EUR/USD – Euro Higher, EU Summit in Focus

The euro has posted gains on Tuesday, following a quiet session on Monday. EUR/USD is trading at 1.1060. On Tuesday, the EU leaders meet in Brussels, with the Brexit referendum the number one item on the agenda. The US will release two key indicators – Final GDP and CB Consumer Confidence.

With the aftershocks of the Brexit vote continuing to reverberate in the Britain and Europe, political leaders must now pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The historic decision raises many questions and has resulted in political and financial instability in Europe and the UK, and wiped out a staggering $3 trillion from global stock markets. The British pound has tumbled about 11 percent since the vote, and other currencies and gold have also recorded sharp volatility. Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid, with Prime Minister Cameron resigning, the Labor Party in turmoil and general elections likely later in the year. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders should be prepared for further volatility in the currency markets.

British Prime Minister Cameron will meet his EU colleagues in Brussels for a 2-day summit, and already there are signs that this divorce between Britain and the EU could be rancorous and messy. Cameron said on Monday that his successor would be the one to initiate the exit mechanism, and other British politicians have said there is no rush to leave. However, European lawmakers, furious with the decision, have called on Britain 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 and perhaps fireworks 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. Whatever the exit arrangement is reached with Britain, the EU may well have to undergo significant reform if it is to survive.

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 later 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

Tuesday (June 28)

• 6:00 German Import Prices. Estimate 0.6%. Actual 0.9%
• Day 1 – EU Economic Summit
• 12:30 US Final GDP. Estimate 1.0%
• 13:00 US S&P/CS Composite-20 HPI. Estimate 5.5%
• 14:00 US CB Consumer Confidence. Estimate 93.2
• 14:00 US Richmond Manufacturing Index. Estimate 2 points
• 23:00 FOMC Member Jerome Powell Speaks

Upcoming Key Events

Wednesday (June 29)

• Day 2 – EU Economic Summit

* Key releases are in bold

*All release times are GMT

EUR/USD for Tuesday, June 28, 2016

EUR/USD June 28 at 9:30 GMT

Open: 1.1013 Low: 1.1012 High: 1.1079 Close: 1.1063

EUR/USD Technical

• EUR/USD has posted gains in the Asian session and is flat in European trade
• 1.1050 has switched to resistance following gains by EUR/USD. It remains fluid and could see further action during the day
• There is resistance at 1.1150

Further levels in both directions:

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

OANDA’s Open Positions Ratio

EUR/USD ratio has shown little movement on Tuesday. Short positions have a majority (59%), 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.