Uncertainties Before U.K. Vote Result In Massive Widening Of Volatility

Dear Traders,

The biggest story was the sharp rise of the British pound early this morning, which once again demonstrates the enormous potential despite uncertainties surrounding the U.K. referendum. Only this morning we saw a higher likelihood for upcoming bullish momentum if the cable was able to break above 1.4480 but the pound came up first with its strong upward move before we published today’s analysis. The British pound has soared within seconds by 180 pips towards a high of 1.4661 but was not able to hold onto its huge gains. The currency pair remains vulnerable to high-volatile swings and traders should be prepared for huge breakouts at any time.

Yellen’s speech had only little impact on the market’s sentiment as she avoided addressing the timing of another interest-rate increase. While her comments were less hawkish this time, omitting a previous phrase that an increase would likely be “appropriate in the coming months”, the Fed is still on track to raise rates this year. Yellen described the latest labor-market report as “disappointing”, but also pointed to the increase in average hourly earnings, which is seen as one of the few encouraging elements of the report.

In a nutshell, a June move is off the table and the Federal Open Market committee is now expected to keep rates on hold when they meet next week. Also, the chances of a July hike have fallen substantially after the latest labor-market weakness and Yellen’s speech. The next major risk event will now be the U.K. referendum and investors are likely to remain risk-averse in the run-up to the important vote, a fact that could depress the market environment in the near-term.

The U.S. dollar was little changed yesterday and this could possibly last for some time as there will be no major economic reports this week, which could help determine the market’s direction. Traders should therefore not expect too much, take profits even at smaller targets and do not invest too much.

The only second-tier report from the Eurozone today will be revisions to the first-quarter GDP, due at 9:00 UTC. This report is not expected to have a major impact on the euro. The EUR/USD marked a recent trading range between 1.1392 and 1.1325. Based on that range we will focus on price swings above and below these bounds, while we expect the 1.1409-level to act as a short-term resistance. Above 1.1415 a next bullish target could be at 1.1445. However, a break below 1.1325 could drive the euro towards 1.1290 and 1.1260.

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