Pausing to Reflect

After the tragic events in the UK yesterday, there was a dramatic change in tone in the political environment with one week to go before the EU referendum. This was also reflected in markets, with campaigning on both sides having been suspended for the coming days. It’s a pause for reflection on what was a relentless push towards shedding risk in markets over the past week. For now, this has resulted in a sharp reversal in sterling, less so in other risk correlated assets such as the yen and Swiss franc. We’ll have to wait until Monday for the sand to settle enough to gauge the lasting change in sentiment towards the referendum.

Japan’s Finance Minister Aso upped the rhetoric on the yen overnight, pointing out “We have to monitor moves with a sense of urgency so that speculative moves won’t continue”. More pointedly, he continued “when needed, I’d like to take firm action in line with G7 and G20 agreements”. I talked yesterday about the increased helplessness of central bank and it also appears true of finance ministers, with the yen only marginally weaker on the back of his comments. US inflation data is seen later today, but the reversal in tone is likely to remain in place and investors are more likely ease into the end of the week before next week takes hold.

Did you know?

If overwhelmed by pessimism and falling prices, the FX market is defined as “bearish”, while if characterised by optimism and rising prices, it is called “bullish”. These two terms derive from the way in which bears and bulls attack their opponents, with the former swiping its paws downwards and the latter thrusting its horns upwards.

Word of the day
"Pip" - The smallest increment in which a currency pair can move. It is usually the fourth decimal place of the quote currency in a pair. In the case of the Japanese yen (JPY), it is the second decimal place of the quote currency.
Pro Tip

Higher leverage --> Less funds required as margin / Lower leverage --> More funds required as margin

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