Market Drivers June 17, 2016

FX much more subdued
Speculation starts on BOJ intervention
Nikkei 1.07% Dax 1.44%
Oil $47/bbl
Gold $1287/oz.

Europe and Asia:
EUR Current Account 36.2B vs. 24.7B

North America:
USD Housing Starts/Permits 8:30
CAD CPI 8:30

After a very volatile session yesterday, currency markets were much more subdued in a quiet Friday session absent of any major economic news or geopolitical events.

In UK the tone was understandably somber in the wake of yesterday’s tragic murder of British MP Jo Cox. There has been very little concrete information about the event and it still remains unclear if this was a political act spurred by Brexit debate or simply the workings of a mentally deranged man.

The initial market reaction assumed that such a senseless act of violence would swing the pendulum towards the Remain campaign and cable rallied for more than two big figures since the news and has held it highs. The latest bookie odds have also move back towards favor of Remain with Remain now at 63% implied probability versus just 58% a day ago.

Both campaigns have suspended their events for the second day in row and there is no doubt that the events of yesterday will cast a somber pall over the proceedings next week, but given the fluidity of the situation trading in cable is likely to be volatile up to the vote. For now the 1.4000 level appears to be the key support and a break below that would suggest that the market once again believes the risk of a Leave win could be real.

Meanwhile in Japan USD/JPY saw some good two way trade in Asian session as speculation begins to build of a possible BOJ intervention given the sharp rise in the yen. Most analysts however do not believe that Japanese authorities would act unless USD/JPY fell below the 100 mark. Nevertheless officials are clearly becoming concerned that the appreciation in the currency will completely unwind all the efforts at stimulus and bring deflation back to the economy. So far the jawboning from various Japanese cabinet ministers has been subdued as they realize that any attempt at intervention will be difficult to say the least and that ultimately the movement in the pair will controlled more by Fed’s actions rather than their own.

For now the pair appears to have found support at 103.50 level and barring any further bouts of risk aversion should consolidate at these levels for the rest of the day.

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