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Video / 14 March 2017 at 8:39 GMT

From the Floor: Sterling tumbles, FTSE bounces back — #SaxoStrats

#SaxoStrats
  • Shift in tone on the euro from Friday partially faded — Hardy
  • Thursday will be key test for euro following Dutch elections and FOMC — Hardy
  • "Stirling is fading really badly this morning," — Hardy
  • EURGBP could test 0.885 "with all these shenanigans," — Larsson
  • FTSE 100 experiencing significant rebound — Garnry
  • G10 vols continue to trade lower, expect selloff after week's risk events — Larsen
  • Crude bulls looking for a break ahead of EIA data — Hansen
  • Gold stuck in $1,193-1,210/oz range, geopolitical risks offsetting FOMC — Hansen
  • Key test for EURSEK today with CPI data coming out — Hansen
saxo strats
By Jack Davies

Europe opened this morning to find a serious crater left in sterling by the twin impacts of the British parliament giving prime minister Theresa May approval to commence divorce proceedings with Europe and Scottish first minister Nicola Sturgeon declaring her intention to seek a second referendum on Scottish independence.

Cable lost half a cent in the five minutes leading up to 0600 GMT and has continued on a downward trajectory since, currently sitting slightly above 1.21.

“That 1.20 level looks open to me and if we’re crumbling there I don’t see where we’re going to find support for some time,” says Saxo’s head of forex strategy John Hardy.

Cable takes a tumble
cable
Source: SaxoTraderGO

The euro, too, is worth almost half a British penny more than it was overnight up to 0.887. says he believes EURGBP

“With all the shenanigans going on in England and Scotland, I believe EURGBP could test this 0.885 level very shortly,” says Saxo’s head of technical analysis Kim Cramer Larsson. “Let’s see if it can break it, then we’re on the way to maybe 0.90 and maybe even higher. I wouldn’t be surprised if going into Q2 we see it higher, but let’s see if we can get a close above 0.885.”

“It’s a bit chaotic to see Brexit and a Scottish exit at the same time,” says Hardy.

But while the British currency is floundering under the chaos, its stock exchange has received a considerable boost, according to Saxo’s head of equities Peter Garnry.

“We have very positive momentum in the FTSE 100 on the back of what has happened in cable and other sterling crosses,” says Garnry.

The FTSE 100 climbs higher
FTSE
Source: SaxoTraderGO

Across the channel, Hardy notes that the euro squeeze from Friday that saw euro pairs soar has already begun to fade in many pairs. He cites EURCHR, which climbed above 1.08 on Monday, but is already back down towards the lower end of 1.07.

“There’s a clear sense that the enthusiasm for the euro is building, maybe traders holding back with a bit of nerves” says Hardy. “With the Dutch election tomorrow, Thursday will be the key test for the euro.”

“For now EURUSD is fading and it needs to pick up support soon to look like it has maintained a rally track,” he adds. “And that’s going to be as much up to the Federal Open Market Committee [meeting tomorrow] as it is the Dutch elections or European Central Bank.”

Saxo’s head of fixed income strategy Michael Boye notes that the ECB has attempted to play down rumours of a rate hike, but that “the genie is out of the bottle, so the market seems to be catching up on the fact that the next move in yields is likely higher.”

He adds that while German bunds initially rose on the back of nervousness surrounding the Dutch elections, all those gains have since been returned. Elsewhere, peripheral spreads are unchanged

Saxo’s head of forex options Dan Larsen notes that volatilities in G10 “and pretty much any other pairs” continue to trade lower.

“The implied volatility is still trading higher than the realised, so we’re expecting vols to selloff, especially after we have the risk events for this week out of the way,” says Larsen.

He also notes that the dayweight for the French elections on May 8 are trading lower in sympathy with the rest of the market. However: “Looking at the event itself, it should not be dependent on the sentiment in the market at the moment.”

“Looking at the volatility for the event it looks rather cheap,” he adds. “Le Pen might not be the favourite but she’s definitely not out yet.”

Saxo’s head of commodities strategy Ole Hansen notes that crude oil bulls are looking for a break ahead of this week’s US Energy Information Administration data, which are expected to show a tenth weekly consecutive rise in inventories, “and that’s putting a bit of stress on the market.”

Brent crude finding support
brent
Source: Bloomberg

“I think everyone’s asking how long this crude oil selloff is going to continue before we see a correction to the upside,” says Hansen. “We’ve slumped quite dramatically compared the tight range we’ve had since November.”

“Last week it was WTI that tested and broke the 200-day moving average, yesterday it was Brent crude finding some support and that’s really the level to look out for today,” he adds. “There is a risk that we could see a reaction to the upside but I think at this stage it’s going to be primarily short covering.”

Gold meanwhile, having climbed past $1,250/oz late last month is now stuck in a range between $1,193/oz and $1,210/oz.

“We’ve got some geopolitical risks offsetting the FOMC jitters,” says Hansen. “A break outside [the range] will give us either $1,221/oz or $1,177/oz.”

theresa may nicola sturgeon
Theresa May's rush away from Brussels and Nicola Sturgeon's rush towards it have had damaging ramifications for stirling. Photo: First Minister of Scotland 

Jack Davies is consulting editor at TradingFloor.com

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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