dealers report heavy stops below last week’s 1.3228 +30 year low and then again below psychological barriers at 1.3000.

USDJPY – technical overview

The downtrend remains firmly intact with the market collapsing to fresh 2016 lows below critical psychological barriers at 100.00, exposing next key medium-term support in the form of the June 2013 base at 93.80. Daily studies are however tracking in oversold territory, which could warn of some form of a correction and period of consolidation before the market considers any additional meaningful declines. Still, any rallies should not be well capped below 106.00.

• R2 106.81 – 24Jun high – Strong
• R1 103.55 – Previous Base – Medium
• S1 98.99 – 24Jun/2016 low – Medium
• S2 95.00 – Psychological – Strong

USDJPY – fundamental overview

The major pair has opened lower to start the new week, though has managed to find some support on recoveries in local equity markets. At this point, the intense downside pressure is something that could remain for a while to come, with fear of systemic threat from Brexit fueling massive safe haven bids, favourably impacting the correlated Yen. At the same time, Yen bulls will be careful not to get too aggressive, with the USDJPY rate having dipped back below 100.00 and into an area where the MOF and BOJ could be taking action to aggressively defend against the unwanted currency appreciation.

EURCHF – technical overview

The latest drop below 1.0700 is a significant development and could warn of a structural shift putting pressure back on the downside. Look for a daily close below 1.0700 to confirm the bearish outlook, opening the door for a drop back towards next key support around 1.0500. However, should the market manage to continue holding above 1.0700 on a close basis, it could leave the outlook more constructive and invite renewed demand.

• R2 1.0923 – 13Jun high – Strong
• R1 1.0778 – 16Jun low – Medium
• S1 1.0623 – 24Jun/2016 low – Medium
• S2 1.0530 – 31Jul 2015 low – Strong

EURCHF – fundamental overview

A fresh wave of unwanted inflow into the Franc on the back of this latest shocking news of the UK voting to exit the EU. The unsettling development has invited the safe haven bids, with the SNB sitting very uneasy and already stepping in to intervene on behalf of the overvalued Franc. The market has since stabilized after taking out critical support at 1.0700, but things will get more intense if the cross rate inches closer to 1.0500 and certainly back towards 1.0000. Certainly talk of Scotland hinting at another referendum has done nothing to help matters for the SNB into the early week.

AUDUSD – technical overview

The latest topside failure suggests the market is looking to carve a lower top below the 2016 high at 0.7835, in favour of the next major downside extension. Look for a break below 0.7145 to confirm the 0.7647 lower top, opening the door for an acceleration back towards the 2016 low at 0.6827 further down. A daily close back above 0.7500 would be required to alleviate immediate downside pressure.

• R2 0.7491 – 23Jun low – Strong
• R1 0.7447 – 27Jun high – Medium
• S1 0.7285 – 16Jun low – Medium
• S2 0.7145 – 24May low – Strong

AUDUSD – fundamental overview

The Australian Dollar is not immune to the fallout from the EU referendum, with the currency pulling back quite sharply against the Buck after being so well bid up in recent sessions. The UK’s decision to vote out of the EU has caught global markets off guard, and is weighing on the risk correlated commodity currency. Aussie will continue to digest the implications of the Brexit vote going forward, with the development to likely put more pressure on the RBA to consider additional easing in the months ahead. The OIS market is now pricing a full hike by November 2016, from expectations that had previously projected a full hike further out in February 2017.

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. A higher low looks to be carving at 1.2655 with a break back above 1.3189 to confirm the higher low and basing outlook, opening an acceleration of gains towards 1.3500 further up. Only back below 1.2655 negates.

• R2 1.3296 – 24Mar high – Strong
• R1 1.3189 – 24May high – Strong
• S1 1.2861 – 20Jun high – Medium
• S2 1.2655 – 8Jun low – Strong

USDCAD – fundamental overview

The Canadian Dollar is having a rough go along with most of the rest of the currency market. Friday’s news of the UK vote to leave the EU has come as a shock to the market and the risk correlated Canadian Dollar has suffered as a result, putting in its largest single day loss in 18 months against the Buck this past Friday. Dealers report stops above 1.3200 and the uncertainty from this event could very well drive the market through that level over the coming sessions. Certainly the sharp retreat in the price of OIL also isn’t doing anything to help the Loonie’s cause. There is no data of note out of Canada on Monday and the focus will continue to be on digesting Brexit implications and the systemic threat from the event.

