James Kim@Saxo
James Kim, sales trader at Saxo Capital Markets Australia, examines trading strategies during week 43 in a technical analysis of charts for forex, indices and commodities.
Article / 24 June 2016 at 14:10 GMT

FX Board: Day zero

Head of FX Strategy / Saxo Bank
  • Brexit vote decimates sterling, boosts JPY, USD
  • Potential recovery spotted in AUD, NZD
  • 1.38-40 remains key resistance as pound looks lower

Battersea Power Station, London
Hollowed out: Today's shock Brexit victory has eviscerated the sterling trade and weighed down risky assets in general as uncertainty reigns in London. Photo: iStock 

Key developments in FX today

  • Sterling suffered losses of historic proportions as GBPJPY was down more than 15% at one point from the previous day's close and GBPUSD punched to new 30-year lows below 1.3500 intraday, with the volatility intensified by the sterling appreciation just before yesterday's results began rolling in.
  • The chief safe-haven was the Japanese yen in the post-Brexit vote hours, with the US dollar providing secondary status and the Swiss National Bank apparently doing all it can to prevent the Swiss franc from strengthening as well. Intraday, the USDJPY rate looked "managed", judging from the price action, or perhaps as traders are unwilling to challenge the 100 level in USDJPY on the fear that the Bank of Japan lurks near there. In any case, one wonders if the USD safe-haven more or less matches its JPY counterpart for a time if risk-aversion continues to plague markets.
  • Most other currencies were generally weaker in line with their "riskiness" in the immediate wake of the Brexit result, but we did see quite remarkable comebacks in the likes of AUD and NZD from the day lows, though not yet full enough recoveries to suggest a reversal just yet.
  • The focus should be on today's closing levels and then how the action picks up next week to determine if the scenario is "one off shock with subsequent settling and uncertainty" or "the beginning of a durable trend".
  • A note on the FX Board: for those wondering why the GBP trend reading is not more negative and likewise for the momentum, there are smoothing functions that take a couple of days to kick in, which means one-off shocks hit the indicator with a bit of a delay, especially in a case like we've seen in which sterling was heading higher before the one-day collapse.


The shock is so enormous here that the pair may require some more settling before heading to new lows if that is where we are going, with the 1.3800-1.4000 zone (the previous zone of support) the important resistance for keeping a downside focus.


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Source: Saxo Bank 


An even more profound shock here as the JPY proved the ultimate safe haven once again overnight on a remarkable 15% move intraday. 

The chart is shattered and vulnerable to extreme rallies within the range established on the Brexit move on possible intervention or sentiment shifts. Here there be dragons, in other words... traders would need a rally that more or less fully erases what has just unfolded to consider any upside prospects.

Source: Saxo Bank 

Less conviction here with the sterling weakness because of the worry of collateral damage for Europe from the Brexit vote. Those looking for a reversal back lower, however, will want the action to head south of, and stay south of perhaps 0.7900 in the sessions ahead. To the upside the next level is the 0.8375 area followed by 0.8700+ 

Source: Saxo Bank 

A bearish breakout taking out all local support levels. A bit surprised to see the intraday bounce challenging 1.1200, and the 1.1200/50 zone looks important for maintaining a downside focus for now, with the nominal lows overnight nera 1.0900 astride the 61.8% Fibo retracement and then the big 1.0800 area the next point of interest lower ahead of range lows and the rising "trendline".

Source: Saxo Bank 

Commodity currencies are taking less of a beating as all of the attention was on Europe, and these have bounced back markedly with AUDUSD already challenging the 50% retracement of the overnight move if we near 0.7475. 

The bulls should get a bit nervous if we are up challenging avove the 61.8% retracment as it might be a sign that the post-Brexit rally may not stick.

Source: Saxo Bank 

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank

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FX Board for Friday, June 24, 2016


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