Last week's EU referendum result shocked the global financial markets when the U.K. voted to quit the European Union after more than four decades relationship. The crucial move provided biggest attack to European politics since fall of Berlin Wall and echoed sentiments of 2008-09 crisis. The British Pound responded with a crash while EUR also plunged heavily. Further, the US Dollar registered noticeable counter-strength, with a weekly surge by the US Dollar Index (I.USDX), and the Gold, with JPY, rallied due to their safe-haven demands. Moreover, Crude prices dipped as Brexit signaled uncertainty on future UK demand of Crude while AUD, NZD and CAD also registered weakness. Following the Brexit outcome, the UK PM announced his discontinuation from the designation after October while Netherland, which was also in-line to announce referendum to leave the EU, communicated the same.
During early Monday, markets took a breath after huge volatility during last weekend; however, global political frontier remained active and some of the central banker heads, including the BoE Governor, announced their intention to curb currency volatility on Friday.
Hence, each and every news announcement form either EU or UK will be closely examined while final GDP and Manufacturing PMIs from US & UK, coupled with Japanese and EU Inflation readings, would also get market attention. Moreover, Canadian GDP, Chinese PMIs and US Consumer Confidence will act as additional important details for traders to scrutinize. Let's closely examine each of them.
UK Politics, GDP and Manufacturing PMI Will Gain Major Attention
Even if 65 million UK nationals chose to cease Britain from EU, the referendum result still needs to be backed by laws as the British Parliament hasn't yet passed any laws to get Britain out of the EU, which in-turn makes it the EU component for now. Though, there prevails huge uncertainty over what the UK will do as national leaders haven't yet signaled any steps about what they will do after Brexit vote. Moreover, Germany will host French and Italian leaders on Monday and might discuss about the possible effects of the result on EU as these three economies are engine to EU's growth. Hence, political response to the Brexit from EU & UK will now be closely examined to foresee the future of EU-UK relation and the stage of EUR & GBP strength/weakness.
On the economic front, final readings of Q1 2016 UK GDP, up for Thursday, followed by UK Manufacturing PMI on Friday, are some of the data-points that could provide intermediate moves to the GBP. While the GDP is likely remaining unchanged with 0.4% initial forecast, the Manufacturing PMI might inch a bit up with 50.2 number against 50.1 prior.
Thus, with the absence of active policy decision on the part of EU & UK, chances of further downside by the GBP can't be denied; however, improving Manufacturing number might help the Pound to take a breath during its present crash.
US GDP, Consumer Confidence And PMIs Are on USD Traders' Radar
While the Brexit undoubtedly strengthened the US Dollar, the move was mainly due to a plunge of EUR & GBP and not because of any positives from the US side. Moreover, the UK cessation also strengthened the greenback in such a way, together with present global uncertainty, that speculators now take a U-turn and expect a rate-cut rather than a hike from the Federal Reserve. Though, this week's Final reading of US Q1 2016 GDP, coupled with CB Consumer Confidence and some of the Manufacturing PMIs, are headline numbers that could help portray near-term forecast for the greenback trend.
Tuesday's US GDP reading will be crucial for the USD traders as a weaker print could force the US central bank, Federal Reserve, towards joining the global central bankers' row which prefers monetary easing. The domestic growth figure is likely to print 1.0% against the 0.8% earlier forecast. Further, the CB Consumer Confidence, up for release on the same day, is also likely to favor USD optimism as the figure bears the forecast to print 93.2 mark against 92.6 prior.
Moving on, monthly details of Pending Home Sales, scheduled for Wednesday publish, Thursday's Chicago PMI and Friday's ISM Manufacturing PMI, are some additional data-points from US that are worth observing. While Pending Home Sales are likely to register first decline in three months, with -0.9% contraction against +5.1% prior growth, the Manufacturing gauges, namely Chicago & ISM PMIs, might please USD bulls as Chicago PMI is expected to print 50.4 versus 49.3 prior and the ISM Manufacturing PMI can show two month high figure of 51.6 against 51.3 previous mark.
Given the US details register upbeat numbers, the USD might get additional reason to accelerate its advance and negate speculations for a rate-cut; however, disappointing numbers might have larger repercussion and may lead the greenback towards paring majority of its recent gains.
CPI Details Might Help EUR
With the Brexit campaigners' victory, some of the EU nations, like Netherlands, have also shown their interest to leave the EU, which in-turn provided additional shock to the EU policy leaders who are still struggling to bear the aftershocks of Friday's result. However, the EU recently conveyed that it hasn't received any signals from the UK on how they would go on proceedings of cessation, covered under Article 50 of the Lisbon Treaty, which in-turn highlights the vote counts of Northern Ireland and Scotland which favored continued EU membership. Should these countries back the EU status and go against the UK, there might be some relief to the EU, which in-turn can get reflected in EUR up-move.
Other than the political upheaval, Preliminary Inflation numbers from Germany & EU, up for Wednesday and Thursday respectively, can also help forecast immediate moves of the EUR. While German CPI is likely to print a soft 0.1% price growth against 0.3% prior, the EU Flash CPI is expected to reverse its prior two-month declines with 0.0% mark. Given the EU gains support from Scotland and Northern Ireland, coupled with the upbeat inflation stats, chances of EUR's relief rally can't be denied.
Chinese Manufacturing PMI, Canadian GDP & Japanese Inflation Are The Rest
As the global market uncertainty keep flashing red signals for export-oriented economies, like Japan, and for the industrial hubs, i.e. China, prices of Crude, main export of Canada, registered downside. However, Thursday's Canadian GDP, followed by Japanese Inflation and headline PMIs from China, up for Friday, become worth observing details to foresee respective currency moves.
Forecasts concerning Canadian GDP indicate the up-moves in Crude prices helped the economy and the GDP number might show its first positive mark in three months with 0.1% against -0.2% prior. Moving on, the Japanese Inflation numbers are likely to continue triggering BoJ worries by being on the negative side while weaker reading of Chinese official Manufacturing PMI, to 49.1 from 49.2, and the Caixin Manufacturing PMI, to 50.0 from 50.1, could provide additional weakness for the commodity currencies like AUD and NZD and force the Bank of Japan (BoJ) towards monetary easing and an expected weakness of the JPY.
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