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Markets stabilizing after Brexit...for now

Posted on: June 28, 2016

Yesterday, post-Brexit risk off sentiment is still lingering as capital runs to safe haven assets. Equities and commodities both sold off through out the day. As a result, Cad was on its back foot for much of the day as USDCAD rallied from the low 1.3000 area in early trading to test Friday’s high of 1.3099. It broke past the high but supply came in at 1.3120 to bring it back down below the 1.3100 handle to close the day. Adding to the risk off sentiment, UK lost its AAA rating after S&P downgraded the country by two notches to AA yesterday. Fitch also downgraded Britain to AA from AA+. GBP hit another new 31 year low of 1.3121.

Overnight, risk seems to be stabilizing since the Brexit shock wave last Thursday. Stocks are partially recovering and oil is up almost 2 dollars trading at the 47.50 area. GBP is trading higher after breaking through yesterday’s high. However, the market is still quite nervous and liquidity is only at about 70% of normal level. EU summit starts today and for sure we will see headlines that could trigger a move in the markets as more details comes forward with regard to Brexit.

With market still nervous about Brexit and the ensuing uncertainty. I am bias long for the USDCAD with capital fleeing to USD and away from risk assets. I would look to buy toward the 1.2900 area targeting the 1.33 or even the 1.35 area. However, stay nimble as liquidity is still at a premium.

Good luck trading!

  • Previous Day’s NA Range 1.3008- 1.3120
  • Asia overnight range 1.3007 – 1.3086
  • London overnight range 1.2967 - 1.3045

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