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In the markets: What to watch this week

All eyes are firmly on the ‘Brexit’ referendum this week, with the tragic murder of a pro-EU lawmaker in the UK last week swaying sentiment toward the ‘Remain’ camp.

A vote to leave the EU by Britons may have a significant impact on financial markets. The uncertainty surrounding a ‘leave’ vote has contributed to market volatility as the economic consequences of a Brexit are debated by politicians and investors.

The pound versus the dollar swung over 2% ranges last week as sentiment drove speculative trades.

The German 10-Year Bund, seen as a safe-haven investment, yielded a negative return for the first time in history as investors sought protection. The FTSE100, an index of the overall UK stock market, penetrated the psychologically significant 6 000 level.

We expect volatility to continue until the referendum takes place on Thursday. Until then we do not expect investors to be placing major bets on the direction of the markets.

However, rumours have been circulating around the 1.3% jump in the value of the sterling vs dollar that took place on the morning of June 7th.

Was this market-moving-trade a big order to buy the pound ahead of the ‘Brexit’ vote by an investor with inside knowledge or was it simply a so-called ‘fat-finger’ mistake made by a trader?

One thing is certain, the market did not like the action taken by whichever large institution it was, because the market pushed the value of the pound down around 4.7% since the event, often labelled a ‘squeeze’ by traders.

Other important news to be released this week:

Monday

  • Japan trade data and Bank of Japan Governor Haruhiko Kuroda speaks
  • German PPI and Bundesbank Monthly Report
  • Euro area Construction Output

Tuesday

  • Bank of Japan Monetary Policy Meeting Minutes
  • Germany ZEW Economic Sentiment Index
  • Great Britain CBI Industrial Trends Orders

Wedenesday

  • SA Inflation data
  • European Central Bank Non-Monetary Policy Meeting
  • Euro area Consumer Confidence Flash
  • US Existing Home Sales, EIA Crude Oil and Gasoline Inventory

Thursday

  • China MNI Business Sentiment Indicator
  • Euro area PMI figures
  • US Jobless Claims, New Home Sales, EIA Natural Gas Inventory and Kansas Fed Manufacturing Activity

Friday

  • German GfK Consumer Confidence and Ifo Expectations
  • US Durable Goods Orders and Michigan Consumer Sentiment Final

Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.

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