By Lukman Otunuga, Research Analyst at FXTM
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A sense of anxiety continues to loom over global markets with investor unease reaching new heights as the Brexit saga finally draws to an end with less than twenty-four hours till the vote. Market sensitivity caused by the unknown impact that a Brexit would have on the global economy has intensified, consequently causing stocks, currencies and safe-havens to trade in an erratic fashion.
Although stock markets displayed an impressive rebound on Tuesday from the growing “Bremain” optimism, prices could decline lower when risk aversion and uncertainty encourages investors to depart from riskier assets to safe-havens.
Brexit expectations have had a grip on global confidence and the “Bremain” hopes could encourage a forced appreciation in European and American equity markets. While short term gains may be expected, fundamentals which have punished global stocks, such as concerns over slowing global growth, are still present. Once the Brexit chronicles conclude and investor risk appetite sours, most stocks could resume their slippery declines.
Sterling exposed to extreme volatility
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The Sterling has displayed explosive levels of volatility across the currency markets ahead of the heavily anticipated EU referendum. Uncertainty and anxiety have been the factors which have caused investors to frantically offload and reload positions in an effort to being on the right side of the winning trade. With three polls due to be released on Wednesday by YouGov, TNS and Opinium, the Sterling could be placed on another chaotic rollercoaster ride with prices trading to unexpected levels. Although sentiment remains bearish towards the Pound, another potential lead in the “Bremain” camp could bolster optimism of a “Bremain” victory consequently creating a foundation for bulls to install another round of buying. Although expectations have heightened that the UK may stay in the E.U., the polls remain trapped in a tough tug of war and it still remains uncertain which camp is actually leading.
Currency spotlight – EURUSD
The EURUSD has traded in a sporadic fashion with a mixture of Brexit concerns and Dollar vulnerability keeping prices in a very wide range. With concerns that a Brexit may impact the Eurozone, the Euro was naturally left vulnerable to losses while the fading expectations over the Fed raising US rates weakened the Dollar further. While the parity dream may be far away, a solid break below 1.1250 could encourage sellers to send the EURUSD towards 1.1150 and potentially lower. Markets may be on standby and a true direction could be formed once the results of the EU referendum are released on Friday.
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