Article / 04 October 2016 at 8:13 GMT

From the Floor: May's 'hard' Brexit puts City in firing line

Your Next Trade
  • Theresa May Brexit process move for end-March could hurt UK banks — Garnry
  • City under threat as 'unbelievable' PM pledges no special treatment — Garnry
  • Sterling clattered to below 1.28 as hard landing prospect grows — Norup
  • One-month GBPUSD move up one vol as sterling 'very bid' — Norup
  • USDJPY could be ready for breakout after Kuroda comments — Moltke-Leth
  • Gold homing in on $1,300/oz on Fed, dollar, Clinton triple whammy — Hansen
  • Oil follow-through could make Brent a sell at $51/barrel — Hansen


By Martin O'Rourke

City shadow

London's City may be the crown jewel of the UK economy, but as we continue to absorb prime minister Theresa May's pledge on Brexit this weekend, there is much for the square mile to fear.

"The UK PM has come out and said that they will not treat the City any differently to other parts of the UK economy when it comes to the talks on Brexit," says Peter Garnry, head of equities strategy at Saxo Bank. "The City is so important for the rest of the UK economy that it seems almost unbelievable that this is really May's stance as we move closer to the Article 50 trigger."

Garnry, speaking on the Daily Morning Global Call, wonders whether May will actually follow through on what she said, but warns that "there could be a lot of noise around UK banks, especially the large investment banks operating out of London."

Sterling has certainly taken fright this week and resides well south of the 128.0 handle after May's Brexit bomb this weekend. GBPUSD was at 1.2777 at 0655 GMT.

Sterling on a road to sub-128.0


Source: SaxoTraderGO

One-month GBPUSD vols have subsequently shot up one percentage point on the back of a spike in volatility. "Sterling vols are trading very bid after the comments from May on Brexit," reports Jeppe Norup, from the Copenhagen-based FX Options desk. "Forcing the Brexit before March is risking the economy having a harder landing than was initially anticipated."

Sterling is not the only currency under fire with Japan's yen also looking potentially weaker in the light of the Bank of Japan governor Haruhiko Kuroda's comments overnight that "negative rates are an overall plus for the economy," as reported by Christoffer Moltke-Leth from Saxo Bank's Singapore hub. 

"USDJPY extended gains above 102.30 before finding some resistance," says Moltke-Leth. "If we look at the weekly chart, it does indicate a breakout of the long-term downward channel and we also see the relative support indicator looking well supported there."

According to Moltke-Leth, this is premised on the possibility of yet more negative rates to come as Japan looks to pull its way out of the deflation quagmire.

USDJPY was at 102.38 at 0655 GMT.

USDJPY breaks above 102.30 before finding resistance

 Source: Saxo Bank

Gold crunch

Gold is facing a near-term crunch as the precious metal faces a likely challenge of the $1,305-00/oz zone on the back of a strengthening dollar, the increased likelihood of a rate hike this year after a strong US ISM Monday raised the prospect of a Fed move to 61%, and an increased lead for Democrat nominee Hillary Clinton over her Republican rival Donald Trump in the race for the White House.

"Gold is being dragged to the edge rather than pushed," says Saxo Bank's head of commodities strategy Ole Hansen. "The market hates uncertainty, especially gold, and it is being dragged ever lower."

Silver lead the precious metal slump Monday falling below $19/oz and platinum was also testing the 200-daily moving average at the $1,002.60/oz level.

"We haven't really broken anything yet but the market is looking for the reaction if we take out the $1,300/oz low so that  we can see what underlying demand there is for gold as we're still stuck in this range," says Hansen.

Gold could be set to test $1,300/oz on a triple whammy headwind
 Source: Bloomberg

Oil too could be facing its own test in the next few days as the rally since last week's face-losing production cut deal on the part of the Saudis nears the likely upper limits of the range as Brent crude pushes to $51/barrel.

"Once the market starts to settle down, it will start to reflect on what's out there in terms of news," says Hansen. "Libya and Iran will continue to increase exports and the inventory report tomorrow is expected to rise for the first time in five weeks."

"in order for this deal from last week to work, they need Russia to cut production," says Hansen. "That will be the focus over the coming weeks especially when production is rising in countries that are exempt."

Hansen suggests keeping a close eye on $51.50/b in Brent for a potential sell level.

And finally...

The Reserve Bank of Australia chose overnight to keep rates as they are with a minimal impact on AUDUSD given the decision was largely expected.

"The Sydney housing market is extremely buoyant and this alone would legislate against further cuts for now," says Moltke-Leth. "AUD has fallen marginally but there has been a much bigger move in 10-year yields."

Theresa May pledged no special treatment for The City as her push towards a 'hard Brexit' threatens a rough ride for bankers and perhaps the UK economy as a whole. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

Martin O'Rourke Martin O'Rourke
Sterling has hit a 31-year low Tuesday morning at the 1.2737 area and continues to hover perilously close to the fresh nadir at around the 1.2750 mark (at 1000 GMT) as Brexit fear once again dominates the agenda.
Martin O'Rourke Martin O'Rourke
Gold breaks through the key $1,300/oz barrier for the first time since Brexit and was at $1,295/oz at 1241 GMT.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail