EUR/USD – Euro Steady as Brexit Shock Subsides

The euro has steadied on Monday, following sharp losses in the Friday session. EUR/USD is trading at 1.1060. In Spain, the election on Sunday failed to produce a clear winner, as no party mustered a majority. On the release front, it’s a quiet start to the week, with no major releases from the Eurozone or the US. ECB head Mario Draghi will speak at an ECB forum in Sintra, Portugal. On Tuesday, the EU will hold an economic summit, with the Brexit referendum the number one item on the agenda. The US will release two items – Final GDP and CB Consumer Confidence.

Europe and the UK are still in shock after the stunning news on Friday that the UK had voted to exit the European Union. The historic decision raises many questions and has resulted in political and financial instability in Europe and the UK. On Friday, the pound dropped as much as 11 percent, and Prime Minister David Cameron announced he would resign in a few months time. It’s hard to gauge the extent of the economic and political fallout so soon after the vote, but there’s no doubt that Brexit will have unpredictable economic and political consequences in the UK and Europe, perhaps for years to come. The UK economy of GBP 2.9 trillion is the fifth largest in the world and number two in Europe, after Germany. Even before the dust of Brexit has settled, there are signs that this divorce between Britain and the EU could be rancorous and messy. One British MP quipped that the EU referendum was the “divorce of the century”. British politicians have said there is no rush to implement the EU exit mechanism, while furious European lawmakers have called for the UK to leave as soon as possible. Britain may have voted “Leave”, but clearly the timing and the type of exit plan remain unclear. The future framework of political and economic relations between the UK and the continent will have to be negotiated, and we will see plenty of uncertainty in the coming months.

Brexit has ushered in a period of instability and uncertainty across the continent, with Brexit seemingly the only certainty one can point to. On the EU side, the bloc has plenty of new headaches, as it must deal not only with the British exit but also from rejuvenated Euro-skeptics across Europe. The Brexit vote is likely to renew debate about EU membership in countries like the Netherlands and Denmark. Even in France, a staunch member of the club, EU membership could be revisited, as Jean-Marie Le Pen, head of the Front National party, has called for an EU referendum in France. The EU is under a real threat of destabilization and will have to figure out how to deal with the tremendous challenges suddenly brought on by Brexit.

Overshadowed by Brexit, the US wrapped up last week with soft manufacturing and consumer confidence numbers. Core Durable Goods Orders came in at -0.3%, marking the third decline in the past four months. This figure was well short of the forecast of +0.1%. There was no relief from Durable Goods Orders, which posted a sharp drop of 2.2%, compared to forecast of a 0.5% decline. The UoM Consumer Sentiment report also missed expectations, with a reading of 93.5 points. The markets had expected a reading of 94.2 points. Next up is Final GDP on Tuesday, and the strength of the release could have major implications regarding a rate move during the second half of 2016.

EUR/USD Fundamentals

Sunday (June 26)

• All Day – Spanish Parliamentary Election

Monday (June 27)

• 8:00 Eurozone M3 Money Supply. Estimate 4.8%. Actual 4.9%
• 8:00 Eurozone Private Loans. Estimate 1.6%. Actual 1.6%
• 12:30 US Goods Trade Balance. Estimate -59.5B
• 13:45 US Flash Services PMI. Estimate 52.0
• 17:30 ECB President Mario Draghi Speaks

Upcoming Key Events

Tuesday (June 28)

• 8:00 ECB President Mario Draghi Speaks
• Day 1 – EU Economic Summit
• 12:30 US Final GDP. Estimate 1.0%
• 14:00 US CB Consumer Confidence. Estimate 93.2

* Key releases are in bold

*All release times are GMT

EUR/USD for Monday, June 27, 2016

EUR/USD June 27 at 9:55 GMT

Open: 1.1038 Low: 1.0984 High: 1.1084 Close: 1.1031

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European sessions
• 1.0925 is providing support
• 1.1054 is fluid and is a weak resistance line. It could see further action in the Tuesday session

Further levels in both directions:

• Below: 1.0925, 1.0821 and 1.0713
• Above: 1.1054, 1.1150, 1.1278 and 1.1376
• Current range: 1.0925 to 1.1050

OANDA’s Open Positions Ratio

EUR/USD ratio has slight movement towards short positions on Monday.  Short positions have a majority (57%), indicative of trader bias towards EUR/USD reversing directions and moving lower.

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