Market Brief
The panic reaction that followed the UK decision to leave the European Union is over as financial markets recovered for a third straight day. Traders are now waiting to get more clarity regarding the timing of the Brexit but with most EU officials calling for a well managed exit and David Cameron declaring that it will be the task of the next Prime Minister to trigger Article 50, we do not expect new major development before the end of the summer. The pound sterling lost ground against the greenback during the US and Asian sessions and returned to $1.3380. In the medium-term, the pound should continue to trade with a positive bias as the dust settle, with the $1.40 level as next target.
Crude oil prices rallied yesterday after data showed US stockpiled dropped 4,053k last week, while the market expected an inventory reduction of 2500k barrels. US stockpiles had decreased for the fifth straight week, reaching the lowest level since early March this year. In reaction, the West Texas Intermediate jumped as much as 3.80% in Wall Street yesterday before consolidating lower, slightly below the $50 threshold, at around $49.45 a barrel. The international gauge, the Brent crude, rose almost 4% to $50.74 a barrel and stabilised at around $50. The crude rally gave a boost to the Canadian dollar that gained as much as 0.60% against the greenback yesterday. The loonie, however, reversed partially those gains during the Asian session crude oil futures fell roughly 1%.
The strong print of New Zealand’s business confidence gauge in June failed to provide support to the local currency as the kiwi lost almost 0.40% against the USD in overnight trading. Separately, building permits contracted 0.9%m/m in May.
In South Korea, industrial production came in at 2.5%m/m In May, beating expectation of 0.3% and above April’s contraction of-1.2%. The won reacted positively to the news and jumped 0.72% against the greenback to 1,151.80. The won has now completely erased the losses that were triggered by the panic reaction amid the Brexit vote. Globally, EM currencies recovered yesterday with the Brazilian real surging 2.57%, the Colombian peso rose 2.25% and the Chilean peso was up 0.77%.
In the equity market, European stocks are set to open in negative territory, unable to follow the Asian lead. Indeed, most Asian regional equity indices were trading in positive territory, while in Europe, futures were edging slightly lower on Thursday. However, given the strong rally of the last few days, this is a move a consolidation.
Today traders will be watching unemployment rate and GDP from Denmark; trade balance from Turkey; KOF leading indicator from Switzerland; unemployment change from Germany; GDP from the UK; CPI from the euro zone and Italy; initial jobless claims and Chicago purchasing manager index from the US.
Currency Tech
EUR/USD
R 2: 1.1479
R 1: 1.1428
CURRENT: 1.1106
S 1: 1.0913
S 2: 1.0822
GBP/USD
R 2: 1.3981
R 1: 1.3535
CURRENT: 1.3429
S 1: 1.3121
S 2: 1.3045
USD/JPY
R 2: 111.91
R 1: 106.84
CURRENT: 102.64
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 1.0328
R 1: 0.9956
CURRENT: 0.9810
S 1: 0.9522
S 2: 0.9444