EUR/USD - Euro Edges Higher As Brexit Vote Looms

|
Includes: FXE, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

EUR/USD has posted slight gains on Wednesday, following two days of losses. The pair is trading at 1.1270. On the release front, the Eurozone releases HPI and Consumer Confidence. The US will release Existing Homes, with the markets expecting the indicator to improve to 5.53 million. As well, Federal Reserve chair Janet Yellen will testify before the House Financial Services Committee regarding the Fed’s Monetary Policy Report. On Thursday, the US will release Unemployment Claims.

With just one day left until the Brexit referendum vote in the UK, the campaign between the “In” and “Out” camps is going down to the wire. Polls continue to predict a very close vote, but market sentiment is leading towards the UK staying within the EU. This sentiment has boosted the British pound in recent days against the dollar and the euro. Prime Minister David Cameron and other prominent British personalities have warned that a vote to leave the EU would damage the UK economy, while the “Leave” vote has tapped in to voter dissatisfaction with Brussels, particularly concerning immigration The “Leave” camp also claims that EU over-regulation has stifled British businesses, and point to countries such as Switzerland that have close economic relations with the EU but are not part of the bloc. Still, leaving the comfort zone of the EU would be a journey into the unknown, and analysts predict that if the UK exits the EU, the pound could dive by as much as 10 percent.

The ECB’s Outright Monetary Transactions (OMT) program was again in court on Tuesday, as the German constitutional court issued a ruling on the legality of OMT. The court held that OMT, which allows the ECB to purchases sovereign bonds from EU members that are in financial trouble, was valid. However the court added that it did not accept rulings of European Court of Justice as binding upon it (the ECJ previously ruled that OMT was legal). This means that the German Federal Court continues to assert its right to review EU law and determine if it conforms with German law. The OMT scheme has never been used, as the ECB has instead used QE to enable Eurozone members to purchase bonds.

Janet Yellen was cautious and tentative in her testimony before a Senate Committee on Tuesday. She acknowledged that the US economy could be stronger, saying that “[c]onsiderable uncertainty about the economic outlook remains”. As expected, Yellen provided no hints with regard to the timing of a rate hike, leaving the markets doubtful that we’ll see a rate hike in July. Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending.

EUR/USD Fundamentals

Wednesday (June 22)

  • Tentative – German 30-year Bond Auction
  • 13:00 Eurozone HPI. Estimate 0.6%
  • 14:00 Eurozone Consumer Confidence. Estimate -7
  • 14:00 Federal Reserve Chair Janet Yellen Testifies
  • 14:00 US Existing Home Sales. Estimate 5.53M
  • 14:30 US Crude Oil Inventories. Estimate -1.3M

Upcoming Key Events

Thursday (June 23)

  • 12:30 US Unemployment Claims. Estimate 271K

* Key releases are in bold

*All release times are GMT

EUR/USD for Wednesday, June 22, 2016

EUR/USD June 22 at 10:10 GMT

Open: 1.1249 Low: 1.1235 High: 1.1278 Close: 1.1273

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0909 1.1054 1.1150 1.1278 1.1376 1.1495
Click to enlarge
  • EUR/USD was flat in the Asian session and has posted small gains in European trade
  • 1.1278 remains fluid and is currently a weak resistance line. It could see further action in the Wednesday session
  • There is strong support at 1.1150

Further levels in both directions:

  • Below: 1.1150, 1.1054 and 1.0909
  • Above: 1.1278, 1.1376, 1.1495, 1.1616
  • Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Wednesday, consistent with the lack of significant movement from EUR/USD. Short positions have a majority (56%), indicative of trader bias towards EUR/USD reversing directions and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.