STOCKS REVERSE LOSSES, GBP RECOVERS, RISK-OFF SENTIMENT DOMINATES

  • GBP/USD was the strongest performer during the Asian session as both sides suspended their campaign amid the murder of a British lawmaker
  • USD was on a rollercoaster ride as investors don’t know where to stand between the upcoming Brexit vote, a dovish Fed and mixed US data
  • EUR/USD is unable to break the 1.1137 support on the downside, closest support can be found at 1.1098
  • NZD/USD held ground after better-than-expected business and consumer confidence data, the bias remains on the upside with a first resistance at 0.7148
  • The Canadian dollar could consolidate after a 0,50% gain against the greenback as crude oil prices put an end to a 4-day losing streak
  • With risk sentiment low investors are shunning less risky assets in favour of safe havens. USD/JPY is strengthening and currently trading around 104 for a single dollar note. EUR/CHF dropped below 1.0800 for the first time in six months before bouncing back. Gold has reached an 18-month high and silver is trading close to its highest level so far this year.

GBP/USD was the best performer during the Asian session and rose another 0.35% after Brexit fears eased as both sides suspended their campaign amid the murder of a British lawmaker. The pound sterling bounced as high as 1.4294 in Tokyo before stabilising at around 1.4250. As expected the BoE meeting was a non-event. The bank rate was kept at 0.50%, while the asset purchase target was left unchanged at £375bn.

Yesterday, the US dollar was on a rollercoaster ride with investors finding it difficult to know where to stand between the upcoming Brexit vote, a dovish Fed and mixed US data. Headline CPI came in worst-than-expected, printing at 1.0%y/y, versus 1.1% expected. The core gauge rose 2.2%y/y in May, matching estimates. Finally, the Philadelphia business confidence index rose to 4.7 (versus 1.0 expected) in June from -1.8 in the previous month. EUR/USD fell from to 1.1295 to 1.1131 yesterday before climbing as high as 1.1272 in Tokyo, unable to break the 1.1137 support (low from June 3rd). The closest support can be found at 1.1098 (low from May 30th).

In New Zealand, manufacturing business confidence rose to 57.1 in May from an upwardly revised figure of 56.6 in the previous month. The consumer confidence gauge climbed 2.3% to 118.9 in June from 116.2 in May as the Kiwi economy continue to weather relatively well the global slowdown. NZD/USD held ground at around 0.7050 in Wellington after hitting 0.6969 during the European session. The bias remains on the upside with a first resistance at 0.7148 (high from June 9th).

The Canadian dollar was better bid this morning as crude oil prices put an end to a 4-day losing streak. The loonie gained as much as 0.50% against the greenback and reached 1.2899 before consolidating at around 1.29, while the West Texas Intermediate rose roughly 1% to $46.60. The international gauge, the Brent crude jumped 1.50% to $47.75.

In the equity market, Asian regional markets reversed losses overnight. The Japanese Nikkei surged 1.07%, while the broader Topix index was up 0.75%. In mainland China the Shanghai Composite was up 0.31% and the tech-heavy Shenzhen Composite rose 0.63%. Offshore, Hong Kong’s hang Seng was up 0.49%. Further south, the S6P/ASX went up 0.32%, while in New Zealand the S&P/NZX was off 0.60%.

Yann Quelenn, market analyst: “Risk-off sentiment dominates: Investors are shunning less risky assets in favour of safe havens. While stock indices are declining, USD/JPY is strengthening and currently trading around 104 for a single dollar note. EUR/CHF dropped below 1.0800 for the first time in six months before bouncing back. Gold has reached an 18-month high and silver is trading close to its highest level so far this year. There are several reasons for this. Brexit anxieties are clearly significant and the current patient stance from most central banks is definitely taking its told on investor sentiment. Indeed, the world’s biggest economy is constantly disappointing markets by failing to raise rates and not leading other economies on a sustainable recovery path.

Meanwhile, negative interest rates seem to be the new normal. The German 10-year government bond is yielding negative for the first time in its history. This is the symbol of the overall risk-off sentiment. The price of money is negative for most maturities. We are still bullish on precious metals as we think that central banks may continue to ease globally until the end of the year. Yet, in the very short-term, a relief rally is still possible after the Brexit mist clears, but global fundamentals will remain very fragile.” —

Today traders will be watching the trade balance from Italy; housing starts and building permits from the US; CPI and core CPI from Canada; in Europe, Draghi will speak at CET 17:00

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