Market participants are still in a state of shock after the victory for Brexit has shaken the financial markets. The next trading days are therefore likely to be very volatile until the dust has settled somewhat. Both major currency pairs started this week nervously as uncertainty is likely to prevail in the coming weeks. U.K. Prime Minister David Cameron said he was in no hurry to step down, indicating it could take up to three months before making way for a new leader who negotiates the exit.
Consequently, it could take some time before markets stabilize and by then, both euro and pound sterling remain vulnerable to further losses. The vote for Brexit has forced global central banks to adopt a cautious attitude with Bank of England Governor Mark Carney saying the BoE could pump billions of pounds into the financial system to counter market turmoil. Moreover, the European Central Bank stands ready to intervene if necessary while the Federal Reserve is "carefully monitoring" financial markets. The Fed therefore may delay an increase in U.S. interest rates which could weaken the U.S. dollar as a result.
In periods of financial market turmoil prices are driven by the appetite for safe haven currencies such as the U.S. dollar and yen. However, bear in mind that as soon as the situation in the financial markets stabilizes, the focus will shift to monetary policy and decreased expectations of a Fed rate hike this year. We are not going to refer to economic data at the moment, as this week's reports could take a backseat.
EUR/USD
The euro formatted a recent downtrend channel with the lower bound being around 1.09. We expect the 1.09-level to lend a short-term support for the euro, whereas a break below 1.0890 could drive the pair towards the next support at 1.0820. A current resistance is seen around the 1.1070-level up to which corrections might be limited. Above 1.1120 the euro may head for a test of 1.12.
The pound sterling continued its downslide but found some halt around the 1.3350-level. Below that level the focus shifts to lower targets at 1.33, 1.3230 and 1.31. On the upper side, the 1.3485-level could act as a short-term resistance while a break above that level could send the pound towards 1.3560 and 1.36.
We wish you a good start to the new week and many profitable trades for the days ahead.
Here are our daily signal alerts:
EUR/USD
Long at 1.1090 SL 25 TP 30, 60
Short at 1.0980 SL 25 TP 30, 75
GBP/USD
Long at 1.3420 SL 25 TP 30, 130
Short at 1.3340 SL 25 TP 30, 90
We wish you good trades and many pips!
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