- Markets are very optimistic regarding the outcome of today's vote, pushing the pound to its highest level so far this year
- USDCHF may continue to consolidate between 0,9551 and 0,96 as the referendum results begin to be released from tonight
- EURUSD may swing between 1,1382 and 1,11
- Oil: We expect that a continued decrease in inventories would sustain an oil price recovery
- Norway: Norges Bank will likely keep its rates unchanged at 0,5% as they wait for the Brexit results before adjusting monetary policy
- We think that policymakers will lower interest rates to anticipate increasing demand for NOK in the medium term
Finally, the Brexit referendum has arrived. After months of debate, UK voters will start heading to the polling stations this morning to determine whether the United Kingdom should remain within the European Union. For now, the latest YouGov poll shows that the “Remain” camp is leading with 51% of voting intentions and 49% for the “Leave” camp. The market is also very optimistic regarding the outcome of today’s vote, pushing the pound sterling to its highest level so far this year. GBP/USD reached 1.4844 in the early Asian session as traders are betting that UK voters will decide to stay within the union.
Overall, even though the market seems confident, there is no euphoria as market participants realise that the vote is going to be a close call. Most G10 currencies extended gains in Tokyo with the exception of safe haven currencies, such as the Swiss and the Japanese yen, which were mostly treading water overnight. USD/JPY dropped to 104.04 in Tokyo but quickly bounced back to 104.40.
USD/CHF will continue to consolidate between 0.9551 and 0.96 as the results of the referendum are released from tonight. EUR/CHF ticked up overnight as traders discounted a Brexit. The single currency rose 0.45% against the Swiss franc to 1.0870 after falling as much as 3% since the beginning of the month.
EUR/USD was one of the best performers among the G10 complex with the currency pair surging 0.42%. On the upside, a resistance can be found at 1.1382, while on the downside the main support can be found at around 1.11 (multiple low).
Yesterday, data showed that US crude oil stockpile dropped less than expected, weighting on the WTI and Brent crude prices. Futures on the West Texas Intermediate fell more than 3% as US inventories contracted by 917k barrels, while the market anticipated a reduction of 1500k barrels. However, crude oil prices recovered shortly after as the market realised that inventories dropped for the fifth straight week. We expect the continued decrease in inventories to sustain the recovery in crude oil prices; however, given the stabilisation of price around the $50 level, we can now expect investors to begin looking for new opportunities. We therefore will not be surprise to see the number of rig counts increasing again.
Asian equities are mixed this morning with Japanese equities in positive territory and Chinese ones blinking red. In Europe, equity futures are mostly trading higher across the board. In the US, futures are also blinking green.
Yann Quelenn, market analyst, Swissquote Bank: "Norway: Deposit rates will be kept on hold at 0.5%: "With today being D-Day and all eyes on Brexit, Norway’s rates decision is not exactly heavily anticipated. Financial markets have already priced in the fact that Norges Bank should keep its rate unchanged at 0.5%. Indeed, under global uncertainties on the European Union, we believe that Norges Bank is waiting for the Brexit results before adjusting its monetary policy. The Brexit vote is really a toss-up and consequences may still be hard to assess for both outcomes. However, we believe that a reaction of the Norwegian Central Bank after the Brexit referendum results is definitely possible and that this will also take into account the fact that the rebound in oil prices has faded but also that a barrel of Brent remains around $50. The fact that the oil price is stalling at this level has reduced the demand for NOK. Yet, we still expect that global demand for the black commodity should match the ongoing supply and consequently that global demand should continue to increase. We therefore think that policymakers will lower interest rates to anticipate the increasing demand for NOK in the medium-term. Moreover, it seems clear to us that the general environment of low and negative interest rates is pushing policymakers to adjust as the result could mean massive inflows of money which would strongly appreciate the currency. The price stability threat is also of serious concern in Norway. Inflation is still very strong. The latest May inflation figures came in earlier this month above expectations at 3.3% - still above the central bank’s inflation target of 2.5%. Norway, like many countries, is on hold but ready to react.”--
Today traders will be watching Markit PMIs from France, Germany, the euro zone and the US; initial jobless jobless claims, new home sales and leading index from the US; industrial production from Italy.