EUR/USD – Euro Gains Continue as Britons Vote on Brexit

EUR/USD is higher on Thursday, posting strong gains for a second straight session. The pair is trading slightly blow the 1.14 line. It’s Brexit day, as Britons are voting whether to remain part of the European Union. On the release front, German and Eurozone Manufacturing PMIs beat their estimates. However, the Services PMI reports failed to follow suit and fell short of expectations. Over in the US, today’s key event is Unemployment Claims, with the indicator expected to drop to 271 thousand. On Friday, the US releases Durable Goods Orders.

Brexit is finally here! After a bitter and hard-fought campaign, millions of UK voters are voting on whether the country remains in the EU or exits from the bloc. Most polls continue to show a neck-and-neck race between the Remain and Leave camps, so undecided voters will likely swing the vote and determine the final outcome. However, there is clearly a discrepancy between the polls and the market mood, as market sentiment continues to lean towards a victory by the Remain camp. This sentiment has boosted the pound, which is currently trading at 1.4850, its highest level in 2016. The Remain camp has warned that a vote to leave the EU would damage the UK economy, while the “Leave” vote has tapped into voter dissatisfaction with Brussels, particularly concerning immigration and over-regulation by the EU. The economic stakes are massive, as the UK economy of GBP 2.9 trillion is the fifth largest in the world and number two in Europe, after Germany. A vote to leave the comfort zone of the EU would be a journey into the unknown, with unpredictable economic and political consequences for both the UK and the European Union. The British pound and the euro would likely be hit hard if the UK leaves Europe.

The ECB’s Outright Monetary Transactions (OMT) program was in court on Tuesday, as the German constitutional court issued a ruling on the legality of OMT. The court held that OMT, which allows the ECB to purchases sovereign bonds from EU members that are in financial trouble, was valid. However the court added that it did not accept rulings of European Court of Justice as binding upon it (the ECJ previously ruled that OMT was legal). This means that the German Federal Court continues to assert its right to review EU law and determine if it conforms with German law. The OMT scheme has never been used, as the ECB has instead used QE to enable Eurozone members to purchase bonds.

Janet Yellen was cautious and tentative in testimony before the Senate and House of Representatives this week. She acknowledged that the US economy could be stronger, saying that “[c]onsiderable uncertainty about the economic outlook remains”. Yellen said that she’s “hopeful that we will see a pickup in growth”, but skeptics might respond that the markets want to see action from the Fed and not just hope. The Fed has clearly been out of sync with the markets, as underscored by the Fed’s statements back in December that it might raise rates in 2016 up to four times. Meanwhile, here we are in June, and there’s no clear indication that the Fed will raise rates at all this year. In her testimony, Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending.

EUR/USD Fundamentals

Thursday (June 23)

• 7:00 French Flash Manufacturing PMI. Estimate 48.8 Actual 47.9
• 7:00 French Flash Services PMI. Estimate 51.5 Actual 49.9
• 7:30 German Flash Manufacturing PMI. Estimate 52.1. Actual 54.4
• 7:30 German Flash Services PMI. Estimate 55.0 Actual 53.2
• 8:00 Eurozone Flash Manufacturing PMI. Estimate 51.4. Actual 52.6
• 8:00 Eurozone Flash Services PMI. Estimate 53.2. Actual 52.4
• Tentative – Eurozone Long Term Refinancing Option
• 12:30 US Unemployment Claims. Estimate 271K
• 13:00 Belgian NBB Business Climate. Estimate -2.9
• 13:45 US Flash Manufacturing PMI. Estimate 50.5
• 14:00 US New Home Sales. Estimate 561K
• 14:00 US CB Leading Index. Estimate 0.2%
• 14:30 US Natural Gas Storage. Estimate 59B

Upcoming Key Events

Friday (June 24)

• 8:00 German Ifo Business Climate. Estimate 107.6
• 12:30 US Core Durable Goods Orders. Estimate 0.1%

* Key releases are in bold

*All release times are GMT

EUR/USD for Thursday, June 23, 2016

EUR/USD June 23 at 9:50 GMT

Open: 1.1325 Low: 1.1315 High: 1.1400 Close: 1.1382

EUR/USD Technical

• EUR/USD continues to post gains and break past resistance lines. The pair was flat in the Asian session and has posted strong gains in European trade
• 1.1376 is fluid and has switched to a support role. It could see further action during the day
• There is resistance at 1.1495

Further levels in both directions:

• Below: 1.1376, 1.1278, 1.1150 and 1.1054
• Above: 1.1495, 1.1616 and 1.1712
• Current range: 1.1495 to 1.1616

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Thursday, despite strong gains by EUR/USD. Short positions have a majority (57%), indicative of trader bias towards EUR/USD reversing directions and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.