London Forex Report: Risk Recovers Post Brexit Blowout

London Forex Report: Risk Recovers Post Brexit Blowout

London Forex Report: Markets took a breather from two straight days of selloffs, however most remain skeptical it marked a reversal in risk sentiment. Global equities wiped out $3.0 trillion in value in the two days following Britain’s vote and traders are cognisant of volatility in the coming weeks. Fed Governor Jerome Powell said yesterday that Brexit could pose new drag on the US economy at a time when momentum in the US job market may already be slowing, adding that Brexit referendum has shifted global risks to the downside and posing a new threat to the Fed’s outlook. The US economy slowed less than expected, growing 1.1% QOQ in 1Q, faster than a previously estimated 0.80% QOQ increase, due to positive exports growth of 0.3% QOQ (previous: -2.0% QOQ) and softer contraction in fixed investment (-.8% vs previous -2.6% QOQ). Personal consumption however, moderated to 1.5% QOQ which was the slowest in 2 years. US grew 2.1% YOY in 1Q after expanding 2.0% YOY in 4Q. USD fell as refuge demand retreated as equities recovered even though US data turned a tad firmer. The USD Index initiated a rebound in US session but upside fizzled and fell back into the red, closing 0.31% lower at 96.24

FX Majors: EUR managed to rise against the USD on Tuesday. European Central Bank President Mario Draghi said in a closed-door session that growth in the euro area could decline by as much as 0.5% point for the next three years cumulatively. GBP rose for the first time since the UK’s vote to leave the European Union, as a recovery in investor appetite for higher-yielding assets seeped through currency markets and sapped demand for the safe havens. 82% of economists agreed that the Bank of England needs to provide stimulus to economy following last week’s UK vote to leave the EU, according to a survey conducted on 27-28 June. 73% expect interest rate cut while 60% expect an expansion of QE. JPY retail trade and retail sales prints painted the picture of subdued domestic demand in May. Retail trade tumbled 1.9% YOY in May, extending the 0.9% YOY decline in April while retail sales were flattish from April to May after falling 0.1% in the previous month. Despite huge stimulus package, the government is still confronted with the challenge of reviving domestic demand amid an aging population.

EURUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: While 1.1170 caps upside reactions expect a grind south to retest the spike low of Friday, a close over 1.12 is required to ease near term bearish bias.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: Grind lower to retest Fridays spike low achieved as anticipated, with bears now targeting a test of psychological 1.30 level. Bears have the ball while 1.3698 symmetry resistance remains in place.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: While 102.70 contains upside reactions expect bears to target a retest of bids sub the pivotal 100 level. A sustained move through 103.50 is required to ease immediate downside pressure.

Retail Sentiment: Bullish
Trading Take-away: Sidelines

EURJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: Next downside level to watch is 107 with 115.50 near term resistance now. A close over 116 would ease near term bearish bias
Retail Sentiment: Neutral
Trading Take-away: Neutral

Commodities FX: GOLD ended lower by 0.97% to $1,311.79 an ounce as buyers took profit of the biggest two-day rally since late 2008. Oil ended 2.9% higher on Tuesday to $48.11 a barrel, reversing all of Monday’s losses as bargain hunters bought in the 2-day decline of over 7% in the immediate aftermath of the Brexit vote. AUD recorded a short-covering rally yesterday as the investors tried to find the equilibrium after last week’s massive shock when Britain voted to leave the European Union. CAD finished stronger against the USD, as global financial markets stabilized after two days of volatile moves following Britain’s vote to leave the European Union in last week. The loonie also gained against the safe-haven Swiss franc and Japanese yen, though it traded weaker against other commodity currencies.

AUDUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: Recovery from Brexit lows stalls at the pivotal .7480 the midpoint of the broader .7660/.7300 range. While .7480 caps upside reactions expect a further attempt to breach range lows.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDCAD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: While 1.29 supports price appears to be in a bullish consolidation with risk to the upside, with bulls targeting a 1.32 test. Below 1.29 opens 1.2680 range lows.
Retail Sentiment: Bullish
Trading Take-away: Short

XAUUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: Next level to watch on the upside is 1361 en route to a broader 1390 with 1303 near term support now. Only below 1240 concerns near term bullish bias
Retail Sentiment: Bearish
Trading Take-away: Long

USOIL
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: Only a close below 46 threatens medium term bullish bias, below .46 opens a test of 44 as next downside objective. As 46.70 supports expect a retest of 51.60’s highs.
Retail Sentiment: Neutral
Trading Take-away: Neutral

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