NZDUSD – technical overview

The rally to fresh 2016 highs has stalled out, with the market sharply reversing course after trading up just shy of 0.7300 this past Friday, putting in an intense bearish outside day formation. From here, look for a daily close below 0.6963 to officially confirm the bearish shift and open a further drop to next key support at 0.6675 further down.

• R2 0.7297 – 24Jun/2016 high – Strong
• R1 0.7148 – 9Jun high – Medium
• S1 0.6963 – 15Jun low– Strong
• S2 0.6893 – 7Jun low – Medium

NZDUSD – fundamental overview

All of the positive flow in the New Zealand Dollar over the past several days has evaporated, with the currency descending sharply off Friday’s 2016 peak on the uncertainty and systemic risk associated with the Brexit vote. Kiwi is a currency very tied to risk given its higher yield amongst the developed currencies and as such, will continue to be linked to the fate of the market’s attitude towards the UK exit. Certainly the RBNZ will be relieved to see the local currency off recent unwanted elevated levels, though Monday’s better than expected New Zealand trade data could be helping to slow Kiwi depreciation amidst broader risk off flow.

US SPX 500 – technical overview

The latest intense drop back below critical support at 2020 officially puts the pressure on the downside, opening more pronounced declines over the coming sessions. Last Friday’s failure to clear the record high from 2015, followed by this wild pullback now opens the door for a deeper drop to the 2016 base at 1808. Any rallies from here should be very well capped ahead of 2080.

• R2 2128.00 – 24Jun/2016 high – Strong
• R1 2050.00 – 16Jun low – Medium
• S1 2000.00 –Psychological – Medium
• S2 1968.00 – 10Mar low– Strong

US SPX 500 – fundamental overview

The US equity market is really going to be put to the test in the days ahead. The market has come back under intense pressure in the aftermath of the Brexit vote. The expectation is that this event could now pose a systemic threat to the global economy. And even if governments and central bank’s try to prop the market up as they have done since the 2008 financial crisis, with monetary policy tools exhausted, there isn’t a lot of incentive left in the tank. This could ultimately open the door for a more accelerated decline back to the 2016 lows just ahead of 1800. The market will shrug off local data for now and focus on the implications of this event in the days ahead.

GOLD (SPOT) – technical overview

The recent break above the 2015 peak at 1307 strengthens the case for a longer term base with the market confirming a medium-term higher low in the 1200 area, opening the door for the next major upside extension towards a measured move at 1400. Any setbacks should be very well supported ahead of 1200.

• R2 1400.00 – Measured Move – Strong
• R1 1358.45 – 24Jun/2016 high – Medium
• S1 1250.30 – 24Jun low – Medium
• S2 1234.95 – 7Jun 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 in demand, with a fresh batch of interest stemming from this latest unsettling news of the UK voting to leave the EU.

Feature – technical overview

USDMXN has recently broken to a fresh record high, with the market trading up to as high as 19.5190 thus far. From here, look for any setbacks to be very well supported ahead of 18.0800 in favour of the next major upside extension through 19.5190 and towards major psychological barriers at 20.000 further up. Only back below 18.0780 would take the immediate pressure off the topside.

• R2 20.0000 – Psychological – Strong
• R1 19.5190 – 24Jun/Record High – Strong
• S1 18.4720 –22Jun low – Medium
• S2 18.0780 – 8Jun low – Strong

Feature – fundamental overview

The Peso has been a victim of Brexit risk and systemic threat associated with the event, with the Mexican currency dropping to a fresh record low against the US Dollar in the aftermath. The worry is that the UK exit could throw the global economy back into a downturn, which would then open the door for a massive bout of outflows from risk correlated emerging market FX. The Banxico has said it will be monitoring developments closely and will be prepared to act to intervene on behalf of the Peso, should this slide continue. The central bank has also reminded that it has plenty of reserves to combat FX volatility if needed.