Talking Points:
- AUD/USD, EUR/USD key reversals give USD near-term bullish bias.
- USD/JPY easing back weighs on risk assets - equities lower.
- With FX volatility edging higher again, it's the right time to review risk management principles to protect your capital.
Enjoy your last stress-free (relatively speaking) weekend for the next few weeks. Indeed, with the Federal Reserve's June rate decision on Wednesday - one which has seen rate expectations swing around 25% the past week - and the UK's EU referendum on Thursday, June 23, market volatility is very likely to ratchet up. Most asset classes haven't seen a pick up in volatility, but as everyone knows, past performance is not indicative of future results.
Being in the market right now is like sitting on the beach after a day in the sun, but knowing full-well that there are dark storm clouds approaching quickly on the horizon; it's a matter of time before the downpour begins. Market sensitivity to FOMC meetings with new staff projections and a Fed Chair press conference is always higher than in normal meetings otherwise; and the absolute decimation of June rate expectations leaves plenty of room for the Fed to surprise with misconstrued hawkish language that could drive risk markets into a tailspin.
After FOMC? Any calm in the market will just be the eye of the storm - the battle is only half over. The June 23 UK's EU referendum is poised to bring higher levels of volatility across GBP-crosses the next two weeks, with annualized measures of two- and three-week volatility pricing in +/- 1.2-2.1% daily moves through the referendum. If you haven't reviewed your risk management principles leading up to the Brexit referendum, you should do so as soon as possible - now's not the time to be clever.
See the video (above) for technical considerations in EUR/USD, GBP/USD, USD/JPY, AUD/USD, and the USDOLLAR Index.
Read more: Potential Key Reversals Forming in AUD/USD, EUR/USD
--- Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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