Market participants were taken by surprise on Monday as the opening saw FX prices gaping higher across the board with the GBP pairs being the main beneficiaries. The reason for the jump was coming from some polls in the UK over the weekend that suggest the UK referendum’s outcome will be a “remain” in the European Union.
As a consequence, risk asset classes were catching a bullish tone, starting with equities and ended up with AUDUSD moving higher as well as EURUSD moving north as well.
That being said, the classical run for closing the gaps started by the time London opened on Monday and in some pairs this has been done fairly quick, but in some other gaps are still open at the time of this writing.
It is important to know here that gaps are not mandatory to be filled, despite conventional wisdom saying the contrary.
Later in the day today we will have the honor to see both Mr. Draghi, the Presided of the ECB (European Central Bank) as well as Mrs. Yellen, the Chairwoman of the Federal Reserve of the United States testifying on the economic situation of the Eurozone and the United States. We all know that these are times when markets are moving as volatility is rising and it will be the last chance for market positioning ahead of Thursday’s UK’s referendum.
Draghi is supposed to testify in front of the European Parliament’s Economic Committee while Yellen will speak both today and tomorrow, in a classical semi-annual testimony a chairman/chairwoman is obligated to deliver. The things that may be interesting will come from the questions and answering part of Mrs. Yellen testimony as otherwise there is little evidence the actual testimony will differ much when compared with the text released at the FOMC June meeting.
Moving into these two events as well as into the UK vote, the US dollar is being crushed all over the dashboard with the exception of the USDJPY. GBPUSD making a stellar comeback from the 1.40 area all the way to almost 1.48 now, while EURUSD, AUDUSD and USDCAD confirming the lower dollar general trend.
It may be already positioning for the UK referendum’s outcome, but I would recommend caution at these levels from at least a couple of reasons: EURUSD is forming a bearish triangle on the bigger time frames, while USDJPY just popped from a strong dynamic support.
One thing is for sure though: be ready for large swings as we move on deeper into the trading week.