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June 2016

Sterling bounces but Brexit fears drag it lower again

Published: Tuesday 14 June 2016

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  • Sterling bounces but Brexit fears drag it lower again
  • Gold up on global impact fears

Gold is stronger today after more volatility in other markets. The UK's vote on EU membership has sent shivers through all markets as traders and analysts try to assess what impact a leave would have on the global economy. It would clearly damage the EU and the UK for a period but does it dampen global demand? No one really knows and there is a saying that if you laid all the economists in the world end to end, they still wouldn't reach a conclusion, so let's not ask for – or believe – the forecasts eh!
 
Sterling dived on the news that the 'Leave' campaign is getting better support in the latest polls. Sterling bounced from the USD 1.41 to USD 1.43 yesterday but failed to make any headway. That kept it below the previous support and would suggest we will see further declines in the days ahead. That might sound like a 'no brainer' with the referendum just 9 days away but it is good to have these things confirmed by the charts. In fact we are back to $1.41 this morning. The $1.38 February low is a possibility in the next 10 days.
 
Sterling – Euro is also lower this morning after testing the €1.25 level yesterday. That makes a Euro worth 80 pence so it is a psychological resistance level but also a retracement level on the Fibonacci scale. If that support fails, the Pound could be heading for the low we last saw in April at €1.23 and, if things get really 'Brexity' the 2014 low of €1.19 beckons.
 
We get the UK inflation data this morning. That would normally be quite influential on the value of the Pound and the forecasts are for a rise to 0.4% on the year but it is overshadowed by the 'B' word. The rest of the day brings EU industrial production data which is expected to be quite upbeat (but it will be overshadowed ...etc etc etc) and this afternoon brings US retail sales data which we expect will be pretty poor. That adds further pressure on the Federal Reserve to keep the base rate down for now. We'll get that decision tomorrow.
 
And after the vile attack in the Orlando nightclub, you might expect politicians to be rather solemn in their responses but the rhetoric pouring out from Donald Trump is as embarrassing as it is ill conceived. Yesterday, he banned the Washington Post from covering his rallies because they are so critical of his campaign. So the freedom to bear arms; even after the worst mass shooting in America's history, is apparently preferable to the freedom of the press and free speech. He also said, "The Obama administration has also damaged our security by restraining our intelligence gathering." I think that probably only applies to you Mr Trump.
 

Quote

 
After 9/11 we banned knives and box cutters on airplanes. We then banned liquids of more than 3 ounces. We understood the connection between these things and the loss of life that followed. So why can't we understand the connection between assault weapons and mass shootings?
 
Jim Trumm
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: CPI y/y 0.3% 0.4%
GBP 09:30 UK: PPI input m/m 0.9% 0.9%
GBP 09:30 UK: RPI y/y 1.3% 1.5%
USD 13:30 US: Core retail sales m/m 0.8% 0.4%
USD 13:30 US: Retail sales m/m 1.3% 0.4%
USD 13:30 US: Import prices m/m 0.3% 0.8%
NZD 23:45 New Zealand: Current account -2.61B 0.97B

FX Research by David Johnson
Daily Currency Analysis with Michael Hart

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