While both of our major currency pairs were yesterday still on a downswing the decline came to an abrupt end after the terrible attack on U.K. lawmaker Jo Cox has led to a suspension of all Brexit campaigns. U.K. Labour Party lawmaker Jo Cox was shot dead on Thursday, silencing the Brexit debate. Her death came as a shock to the world as she was a passionate supporter of the EU membership. As a result, both sides suspended their campaigns and put their activities on hold. The suspension of campaigning has therefore lifted the pound and in a countermove, the euro. Nonetheless, the risks continue to exist.
What should traders expect now?
As the upswing was only triggered due to suspension of campaigns and eased Brexit concerns, it might be short-lived. Consequently, we do not expect the upward move to be sustained amidst all uncertainties surrounding the June 23 referendum. The bias therefore remains bearish as a potential Bexit is not off the table while the reduced bets on U.K. leaving EU are just a snapshot.
What targets to look at?
EUR/USD: The euro rallied towards 1.13 but traders should not get fooled by the latest upswing. As long as the euro remains below 1.1305 there is no reason to believe that the market sentiment has changed. If the euro breaks above 1.1305 we see a next target at 1.1365 but we expect gains to be limited until that level. However, if the euro falls back below 1.1220 the focus shifts to the 1.1185-level. Below that level we expect the euro to drop towards 1.1130 and 1.11.
GBP/USD: The cable reversed from a high at 1.4295 and is pointing downwards. The focus will be on the 1.42-level and on a renewed downside break of that support level. Once it has been significantly breached to the downside, we expect sterling to decline towards 1.4125/05. Below 1.4090 we see chances of an extended downward move until 1.3990. On the other hand, however, in case of an upside break above 1.4315, the pound could rally towards 1.44 and 1.4440 on increased volatility.
U.S. Housing Starts and Building Permits are scheduled for release at 12:30 UTC but the price action will be determined by the Brexit debate. Furthermore, ECB President Mario Draghi is scheduled to speak at 15:00 UTC.
Have a wonderful weekend and enjoy life.
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