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Risk-off as German yields dip below zero

Published June 14, 2016
  • Markets remain fixated on next Thursday’s UK referendum on EU membership resulting in a second day of risk aversion across markets
  • Equities in Asia finished lower and the European session is no different with losses across the continent and a 1.3% pull back in London
  • The selloff has spurred a furious bid for safe havens such as German government debt, whose yields have dipped into negative territory this morning (yields move inversely to prices)
  • This is a stark reminder of the uncertainty that can arise in the market place and it is affecting multiple asset classes
  • The USD is bid as well, rising just under 0.5% on a trade weighted basis and oil prices have slipped for a fifth day to $48.23 for a loss of 1.3% on the WTI contract
  • Oil is lower despite a relatively positive report from the International Energy Agency which stated the market is close to reaching equilibrium of supply and demand
  • WTI and Brent prices are shrugging off that news and instead focusing on the possibility of the risk of recession in the EU should the UK exit
  • As a result the Canadian dollar has also given up ground, trading in the mid 1.2800’s for a fourth day of losses
  • On the data front, the US reported that retail sales rose more than expected during May, as receipts increased 0.5% compared with 0.3% forecast

USDCAD Technical Glance
USDCAD continues to recover and is now testing the 10 day moving average (DMA) at 1.2855.  A close above the 21 DMA at 1.2956 is required for USD bulls to really get excited so watch this level closely over the next few days.

Chart: USDCAD posting fourth days of gains.