Weekly Analysis: Last week Britain has decided to leave the European Union and the impact on the market was tremendous. The Euro tumbled for more than 500 pips but the effects of the Brexit are still in play so we may see further declines.
The fact that Britain parted ways with the EU weakened both the Pound and the Euro. It’s a historical decision and the markets will continue to be affected by it, especially we’ll hear talks about other EU members leaving or thinking about it. For now the low at 1.0911 represents a key level and to the upside the first major barrier is the recently broken trend line, followed by 1.1335 and 1.1400.
The week starts slow, without any major events Monday but Tuesday action picks up with the release of the Final version of the U.S. Gross Domestic Product as well as a U.S. Consumer Confidence survey which acts as a leading indicator of consumer spending.
Wednesday we turn our attention to the Euro for the release of the German Prelim Consumer Price Index (main gauge of inflation) and Thursday the focus remains on German economy for the release of the German Retail Sales.
Friday’s only major event is the release of the U.S. Manufacturing PMI, a survey of purchasing managers from the manufacturing sector that tries to gauge their level of confidence regarding overall business conditions.
Due to Britain’s referendum results, the Pound dropped for almost 1,800 pips against the US Dollar, reaching levels that were last seen in the mid-1980s. The future is just as uncertain for the Pound as is for the United Kingdom and the European Union.
Currently price is not driven by the technical aspect but by the reactions of EU leaders and major market participants. The low at 1.3227 is a level not reached since the mid ‘80s and it’s very possible to see another attempt to break it but it’s also very possible to see a move back above 1.3835. Either way, caution is still recommended as the next direction is uncertain and volatility has reached peak levels.
The United Kingdom didn’t schedule a lot of economic indicators for the week ahead but noteworthy is the Current Account, that will be released Thursday and the Manufacturing PMI that will come out Friday. The first indicator shows the difference between imported and exported goods, while the second acts as a leading indicator of economic health, focused on the Manufacturing sector. Considering the turmoil generated by Britain leaving the EU, the mentioned events may be overlooked by market participants.
Written by: Bogdan Giulvezan