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UK Polls, Yellen Testimony to Drive Sentiment

Published June 21, 2016
  • Overnight market action was relatively subdued compared with Monday's roaring rally across risk assets
  • Stocks in Asia were mostly higher led by the Nikkei's 1.28% rise while European shares enjoyed a second day of gains across the continent and in the UK
  • The looming June 23rd UK referendum on EU membership continues to play a key role in risk appetite as stock, bond and currency valuations shift along with the daily tilt in the polls
  • Recently, the Remain camp has gained the upper hand and this has benefited both the British Pound and risk in general – a win for the Leave vote would cause tumult across global financial markets as everything from UK trade deals to farm subsidies to the actual mechanics of how and when the UK would exit the EU would become uncertain
  • It is important to note that the although polls favour remaining in the EU, opinions and bookmaker odds have swung wildly in recent weeks and thus the outcome of the vote may be largely influenced by voter turnout which of course can be influenced by the weather….let's hope for sun come Thursday
  • Turning to North American Markets, today's action will be highlighted by Fed Chair Janet Yellen's semi-annual testimony before the Senate Banking Committee beginning at 10am ET
  • Yellen has struggled to effectively communicate the Fed's strategy all year, seemingly flip flopping with every data release
  • As a result it has become increasingly unclear what the price of credit will be going forward, and thus the value of the USD has swung wildly and affected stock and commodity valuation alike – Yellen and the Fed have recently projected a much shallower path for both growth and interest rates, hopefully she sticks to the that tune today… 
  • The Loonie is enjoying a third day of gains despite a 1.6% drop in WTI oil this morning, and USDCAD traded to an 8 day low in the mid 1.2700's overnight
  • There are no US or Canadian data releases today however focus should be on Wednesday's US Home Sales and Canadian Retail Sales which have the propensity to influence the Loonie's valuation a great deal

USDCAD Chart: USD is weak as spot trades below the 21 DMA (white) and the RSI is below 50 (green).