EUR

Europe is one of the primary areas where the spillover from the Brexit will occur.  Uncertainty should drive financial market weakness and likely lead to further capital outflows, prompting further easing from the ECB.  Additional downside risk if more EU countries call for referendums.  Expect a downward trend through the end of the year.

fx-july-1a
fx-july-1

GBP

Brexit, Brexit, Brexit.  Political uncertainty surrounding who will lead the UK, possible Scottish referendum, and uncertainty surrounding the post Brexit business landscape should hit economic confidence and lead to economic underperformance and lower foreign direct investment.  The BoE has signaled expectations for stimulus over the summer, further weakening the GBP.

fx-july-2a
fx-july-2

CAD

Economic uncertainty from the Brexit vote combined with headwinds against that Canadian economy most likely pushed any potential rate hike into the future.  The CAD had been supported by a rally in oil prices but further rises in prices appear limited in the short term.  Safe haven flows will favor the larger and more liquid USD.

fx-july-3a
fx-july-3

JPY

The yen remains one of currencies most positively correlated to risk aversion.  With the Brexit vote setting off another round of risk aversion, the yen has seen Brexit related inflows.  A stronger yen exacerbates the BoJ's inability to reach its inflation target and raises the probability of a BoJ response; however the BoJ's ability to influence the fx market appears to be diminished.

fx-july-4a
fx-july-4

AUD

Weak global risk global risk sentiment and the possibility of more easing should weight on the AUD.  Commodity prices and recent Chinese data indicating that the Chinese economy may be stabilizing provide support for the AUD. 

fx-july-5a
fx-july-5
 
 
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