Global FX Weekly - 1st July 2016 - The Forex Brexit Aftermath

Forex Market Commentary  

 

What is astonishing is how the current UK government continues towards article 50 when the leave campaign was based upon false figures, 48% opposition vote, and countless relenting leave voters who are pressing a petition and now being held to ransom on the relentless Brexit express who are seizing their chance to break the membership of the EU. What would that translate to? Ask British companies like Easy, Tesco and the countless others that do business and Deutsche bank and the Euro star operator. Smaller narrow minded political opinions will eventually lead to a mass exodus of companies to Europe, a contraction in the UK capital markets and even the displacement of many British workers and retirees living across Europe. But the mindless politicians don't have the stomach to give a second more fair referendum as the voice of discontent in the UK grows. Everywhere you look there is turmoil in British politics.

On monday all the ratings agencies downgraded the UK outlook to negative hitting the UK bonds with a cut to its precious AAA rating. Furthermore S&P downgraded Euro debt to AA citing continued uncertainty. In spite of a dwindling one sided euphoria on the part of the UK government the harsh facts of economic reality will eventually sink in and for the longer term analysts are more or less of the same opinion: GBP faces gradual deterioration vs USD, EUR, YEN, CHF over the months to come.

 

George Soros portrays GBP/USD 1.15 by December this year and some notable economists are going even further looking towards parity.

 

USDX facing resistance at 96, EUR/USD finding consolidating support at 1.09 but one wonders how that can hold in the weeks ahead. GBP/USD is holding quietly at 1.32 but given the political turmoil we will be looking for the 1.30 to break if not a push to 1.34 where fresh shorts may pile in to push GBP/ USD back down next week. USD/JPY is increasing to 102 but traders favor a bearish bias with 96 as the target in the weeks ahead as the safe haven JPY bet gains momentum. USD/CHF gained alot of ground this week but that's fading fast with strong resistance at 0.98.'

 

So what this all means for the small position trader? Be prepared for more volatility around the GBP AND EUR because large hedge funds like Quantum of Soros in their global macro analysis will look to push both pairs down at every opportunity when spikes present themselves for the remainder this year. Small traders can trade well by following in the footsteps of giants. Trade the trend always because the trend is your friend. Gold raced up in the panic for a safe haven and smashed the 1340 against rationale but once the euphoria of Brexit dies down be wary of taking further long positions above 1300 because what rises falls back down with the law of gravity. Crude oil is drifting back down with prospects of a higher US Dollar as the US economy shrugs off Brexit and looks to it's own strengths of a growing property market, consumer confidence and low unemployment. US bond prices are soaring to record highs as the safe haven as investors cast doubts over the UK and now Euro zone bidding US Dollar high to park money in US Treasuries. Global equities are now recovering as investors weigh in on the positive aspects of the US economy.

 

Please turn to Bloomberg for global bond yields:
 
http://www.bloomberg.com/markets/rates-bonds 

USDX     95.634     -0.329 -0.42%
 


EUR/USD    1.114215     +0.005115 +0.46%
 

GBP/USD    1.32695    -0.00640    -0.48%


USD/JPY  102.529    -0.312    -0.30%


USD/CHF  0.973065    -0.003605    -0.37%

 
10 yr US T-Notes    133.234375    +0.250000    +0.19%   


Crude Oil    49.27     +0.94 +1.94%
 
 
Gold     1341.180     +10.575 +0.79%

  
SP500     2102.95     +4.09 +0.19%
 


Dow    17949.37     +19.38 +0.11%
 


Always use your own better judgment and try to build a picture of trade logic combining both technical and fundamental understanding.

Pieter Bergli - Trader X16


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