GBP/USD Dives as Brexit Fears Spread to Global Equities
- GBP/USD has quickly sliced through range support near $1.4300.
- GER30 and JPN225 breaking lower out of recent triangles.
- FX volatility set to remain high with FOMC and Brexit vote next two weeks - it's the right time to review risk management principles to protect your capital.
Risk assets have continued to slide to start the week as a light economic calendar and negative, deeply saddening news headlines have given investors reason to pull back. Unfortunately, the sick events that unfolded in Orlando over the weekend are eerily reminiscent of the cowardly acts that took place in Brussels back in March. For the British Pound in particular, the news out of Orlando regarding the attacks represents another piece of emotional evidence for the 'vote to leave' camp for the UK-EU referendum next Thursday, June 23.
The acts of terror perpetrated in Orlando over the weekend - after Brussels in March and Paris last November - are the types of events that will feed into a 'fear-driven' mindset when it comes to the June 23 vote. The British Pound is taking the brunt of the collateral damage (the event is easily transferable in the minds of British voters), and we're likely to see the next wave of negativity regarding the vote hit the newswires over the next few days.
With said events unfolding on the doorstep of the June 23 vote, global investors are waking up to the growing possibility of the UK leaving the European Union. Aside from the fact that the GBP/USD, which saw its range break below $1.4300 on Friday and implied volatility run to its highest levels since the day of Scottish referendum in September 2014 (and we're still nine full days away from the vote(!)), global equities are spilling over on the news - a clear sign that investors feel the odds of a Brexit are increasing.
As GBP/JPY has slumped into fresh yearly lows, the German DAX (CFD: GER30) and the Japanese Nikkei 225 (CFD: JPN225) have just broken out of their respective multi-week triangles to the downside. Put in context of the recent sharp rise in precious metals, there are clear warning signs going off about the state of risk in global markets and the economy.
--- Written by Christopher Vecchio, Currency Strategist
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