At present, nothing affects the market more than any new Brexit polls and the associated risks and fears determine the price action in both major currency pairs. While any incoming economic data, whether it is good or bad, is currently taking a back seat, the market seems to be only focussed on the recent U.K. referendum polls. Only yesterday, we learned how sensitive market participants are to shifts in opinion polls, whereby an online poll put the Brexit camp ahead, in contrast to a previous poll showing a lead for the ‘Remain’ camp. As stated in yesterday’s analysis, traders should expect more volatility in the run-up to the U.K. vote which is why both currency pairs remain vulnerable to wild swings.
The euro dropped on Brexit risks, but remained confined to a narrow trading range between 1.1173 and 1.1122 on Tuesday. The performance of the EUR/USD was therefore muted and unfortunately did not provide any sustained profit for day traders. However, the recent downward channel is still intact with a current resistance line at 1.1163 and on the other hand, a support line at 1.1073. The German Manufacturing PMI is scheduled for release at 7:55 UTC but we do not expect this report to have a major impact on the euro.
The British pound fell sharply as two ICM opinion polls showed the Brexit camp ahead. Short-trader’s efforts thus paid off and we were able to pocket a nice profit on the last trading day of May. Given that bearish momentum, we will now focus on a break below the recent support at 1.4442 in order to sell the pound towards 1.4405 in a first step. If sterling drops significantly below 1.4385 we see a next support at 1.4340. A current resistance is seen at 1.4522. The U.K. Manufacturing PMI is due at 8:30 UTC and economists forecast an uptick in May. Whatever the case, Brexit concerns will continue to determine the performance in the pound.
From the U.S. the most important piece of economic data will be the ISM Manufacturing Index, scheduled for release at 14:00 UTC. Any unexpected outcomes should affect the dollar accordingly.
Last but not least, the Federal Reserve releases its Beige Book at 18:00 UTC.
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