Risky Assets Surge As Risk Sentiment Improves
Swissquote Bank Ltd | Jun 28, 2016 08:32AM ET
Forex News and Events
Markets reverse losses
Financial markets are heading for another rollercoaster ride on Tuesday as investors switched to risk-on mode after two days of mayhem. Equity indices were trading substantially higher across the globe with European equities benefiting the most from the reversal. The English FTSE 100 was up 2.07%, the German DAX rose 2.19%, while Italian equities surged 4.40%. Financials reversed partially the huge losses from yesterday with Lloyds (LON:LLOY) rising 6.60%, Prudential (LON:PRU) +9.45%, Barclays (LON:BARC) +5.95%, Deutsche Bank (DE:DBKGn) +4.55% and Allianz (DE:ALVG) +3.90%. In Switzerland, UBS AG London Branch ELKS 2 (NYSE:MRRL) was up 1.20% and Credit Suisse (SIX:CSGN) 2.95%.
In such an environment, the yellow metal fell 0.85% to $1,313 and silver slid 0.53% to $17.64. The Swiss franc was also taking a breather from the strong buying pressures stemming from the Brexit situation. EUR/CHF hit 1.08518 earlier this morning before consolidating at around 1.0835. It is hard to tell whether financial markets will continue to recover as the uncertainty stemming from the Brexit vote will likely persist in the near future. Be ready for rollercoaster ride on a daily basis.
JPY feeling the Brexit burn
The Brexit vote has had the obvious consequence of increasing safe haven demand and in particular the yen. The Japanese currency is now trading very close to 101 against the green note, its lowest level since 2014. BoJ policymakers were indeed clearly aback by this result, which is now threatening the efficiency of the island’s current monetary policy.
In fact, things just seem to be going from bad to worse for Japan, especially as the vote will have consequences for the US, which in turn will likely weigh on Japanese exports. The Fed rate path for normalization, despite being widely expected by markets, is now decelerating. Fund Fed futures also indicate that negative rates, even though the probability is small, are possible. The so-called monetary policy divergence between the US and other main central banks has been a key point for markets, however we have maintained that monetary policies are actually converging. This has now turned out to be true. Upside pressures on the JPY should continue.
So, what’s next? Markets are now waiting for a response from BoJ Policymakers. We believe that further stimulus should be added, in another attempt to weaken the currency. We also believe that global uncertainties are not likely to subside and will continue to threaten Japan’s stability. The next BoJ meeting will be held at the end of July and in our view, the central bank should further ease and reduce to more negative rates.
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The Risk Today
EUR/USD is still consolidating after the sharp moves after the Brexit "leave" vote. Hourly support is given at 1.0913 (24/06/2016 low) while hourly resistance is located at 1.1082 (27/06/2016 high). Strong resistance is given at 1.1479 (06/05/2016 high). Expected to further consolidate as there are still a lot of volatility on the market. In the longer term, the technical structure favours a very long-term bearish bias as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD keeps on weakening amid the Brexit "leave" votes despite some retracement. Volatility is still very strong. Hourly support lies at 1.3121 (27/06/2016 low). Expected to further consolidate. The long-term technical pattern is negative and favours a further decline. Key support at 1.3503 (23/01/2009 low) has been broken, as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average).
USD/JPY is now trading sideways. The technical structure continues to favour a second leg lower. Hourly support is given at 99.02 (24/06/2016 low) while hourly resistance is given at 102.47 (27/06/2016 high). Expected to continue weakening. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF's volatility is increasing on SNB intervention. Hourly resistance is given at 0.9819 (27/06/2016 high). The road is wide-open to further resistance at 0.9920 (03/06/2016 high). Expected to show growing buying pressures. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias since last December.
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