Thursday, June 24

Britain’s EU exit shocks the global market

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Fundamental outlook  

US home market data saw more interest leaning towards resale of properties. The European markets sank in fear of bearish sentiments after UK voted for Brexit last Thursday. Market analysts reckoned more risk would emerge in the financial market following the Brexit.

US existing homes sales increased 5.53 million in May, the best recorded since January this year. It also hit a nine-year high. New home sales grew 551,000 in May versus a revised 586,000 reported in April, tuning down market sentiments after the rise in existing home sales.

US weekly jobless claims dropped slightly after it was reported at 259,000 in the week ended June 18, the lowest eight weeks. In another report, core durable goods, excluding transport equipment, contracted 0.3 per cent in May after a 0.5 per cent gain recorded in the previous month.   Japan’s trade surplus grew 270 billion yen after the previous month’s revised 400 billion yen reported in April. The yen rose again last week to a one-year high against the dollar as US dollar/Japanese yen declined beneath 100 benchmarks, indicating a loss of confidence after the Brexit.

German producer prices rose 0.4 per cent in May, the highest in the last 12 months. German Ifo sentiment that measures the general businesses advanced 108.7 after it was revised at 107.8 in May.

In another report, German ZEW economic sentiment on institutional investors showed 19.2 gains in June, almost four-times above the median forecast, after a growth of 6.4 in May. The euro currency also declined right after UK announced its Brexit on Friday morning in Asia hours.

Great Britain has confirmed that it has voted out of the European Union bloc under the Brexit referendum on June 23. Prime Minister David Cameron said he would tender his resignation from his office before October. Meanwhile, the global market faces selling pressure as most analysts expect strings of bear sentiment will slip into risk assets and financial instruments.

 

Technical forecast  

US dollar/Japanese yen dipped to 98.95 on Friday after UK announced the Brexit. The market is uncertain, now, with huge swings due to mixed and rapidly changing sentiments. This week, we reckoned the range would thread from 99 to 104 ranges in mixed sentiment. Beware of trend swings that could harm your profit.

Euro/US dollar declined about 400 pips on Friday following a decline in the European market. This week, market movement is expected to remain uncertain as traders are still waiting to hear more about the effects of Brexit. Technically, we foresee the market might be prone to bearish sentiments and it could range from 1.09 to 1.12 regions. Beware of piercing the topside in case of changes in sentiments.

British pound/US dollar has turned bearish on the long-term chart analysis after moving averages crossed down. This, we feel, the market might set a short-term bear trap by making upward retracement. Range is expected to move from 1.32 to 1.42 regions with strong resistance emerging from topside. Trade cautiously as the trend might be volatile.

 

Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is a registered fund manager in Singapore with 27 years of trading experience in global Derivatives and forex markets. He can be reached at [email protected]