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Forex: Briefly Back to Brexit

For FX, the opening moves seen yesterday at the start of the European session were largely sustained until the dollar softened into the European close. Earlier on for sterling, there was a sense that the direction of the migrant crisis in Europe could play into the hands of those campaigning for an exit at June’s referendum. This may seem some time away, but the market’s sensitivity to such developments is only likely to increase in coming weeks. As for the single currency, the market is hearing more and more about the possibilities ahead of the ECB meeting this Thursday, where further policy action is anticipated, even though the size and form of this is very much open for debate.

For today, sterling will have one eye on the headlines emanating from BoE members testifying before the UK Parliament’s Treasury Select Committee on the costs and benefits of EU membership. The BoE has also announced that it will provide additional liquidity operations around the date of the referendum to ensure that banks have sufficient liquidity should strains emerge. To be clear, this is nothing to do with QE, it’s merely to assure the smooth running of the sterling money markets and banks. But naturally this is a very politically charges issue and this is likely to be very clear in today’s headlines from BoE members at the Treasury Select Committee. Cable pushed above the 1.4252 resistance level yesterday (50% retracement of Feb down-move), with trendline resistance coming in at 1.4321. Looking ahead, we have two central bank announcements coming up in the form of New Zealand and Canada. Neither are seen changing rates, but the accompanying statements will be closely scrutinised given the potential for lower rates from both later this year (more likely with Canada).

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