continued volatility extremes expected for gbpusd 1815872016

There are clearly several very major events within the next two weeks that have substantially intensified speculation on the British pound and, to a lesser extent, the US dollar. This speculation ahead of these events has prompted a sustained spike in volatility for GBP/USD. For the past week, this volatility has pressured the currency pair to trade significantly lower, breaking down below key support levels.

For sterling, the UK Consumer Price Index for May was released on Tuesday, showing another lower-than-expected inflation reading of 0.3% against expectations of 0.4%, which has placed additional pressure on the pound. Upcoming this week in the UK are other major events, including key data on the employment situation on Wednesday and then the official bank rate announcement and monetary policy summary from the Bank of England on Thursday. No change is expected in interest rates on Thursday, but the monetary policy summary could reveal significant concerns over both the state of the UK economy and inflation as well as the risks presented by the upcoming EU referendum.

This brings us to the most potentially pivotal near-term event that could have a dramatic effect on the pound – the UK’s EU referendum scheduled for next week on June 23^rd, when a vote will be held to decide whether the UK stays in the European Union or leaves it (“Brexit”). In the run-up to this referendum, market fears of a possible Brexit outcome have only recently begun to intensify as the most recent polls have shown the Leave camp assuming a significant lead. These increased market fears have been manifested as growing pressure on sterling, while safe haven assets like gold, the Japanese yen, and even the US dollar have been given a boost.

As for the dollar side of the GBP/USD currency pair, although expectations for a summer rate hike by the Fed have plunged sharply, the dollar has been supported both by the noted safe haven flows as well as the Brexit-driven pressure on both its pound and euro rivals. In the days ahead of the referendum, the current trend for both the pound and dollar could very well continue, especially if polls continue to show momentum for the Leave camp. This could lead to significantly further losses for GBP/USD before June 23^rd. How the currency pair trades in the aftermath of the referendum, however, is entirely dependent upon the actual outcome of the vote.

From a technical perspective, GBP/USD has broken cleanly below a key uptrend line that extended back to the multi-year low of 1.3835 that was hit in late February. As the risk of a Brexit outcome continues to weigh on the pound in the run-up to the EU referendum, GBP/USD could continue to extend this breakdown, with the next major downside target at the 1.4000 psychological support level. Below 1.4000, further losses could open the way towards the 1.3800 level, last approached during the noted late-February low, followed by the 1.3500 support level. Of course, in the event of an actual Brexit outcome, the downside for GBP/USD could be substantially worse. In contrast, a vote to remain will take the event risk off the table and likely lead to a considerable rise and alleviation of pressure on both sterling itself as well as the GBP/USD currency pair.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.