Global financial markets were thrown into turmoil after the U.K. exit the world’s biggest market, the European Union. Pushing the pound to over 30-year low against the US dollar as investors scramble for haven assets.
The risk was further compounded by the decision of Prime Minister David Cameron and the British representative to the European Union Jonathan Hill to resign following Brexit. It is yet unknown when the UK will trigger article 50 of the Lisbon Treaty and get on with the exit process, which could take between 2 to 5 years, but the Governor of the Bank of England Mark Carney in his post-Brexit statement said the apex bank has prepared for this day and as such has made provision for about 600 billion pounds to support the UK financial system and strengthens businesses to create jobs and enhance growth going forward.
On the other hand, the American labor market rebounded last week after May’s weaker than expected non-farm payroll, the unemployment claims improved by 18,000 to 259,000, which suggest moderate growth in the second quarter of the year. Although there were weakness in the housing and manufacturing sectors, but was overshadowed by the increase in demand for the US dollars due to Brexit.
On BOJ, the continuous rush for haven assets has compounded Japan’s situation, while Japan Finance Minister Taro Aso has repeatedly said the yen move is one sided, I don’t think G7 and G20 will give BOJ go ahead to intervene in the yen’s gains, considering global Risks.
This week, US first quarter final GDP, US consumer confidence index, US crude oil inventories, UK current account, Canada monthly GDP, US unemployment claims and purchasing Manager indexes (China, US, UK) are key economic factors to look out for. Here are my forex weekly pick EURUSD, AUDJPY and NZDJPY.
For the past two weeks I have been bearish on EURUSD but the global uncertainties weigh upon it, hence, the pullback before last week bearish confirmation. As long as price remains below 1.1338, I am bearish on EURUSD but with entry around 1.1090, that double as our target two weeks ago and also a price continuation below the channel. Target for the week will be 1.0714, while keeping an eye on global growth as things unfold in coming days.
The same two weeks ago I made mention of AUDJPY pair, although our target was hit at 75.83. The pair still holds considerable sell potential of around 272 pips. I remain bearish on AUDJPY as long as 78.15 resistance level holds, with 73.54 as the target.
After failing to sustain a break of the downward trendline started since last year. The pair has finally given in to Brexit pressure reach over 4-year low on Friday. This week, as long as 73.90 resistance level first established in 2008 hold. I am bearish on this pair with 69.94 as the target.
This should be traded with great caution as high volatility is expected across the board this week as investors try to decipher both ECB and BOE direction going forward. All take profit targets were hit last week.