Market Brief
Overall, the risk sentiment has improved substantially since June 24th even though risky assets are still lagging behind. Indeed, the Brexit vote casted a massive shadow over the global outlook and investors wonder what will be the next the next equity booster. The recovery in the equity was patchy: US equities already erased the post-Brexit losses, EM equity indices made some substantial gains due to the prospect of a longer period of low interest rate in the US and European indices struggled to move to their pre-Brexit levels amid continuing uncertainty about the future of the European Union.
On Tuesday, almost all financial assets were trading in negative territory, with gold falling 0.55%, silver dropping 1.85% and West Texas Intermediate sliding 1.65%, while Asian regional equity indices were blinking red across the screen. This broad-based sell-off suggests that investors are taking their profit home. Among the G10 complex, the Japanese yen was the sole currency that was able to extend gain against the US dollar. USD/JPY fell 0.60% and it 101.88 in Tokyo before consolidating at around 102. Since the Brexit vote, the currency pair has traded sideways between 101.40 and 103.40 as the demand for safe haven assets remained strong.
In Australia, the Reserve Bank left the cash rate target unchanged at record low 1.75% amid political uncertainty. The central bank is willing to keep some fire power ahead of the next inflation report due on July 27th. Indeed, in the event of renewed downside pressure on inflation, the RBA will most likely provide another cut in the benchmark rate. On the data side, retail sales missed median forecast of +0.3%m/m and printed at +0.2% in May, up from +0.1% in the previous month. May’s trade deficit printed at AU$2.2bn versus AU$1.7bn expected; however the trend continues to point towards further improvement. AUD/USD fell 0.46% in Sydney to $0.75. All in all, the Aussie is trading with a positive momentum but has yet to recover from the 4.5% drop of June 24th. The mounting probability of further cut from the RBA will prevent AUD/USD to gain momentum and the currency will most likely trade sideways between 0.73-0.76 ahead of the next CPI report.
In the equity complex, the Nikkei fell 0.67% while the broader Topix index slid 0.42%. In mainland China, the CSI 300 treaded water, edging up 0.02%, while offshore the Hang Seng fell 0.78% and the Taiex -0.51%. In Europe, equity futures are trading broadly lower with the DAX down -0.35%, the CAC -0.19%, the SMI -0.14%, while the FTSE 100 is flat.
Today traders will be watching Services and Composites PMI from Spain, Italy, Russia, France, Germany, the Euro zone, the UK and Brazil; factory orders and durable goods orders from the US; on the central bank side, BoE’s Carney, Fed’s Dudley and ECB’s Lautenschlaeger will speak.
Currency Tech
EUR/USD
R 2: 1.1479
R 1: 1.1428
CURRENT: 1.1137
S 1: 1.0913
S 2: 1.0822
GBP/USD
R 2: 1.3981
R 1: 1.3535
CURRENT: 1.3204
S 1: 1.3121
S 2: 1.3045
USD/JPY
R 2: 111.91
R 1: 106.84
CURRENT: 101.94
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 1.0328
R 1: 0.9956
CURRENT: 0.9712
S 1: 0.9522
S 2: 0.9444