Feb 23rd 2016: Pound Fragile After Hefty Losses

• Yesterday’s headlines ran with the impact of senior Conservatives coming out in favour of leaving the European Union. The pound might have sunk to seven year lows, but it did not dramatically under perform the euro, with the EUR/GBP only rising slightly. Either the prospect of a ‘Brexit’ could be negative for the euro as well or there were other factors at play behind yesterday’s drop in the GBP/USD and EUR/USD. This morning, the pound has continued yesterday’s weakness, while the euro is relatively stable.

• Yesterday’s GBP/USD losses need to be put into context with the EUR/USD losses, though the latter is rising this morning.

• The dollar index continues to trade with caution, with small gains and losses this week. The USD/JPY has more of a negative bias this morning.

• The Australasian pairs are on the back foot after out-performing yesterday.

Coming up today: 

• Today we have German Ifo business climate at 09.00.
• This is followed by the UK inflation report hearings at 10.00.
• Then from 15.00 we switch to North America for US CB consumer confidence and existing home sales.
• MPC member Haldane speaks at 17.00.

Trade Idea: 

• The EU referendum in the UK appears to be doing no-one any favours on the currency front.
• The EUR/JPY was hard hit yesterday and if anything, its losses are more consistent than the GBP/JPY.

• A good way to play this is a LOWER trade predicting that the EUR/JPY will close below 123.00 in 14 days for a potential return of 182%.

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