July 1st 2016: Carney Hints at Interest Rate Cut

• Bank of England Governor Mark Carney used his speech last night to once again highlight the risks posed by Brexit, outlining a contingency plan of stimulus and rate cut measures. There was an initial reaction from the pound, but by the close of play, losses were moderate and in line with pre-speech activity. The implication is that the city has already priced in a rate cut or two for the pound, with the bulk of the post-Brexit losses potentially due to rate positioning rather than broad economic fears.

• Markets are quiet this morning, with the dollar making small losses and yen pairs experiencing the same, with some signs of a return to risk-off trading. The EUR/JPY’s moderate losses are notable after the EU’s credit rating received a downgrade of its own.

• Gold is up again, as underlining the general return to nervous trading seen in the last 48 hours.

• Coming up today, we have UK manufacturing data at 09.30.
• This is followed by US ISM manufacturing at 15.00.

Trade Idea: 

• Following Brexit, it’s becoming clear that uncertainty will reign and that the effects will be felt not just by the UK, but by Europe too. As such, other regions could prospect and one such region is Australia. Thanks to its close links with China, the Australian economy has boomed over the last 25 years, recently notching up 25 years without a recession. Australia will be buffered by general global pressures and China is still a risk factor, but a relative basis, the Australian dollar could be a good bet.

• A good way to play this is a HIGHER trade predicting that the AUD/USD will close HIGHER than 0.7600 in 35 days for a potential return of 196%.

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