iFOREX Daily Analysis : June 27, 2016
iFOREX | Jun 27, 2016 05:30AM ET
The pound plunged on Friday, suffering its largest one-day selloff in recent history; while the dollar and the yen soared as a shock U.K. vote to exit the European Union shook the global markets. British Prime Minister David Cameron, who had backed the failed Remain campaign, stepped down after the final referendum result was announced. Sterling tumbled amid fears that the decision could hit investment in the U.K. economy, threaten London's role as a global financial capital and trigger months of political uncertainty. The vote could lead to a breakup of the U.K., with Scotland now highly likely to hold a second independence referendum. Ratings agency Moody's warned Friday that it may downgrade the U.K.’s credit rating as it lowered the outlook to “negative” from “stable” after the country voted to leave the EU. Central banks from the G7 group also said in a joint statement that they were prepared to provide additional liquidity to markets as needed. Federal Reserve Chairwoman Janet Yellen is due to speak at an ECB central bank conference in Portugal on Wednesday, with investors looking for indications on how Brexit will alter the outlook for the U.S. economy and the path of interest rates.
EUR/USD
Downside pressures remain strong on the euro as the Brexit now could trigger another referendum wave, with markets now trying to digest the Brexit vote. The European Central Bank also commented on the day’s events, saying it is ready to handle the impact of Brexit on markets and the banking system. In the week ahead, further comments on the timing of a notification, if any, to the European Union will be closely watched. As well, Federal Reserve Chair Janet Yellen is due to speak at an ECB central bank conference in Portugal on Wednesday, with investors looking for indications on how Brexit will alter the outlook for the U.S. economy and the path of interest rates.
Gold
Gold surged to the highest level in more than two years after markets shifted towards safe haven assets following Britain’s vote to leave the European Union after a historic poll. On Monday, gold prices continued last week's gains with investors awaiting any indications on the next move by Britain and possible policy responses by Japan which has seen the yen soar in response to safe-haven demand. In the week ahead, market volatility is expected to remain high after global stocks saw more than $2 trillion wiped off their value on Friday and the pound fell by as much as 10%. Janet Yellen is due to speak at an ECB central bank conference in Portugal on Wednesday, with investors looking for indications on how Brexit will alter the outlook for the U.S. economy and the path of interest rates.
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WTI Oil
Oil prices slumped by more than 6% on Friday after Britain’s vote to leave the European Union. The decision heightened fears over the outlook for the global economy and global oil demand, and triggered historic falls in stocks and currencies. According to Goldman Sachs (NYSE:GS), if UK GDP drops 2 percent in response to the exit vote, then UK oil demand would likely be reduced by 1 percent or 16,000 barrels per day, pressuring global demand. In the week ahead, Tuesday’s supply data from industry group the American Petroleum Institute will be in focus ahead of Wednesday’s weekly government report on stockpiles.
US 500
With stock markets tumbling after Britain's vote to leave the European Union, Wall Street investors are expected to focus now on the outlook for the U.S. economy and company earnings. This turn of events hurt the global economy and sent stocks and currencies plunging by historic amounts on Friday. Globally, the $2.08 trillion in stock market value was wiped out in the sell-off which marked the largest daily loss ever in dollar terms, according to Standard & Poor's. Investors now expect that U.S. interest rates would remain low for an extended period and that upcoming reports would show U.S. corporate earnings had recently improved and that Britain's breakup with the EU would be gradual, and not economy-wrecking. Fed Chair Janet Yellen is scheduled to speak at an event in Portugal on Wednesday and investors will want to know how she sees the so-called Brexit changing the outlook for the U.S. economy and interest rates.
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