Global markets are on high alert as investor anxiety mounts ahead of the heavily anticipated E.U referendum vote on the 23rd of June. Uncertainty continues to heighten and this has triggered a wave of risk aversion, consequently encouraging investors to scatter from riskier assets. Most major stocks are vulnerable and could sink deeper into the abyss as investors make a flight to safety amid the ongoing concerns over faltering global growth. European equities displayed a swift retreat during trading on Thursday following the decline in financial stocks and could trade lower if investor jitters offer a foundation for bears to attack again. Although Wall Street displayed some resilience after the suspension in the Brexit campaigning, American stocks could be destined to venture deeper into the red territory as a mixture of tumbling oil prices and investor caution cap any short term gains. While Asian stocks have grasped the opportunity to bounce back as weaker Yen boosts the Nikkei, the risk-off sentiment should cap the rally and ensure prices remain depressed until after the E.U referendum.
Brexit finale draws near
The first season of the Brexit saga slowly comes to an end with the vote on the 23rd of June, acting as a season finale that could offer the answer everybody seeks. Sterling volatility has hit unimaginable levels with major financial figures repeatedly voicing their concerns over the impact a Brexit could have not only on the UK, but forthe global economy. Most major markets have felt the burn from the Brexit woes with Europe under immense pressure as concerns heighten that a Brexit could trigger an undesirable domino effect which encourages other countries to leave the European Union. The Brexit fears and concerns over global instability have left most central banks on standstill with the BoJ, BoE and Fed remaining on the fence. The E.U referendum vote goes beyond the borders and Europe with everyone feeling the pinch as uncertainty continues to mount ahead of the 23rd.
Pairs such as the GBPUSD have been on a wild rollercoaster ride as Sterling volatility spirals out of control. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below 1.4100 should open the floodgates towards 1.4000 and potentially lower.
Central Bank caution renews jitters
Confidence towards the global economy may have taken a hit during trading this week following the cautions stance adopted by the central banks amid Brexit fears and slowing global growth. The Federal Reserve (Fed), Bank of Japan (BoJ) and Bank of England (BoE) all had their monetary policy meetings this week with all central banks singing the same tune and concluding with no action taken. With most central banks showing caution amid the unstable economic landscape investors may likely scatter from riskier assets to safe-havens such as the JPY and Gold. Questions continue to be raised if the Federal Reserve will raise rates again in 2016 while the Bank of Japan’s inactive strategy continues to boost the Yen, consequently punishing the nation even further.
Gold tumbles below $1285
Gold experienced an aggressive selloff during trading on Thursday with prices cutting below $1285 following the suspension of the Brexit campaign which offered a foundation for bearish investors to pounce. It seems that Gold prices have been dictated by Brexit expectations and with the suspension of the Brexit campaign bolstering speculation of a “Bremain” victory, Gold prices plummeted. While bears may be commended on their ability to exploit the window of opportunity to send prices lower, Gold could be poised to recover when risk aversion encourages investors to seek safe-have safety. From a technical standpoint, Gold bulls need to secure a solid weekly close above $1285 for another up move towards $1315.
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Written by Lukman Otunuga, Research Analyst at FXTM
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