Article / 12 October 2016 at 8:11 GMT

From the Floor: Punch-drunk GBP grasps Brexit lifeline — #SaxoStrats

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  • Sterling's overnight plunge reverses after UK's May offers olive branch
  • A 'softening stance' on Brexit could see GBP 'squeeze' — Hardy
  • Pivotal day for EURGBP as markets determine next move — Hardy
  • EURUSD slides through key supports towards 'psychological' 1.10 mark — Hardy
  • Bank of Japan yield curve moves could scupper Japan real estate — Garnry
  • Mitsubishi Estate heavily exposed to potential real estate downturn — Garnry
  • Oil looking to the downside again as supply fears re-emerge — Liu

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By Martin O'Rourke

Hardly softly

UK prime minister Theresa May, no doubt alarmed at the extent of sterling's dive since she turned towards the 'hard' Brexit road 10 days ago, moved swiftly overnight to soften her stance after GBPUSD slid through the 1.21 handle against the dollar late Tuesday.

May changed her position on refusing to offer parliament the opportunity to have its say over Brexit negotiations and in the process helped steer sterling back to the 'relatively safe' foothills of the 1.22-plus zone.

GBPUSD was at 1.2256 at 0655 GMT.

"Sterling rallied overnight after the selloff intensified yesterday," says John J Hardy, head of forex strategy at Saxo Bank. "More parliamentary involvement indicates a softening of her stance and there might have to be a readjustment of positions on sterling pairs accordingly."

"We could see a sudden sentiment shift and any easing of fears over a 'hard' Brexit could see a sharp squeeze up in sterling," Hardy says, speaking on Saxo Bank's Daily Global Morning Call. "It opens up the potential for a softer Brexit."

Hardy's focus is particularly on EURGBP which jumped to new highs above 0.90 (and which incidentally has had holidaying Brits crying into their Sangria as airports fleece them at parity rates) from somewhere close to the 0.70 mark earlier in the year.

"Today is pivotal on EURGBP as to whether we get this recovery on sterling going higher or we retrace and continue on the lower path," says Hardy, live from the Copenhagen floor. Hardy advises watching out for tonight's RICs housing balance report which is one of the most reliable indicators of the UK housing market and a barometer of the health of the UK economy.

EURGBP is at a pivot point as Theresa May 'softens' her stance on Brexit:s






Source: SaxoTraderGO

EURUSD might finally be about to make a decisive move after seemingly having been marooned for some months after it cut through key barriers to the downside and now has its sights set firmly on the "psychological" 1.10 area, says Hardy.

"It's broken the 200-day moving average line, it's below 1.11 and if it gets through 1.10 and then the important 1.0945 area, then 1.08 at least is in view with the potential to 1.06."

The aforementioned sterling revival would help this, says Hardy, if it pegs euro back, but the forex chief is dismissive of today's Fed minutes release as a potential catalyst for further momentum.

"The markets seem to be ignoring the Fed's increasingly futile attempts at forward guidance," he says.  For what it's worth, a Fed rate hike before the end of the year is at a 67% probability.

EURNOK is another pair grabbing Hardy's attention as it hits a six-year high north of 9.70.

EURUSD breaks through key barriers as it heads towards 1.10x



Source: SaxoTraderGO

Getting real

The pivotal Bank of Japan decision at last month's meeting to target the yield curve is likely to have a number of consequences down the line and one potential victim could be Japanese real estate with overpriced Tokyo particularly vulnerable, says Saxo Bank's head of equities strategy Peter Garnry.

"There are estimates that Tokyo real estate could fall by 20-30% as part of the BoJ's new strategy and we think that Mitsubishi Estate is the best candidate for a short position," says Garnry. "It may already be down 25% since last year but it is the biggest real estate vehicle in the Topix with a lot of exposure to Tokyo real estate and especially city centre and there is a lot of room for it to go further down."

"We are setting our stops at 1,945," he adds.

Mitsubishi Estate has been a sell for some time and that could continuec Source: SaxoTraderGO


Source: SaxoTraderGO

Oil's shift

Oil meanwhile is at a crossroads after doubts began to emerge over Russia's commitment to an oil deal and as Libya, Nigeria and Iraq continued to bang the production drum incessantly.

"Oil is lower because it doesn't look like Russia is that committed to the Opec deal and you've got Nigeria, Libya and Iraq producing so that will not effect the oversupply situation," says Edmund Liu, reporting from Saxo's Singapore hub. "Gains remained capped at the $51.50/barrel resistance level."

And finally...

Beleaguered Samsung's decision to throw the towel into the ring and give up on its Galaxy Note 7 sent the South Korean manufacturer's share price into more declines.

"The Note 7 fiasco is expected to burn a $17 billion hole in Samsung's pockets," says Liu.
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How sterling could do with a spot of calm reflection. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

Editor’s note: From the Floor takes advantage of TradingFloor.com'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.

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