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Consolidation Ahead of UK Vote

Published June 22, 2016
  • We are noticing a generally positive tone across financial markets for a third day in a row this morning as mixed results for equities in Asia flipped to modest gains during the European session 
  • Commodity prices are buoyant as well with aluminum, copper and oil all trading higher which in turn has supported the Loonie as USDCAD trades close to its 8 day high in the upper 1.2700's
  • WTI oil is trading above $50 following a bullish inventory report yesterday from the API which revealed a larger than expected draw of 5.2M barrels of crude from US inventories – the more widely followed inventory data from the US EIA is released at 0830 ET this morning with expectations of a -1.6M barrel decline in crude stocks
  • The British Pound continues to benefit from the hope that the UK will vote to remain in the EU on Thursday
  • Bookmakers odds of a 'Brexit' are at their longest to date at 7/2, which has certainly brought comfort to investors seeking stability 
  • Of course it is interesting to wonder how much upside is left should the vote transpire in favour of the Remain camp – the GBP has rallied 5.5% already since late last week when the tide starting to shift in favour of staying in the EU and this reasonably indicates that there is likely much more downside than upside for equities, commodities and non-USD currencies ahead of Thursday's decision even if the Remain camp does win
  • Shifting to North American Markets, there are a couple of important data points released this morning from both the US and Canada that may influence USDCAD's near term trajectory
  • The US releases Existing Home Sales for May, with forecasts of 5.54M units sold, while Canada releases Retail Sales for April, with forecasts of a 0.9% rise in receipts following from March's -1% decline
  • USDCAD continues to trade below its 21 day moving average at 1.2897, which is acting as key technical resistance for the pair, and the greenback is likely to continue to come under pressure as long as oil prices are above 50$ and US short term yields remain subdued

 

USDCAD Chart: USDCAD under pressure below its 21 DMA (white).