Increased Risk Appetite On Fed Speculations And Eased Brexit Concerns

Increased Risk Appetite On Fed Speculations And Eased Brexit Concerns

25 May 2016, 12:59

Dear Traders,

While the British pound rose on eased concerns about a potential Brexit scenario, the euro fell victim to renewed U.S. dollar strength. The greenback was supported by the shift of the market's rate hike expectations in favor of a Fed June or July hike. Given the Fed's hawkish monetary policy stance, further dollar gains are increasingly likely in the near term.

Sterling strengthened on a poll showing the campaign to keep Britain in the EU is gaining ground. Sterling traders should, however, be careful as uncertainty ahead of the referendum will dominate the price action in the cable. Although the risks of Brexit have diminished the currency remains vulnerable to volatile swings to either side.


On the upside, we expect the 1.47-resistance to be a short-term barrier for the pound. If the currency pair is able to break above 1.4665, we might see a rise towards 1.47 and 1.4715. On the downside, the 1.4550-area could lend a short-term support to the cable, while a next lower target could be at 1.45.



We see the euro trading within a secondary downward channel with a current upper bound at 1.12 and a current lower bound at 1.1085. Above 1.1240 chances are that the euro heads for a test of 1.13 and maybe 1.1350. However, below 1.1070 a next crucial support could be at 1.1050.


Euro traders should keep an eye on the German IFO survey, scheduled for release at 8:00 UTC. From the U.S., the Services PMI due at 13:45 UTC and Crude Oil Inventories at 14:30 UTC are second-tier reports, which are expected to have only a minor impact on the USD.

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