Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 27 June 2016 at 8:00 GMT

From the Floor: The Brexit ballot's scarlet numbers

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From the Floor
By Michael McKenna 

Markets, it would appear, remain solidly downstream of politics as the fallout from Thursday's Brexit vote continues to wash over asset classes with only the words of various highly placed central bankers, ministers, commissioners, attachés, viziers, and parliamentary spokespersons to guide it.

Both Friday and the weekend saw the empire preparing the form and outline of its initial strike back against British populists as the European Union's heads coalesced around a "get out now" strategy that calls for London to invoke Article 50 of the Lisbon Treaty and begin the official process of departure.

Notably, the political figures and factions most associated with the landmark vote – BoJo, UKIP – have begun to fracture and dither with UKIP's sole member of parliament Douglas Carswell out sounding a note of dissent on his party's anti-immigration messaging while Boris Johnson provided press with some talk about small mandates and gradual processes.

So there is perhaps some consolidation afoot in terms of both rhetoric and asset prices (if only the former could be reliably charted). Speaking from Saxo Bank's Copenhagen trading floor, head of forex strategy John J Hardy noted that while significant volatility continues, "the magnitude of the move [is] dropping dramatically".

Calm has not yet returned to cable, however:

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Source: Saxo Bank 

One factor that perhaps could have kept Friday's whipsaw price movement trend at full steam was the weekend's Spanish election, but the expected surge by left-wing eurosceptics Podemos largely failed to materialise with the party picking up a mere two seats. There remains no majority coalition in Madrid, but Saxo Bank equities head Peter Garnry calls the outcome a "status quo"-type result with income trader Michael Boye adding that Spanish bonds could outperform given what passes for a steady-as-she-goes vote in the Europe of 2016.

Today's open arrives in the shadow of a UK downgrade by Moody's, which changed its outlook on UK sovereign debt from stable to negative. Later, reports Hardy, statements by Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi will place the focus back on policy ahead of the EU summit set for Tuesday and Wednesday.

In terms of the charts themselves, gold remains the big Brexit winner with Saxo commodities head Ole Hansen informing us that hedge funds remain deeply committed to the yellow metal with exchange-traded product holdings seeing their biggest one-day surge since 2012 on Friday.

In stocks, Garnry says that while volatility will remain the rule of the day for some time, traders seeking rebound candidates would do well to look at European carmakers and banks while gold miners such as Randgold and Fresnillio appear set to benefit from the dramatic, post-Brexit risk-off shock.

From Asia, Signapore-based sales trader Christoffer Moltke-Leth reports that the Nikkei bounced strongly today as USDJPY chopped broadly between 101.50 and 102.40. Cable, adds Moltke-Leth, plunged as low as 1.3355 after closing around 1.3650 on Friday.

GBPUSD pulled back from those lows somewhat, but chart remains extremely volatile.

Finally, Hansen reports that he still expects oil to trade in a $45 to $50/barrel range ("low fifties", in fact) as the impact of Brexit is ultimately somewhat limited in crude. From the fixed income desk, Boye tells us that the market's odds of a rate hike from the US Fed before December have dropped to 15% amidst the ongoing chaos.

Concerning all that, in fact, Boye added that "stronger growth would solve a lot of these political problems". This echoes a remark I made to a colleague following the scarlet-streaked European open, the gist of which was essentially that while the world's ruling powers – the commissioners and the courtiers, the ministers and Moody's – certainly know how to engineer a sharp drop in markets, the empire has apparently not yet managed to figure out the reverse.

Which leaves us right where we are. As Saxo chief economist Steen Jakobsen tweeted from Johannesburg this morning:

Michael McKenna is an editor at

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.
thompink thompink
On Gbp/Usp we have our weekly Resistance zone @ 1.4970-1.5187 and our weekly Support zone @ 1.2997-1.2740. GU is forming new swing low @ 1.3222 after January 2009 low @ 1.3480. We are expecting Cable to rally down to our weekly support to buy. Trade what you see not what you believe.


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