General market theme
Just a few days before the EU referendum in the UK and the major money markets are rocking in the rhythm of the sentiment going from bullish to bearish and back. Recent polls on Friday and over the weekend have revealed that just a week before the vote takes place the Remain campaign is picking up momentum again and is now leading the polls. As a result the risk-on sentiment is back in the markets with investors looking to bet on high-beta instruments and reduce their exposure in safer havens. Of course as we move closer to the actual date volatility is expected to remain elevated and if fresh polls show that the Exit vote is still close radical changes in the price action are expected hence caution is advised throughout the week.
Price action highlights
The euro edged higher on Friday and made it to the 1.1300 level by the end of the week but as soon as the markets opened in Asia last night the currency has rallied to the upside making it almost to the 1.1400 area. Recent polls over the weekend revealed that the Remain vote is back in the lead and the euro is benefiting from this bullish turn in the sentiment however we need to remain calm and see whether the same sentiment remains active as soon as the European markets come online. The 1.1400 highs are the resistance for the euro in the short-term and unless we have fresh news or polls showing that the Remain vote is almost certain to win then the euro should remain trading below this border for the time being.
The cable was the main beneficiary of this bearish turn in sentiment and after ending the week around the 1.4250 area the UK currency has taken to the upside as soon as the Asian markets opened for trading last night. The pound is trading around the 1.4600 level this morning against the dollar after a rally that has sent the sterling more than 300 pips higher overnight on the back of renewed confidence in Britain staying in the EU. The 1.4600 level is the resistance in the short-term and if the pound manages to overcome it on the back of fresh bullish polls or news then the 1.4750 level is the next area of focus.
Focus of the day
There’s nothing really in the calendar at the beginning of the week to attract our attention and have a significant effect on the price action. The money markets are focused on the changes in sentiment at this time and the risk-on instruments are having a good start for the week so we need to pay attention to any new polls on the EU referendum or news that could affect this fresh turn away from the safe haven instruments.
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