GBP-crosses Eye Next Leg Lower; CAD Eagerly Awaits Budget
- GBP/USD slips after the weak CPI report, dismal news headlines.
- USD/CAD performance hinges on Canadian budget announcement.
- As FX market volatility stays elevated, it's a good time to review risk management principles.
Risk assets are hitting a rough patch today after a swatch of mixed data and saddening headlines has given investors reason to pause. The preliminary March Euro-Zone PMI figures were both good and bad, while UK inflation figures fell short of expectations in February.
For the British Pound in particular, the news out of Belgium regarding the attacks represents a new piece of evidence for the 'vote to leave' camp for the upcoming EU referendum on June 23. While we were bearish on Sterling coming into this year - short GBP/JPY was my trade of the year for 2016 - the 'Brexit' implications were far more vague.
As we wrote at the time, "While a ‘Brexit’ is not our base case scenario, we think that the recent immigration crisis, should it continue or should there be another unfortunate series of events like the ones in Paris in another major European city, then it may feed into the pro-Brexit camp’s hand, increasing popular opinion for the UK to leave the European Union and retake control of its borders." Unfortunately, the cowardly, sickening acts of terror perpetrated in Brussels today are the types of events that can feed into a 'fear-driven' mindset when it comes to the June 23 vote. The British Pound is all the worse for the wear, and we're likely to see the next wave of negativity regarding the vote hit the newswires over the next few days.
Elsewhere today, on a markedly more positive note, the Canadian Dollar is eagerly awaiting the federal budget announcement today by Canadian Finance Minister Bill Trudeau. This has been the most important driving event for the Canadian Dollar in 2016 alongside the rebound in oil prices. Read our full preview here.
--- Written by Christopher Vecchio, Currency Strategist
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