The Brexit
anxieties go far beyond the borders of the United Kingdom and fears are already
growing that a knock-on effect could cause other countries to leave the
European Union, consequently crumbling the Euro project.
With
uncertainty set to intensify as investors ponder on the likely impacts of a
Brexit to the UK and global economy, risk aversion could be the central theme
moving forward.
The Global
sentiment was dealt a devastating blow during trading on Friday following the
shocking Brexit victory that renewed a wave of uncertainty and soured investor
appetite. With the Brexit now a reality, financial markets have entered a state
of shock as concerns heightened over the impact a Brexit could have on the
global economy.
Stock markets
were left vulnerable, with most major equities stumbling as concerns over the
immeasurable impacts of a Brexit to the global economy encouraged investors to
scatter away from riskier assets to safe-haven investments. Fears of a Brexit
fueled recession have hit unimaginable levels and could ensure that most stocks
remain depressed for an extended period.
In Asia,
stocks headed for their steepest decline in five years as an awful combination
of Brexit jitters and Yen’s resurgence provided a foundation for sellers to
attack prices. The bearish contagion and negativity from Asia has already
punished European equities and should seep into Wall Street when the American
markets open. Global stocks may be set for extended declines in the medium term
as concerns over slowing global growth, risk aversion and renewed Brexit
anxieties haunt investor attraction towards riskier assets.
The FTSE100
entered a freefall with the index declining over 7% – its biggest fall in
history as elevated concerns over the untold impacts of a Brexit to the UK
economy encouraged investors to depart from riskier assets. With the rating
agency S&P suggesting that the UK may relinquish its AAA rating following
the Brexit victory, further declines in the FTSE100 could be realized moving
forward. From a technical standpoint, the index is heavily bearish and the
breach below 6000 could re-open a path back towards 5900.
Brexit sends
Sterling to 30 year low
The
Sterling/Dollar plunged to 30 year lows at 1.3230 during trading on Friday
following the unexpected Brexit victory which renewed concerns over the future
of the United Kingdom. With expectations mounting that the Bank of England may
slash UK rates amid a potential Brexit fueled recession, Sterling bears have
received enough encouragement to install another round of selling. Sentiment
remains bearish towards the pound and the post-Brexit anxiety should haunt
investor attraction towards the currency further. From a technical standpoint,
in the space of 24 hours the GBPUSD has hit a 2016 high at 1.5015 and low at
1.3230. This pair is immensely bearish and previous support around 1.3850 could
become a dynamic resistance that encourages sellers to send price towards
1.3200.
Brexit
threatens Eurozone stability
The Eurozone
was placed under pressure post Brexit victory and could be in store for more
pain as concerns heighten over a domino effect causing other European countries
to leave the E.U. For an extended period faltering inflation levels and
declining commodity prices have punished the Eurozone while the ongoing global
instability exposed the nation to downside risks.
This Brexit
development could leave the European Central Bank under more pressure to take
action in an effort to bolster economic growth and renew some stability.
Sentiment remains bearish towards the EUR and the currency could be poised for
further decline as the Brexit contagion bolsters speculations over other
countries leaving the E.U.
The EURUSD
experienced a very sharp decline during trading on Friday following the
combination of Euro weakness and Dollar strength that offered an opportunity
for sellers to send prices lower. Although the pair experienced a sharp
correction higher towards the 1.1200 support, prices could be set to trade
lower when bears reload their shorts. From a technical standpoint, the
candlesticks are below the daily 20 SMA while the MACD trades to the downside.
Previous support around 1.1200 could transform into a dynamic resistance that
encourages another decline to 1.1000.
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