We welcome you to a new trading week and it is getting more and more exciting as we are approaching the U.K. referendum next week, which will maintain its grip on the markets. The U.S. dollar appreciated against the euro and British pound last Friday as it benefited from safe-haven flows in the run-up to the U.K. vote. The British pound broke below 1.43 as anxiety about a potential Brexit considerably reduced the demand for sterling. While the Yen benefits most from safe-haven flows, the appetite for U.S. dollars mainly hinges on the Federal Reserve’s tightening cycle. Despite a busy economic calendar this week, the main focus will therefore be on the FOMC rate decision on Wednesday. No one expects the Fed to raise interest rates this month but Janet Yellen’s press conference could set the tone of the debate on further tightening in 2016. Apart from the FOMC announcement, the June 23 referendum is casting its shadows before: A survey published last Friday showed the ‘Leave’ camp being in the lead. U.K. Consumer Prices are scheduled for release on Tuesday, while the Bank of England will announce its monetary policy decision on Thursday. However, overshadowed by Brexit concerns, the BoE announcement is going to be a non-event for traders.
From the U.S. we have Advanced Retail Sales (Tuesday) and the CPI report (Thursday) scheduled for release. All in all, it could be a busy week for traders and as long as there is volatility in the markets, there will be opportunities for larger gains.
The cable broke below its crucial support at 1.43 and could be headed for a test of 1.41 and 1.4050 in a next step. Looking at the daily chart we see a current downward channel which suggests further bearish momentum towards the lower bound at 1.4080. But be careful: The pound fluctuates in an oversold territory and could now be vulnerable to volatile upswings. Thus, pullbacks towards 1.4350 and 1.44 are not unlikely.
From the Eurozone there will be no major economic reports on the calendar. Thursday’s Consumer Price report could have a minor impact on the euro but how the EUR/USD will trade this week, will mainly hinge on the performance of the greenback and safe-haven demand. The euro marked a current support at 1.1230. With a break below 1.1225 it could extend its losses towards 1.1195 but we expect bearish momentum to be limited as the currency pair could be vulnerable to some pullbacks now. We see a current resistance at 1.13/1.1320.
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