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Flight to Safety Intensifies over ‘Brexit’ Debacle

Published July 6, 2016
  • Risk assets continue to take it on the chin this morning as equities in Asia and Europe fell by as much as 2% with the European banking index hit particularly hard
  • The Canadian dollar is lower for the second day in row as USDCAD tests the 1.3000 handle after trading in the low 1.2800's earlier this week
  • WTI oil prices are also heading south as the front month contract gives up another one percent to hit $46 ahead of key inventory data from the API later today and from the EIA Thursday morning 
  • Fallout from the UK's decision to leave the EU continues to cause havoc for financial markets and the only assets that seem to be benefiting right now are high quality sovereign bonds 
  • …prices on German government debt have been bid up so much that yields are negative going out as far as 15 years along the curve
  • Benchmark US treasuries are enjoying a rally of their own as yields on the 10 year fell to 1.3210% – a fresh record low that highlights both the level of trepidation in the market and also the belief that the Fed will have a very difficult time raising rates anytime soon…
  • Turning to economic data, Canada reported that its Trade Balance during May fell deeper into deficit than economists had expected coming in at C$ -3.2B – the second largest deficit on record
  • Exports fell 0.7% to C$ 41.15B while imports fell 0.8% to C$ 44.42B, highlighting a difficult outlook for aggregate demand
  • Following the release, the Canadian dollar traded to session lows in the mid 1.3000's for USDCAD and from a technical standpoint we may see a test of a key area of topside resistance at the 1.3100 level – a daily close above that level would increase odds that USDCAD could be moving higher in the near term

Chart: USDCAD may test resistance near 1.3100.  A daily close above this level has the potential to bring the 200 DMA into play at 1.3312 (green).