Trading Video: Expect Yellen to Be Drowned Out By Brexit Fears
- Another weekend flip in EU Referendum opinion polls led to another dramatic swing for GBP/USD
- Brexit fears are a universal risk for the FX market and broader financial system which makes for an erratic course
- Fed Chair Yellen and ECB President Draghi's testimony along with Eurozone investor sentiment is top, non-Brexit risk
There was a risk-oriented buoyancy to start the week, and there was little trouble connecting the move to the swing in Brexit speculation over the weekend. Global equities, crude oil, most Yen crosses, emerging markets and other sentiment sensitive asset classes opened the week with a robust bounce under a headline that polls were showing greater support for the UK staying in the European Union. Surveys by YouGov, Opinium and Survation reflected a spread in favor of the 'Remain' camp to reverse the 'Leave' support that splashed the headlines the previous weekend.
Moving forward, the poll shift does little to permanently reduce the risk that this impending vote poses to the Pound or global capital markets. Early Tuesday morning, a round of four new polls saw the YouGov update actually move back to a majority Brexit view (44 to 42). The reaction to this particular poll, however, wasn't even a fraction of the swell that preceded it. Was that because there isn't yet a consensus in the polls or that the advantage wasn't wide enough or that the markets are headline wary? It isn't clear. These markets are proving increasingly volatile and erratic in their response to fundamental updates. That is risk without 'edge' and conditions that are better avoided.
In the day ahead, there is plenty of event risk on the docket; but whether high profile theme or indicator, the market's interpretation will be filtered through Brexit implications. Fed Chair Janet Yellen for example is set to testify before the Senate Tuesday, but the central bank last week made clear that concern over 'global' economic and financial risks will factor in decisions moving forward. Until Friday, FX traders should evaluate their exposure for Brexit risk and use that as the first line assessment for staying or entering the markets. We discuss trading conditions and the rebalance of risk over opportunity in today's Trading Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.