Article / 25 May 2016 at 8:45 GMT

From the Floor: Sunny news buoys markets

Deputy Editor /
  • Two-month implied vols fall on 13% Remain-in-EU lead – Moltke-Leth
  • The market seems to be saying we’re not afraid of Fed hikes – Hardy
  •  I would not be afraid to have exposure to Greek stocks – Garnry
  • Risk-on sentiment is not a good backdrop for gold – Hansen
  • US inventory focus is helping oil dodge stronger dollar – Hansen
  • Click on this link for a replay of our morning call 

By Clare MacCarthy

With most of continental Europe basking in summer sunshine, the region's financial markets have roared back into risk-on mode supported by a bevy of sunny news developments including strong US home sales data, a breakthrough Greek debt deal and a new strong lead for the pro-EU side of the Brexit campaign. 

The risk sentiment comeback kicked off yesterday and, says John J Hardy, Saxo Bank's head of FX strategy, "this really is the key thing for all markets this week". Crucially, the fact that the new buoyancy comes on the heels of a week where a plethora of Fed officials waxed hawkish about the US rate hike trajectory betrays continued market scepticism about the monetary policy path. The market, Hardy says, seems to be saying "we're not afraid of Fed hikes".

The strong shift in market mood means USD strength and the risk appetite interaction in USDJPY in particular are in the spotlight once more. "The risk-on comeback and hawkish Fed should spell higher levels for dollar-yen and we're back into the Ichimoku cloud today and looking at resistance levels there," Hardy says.

USDJPY back in the cloud...
 Source: Bloomberg, Saxo Bank

Meanwhile, the news that the Remain campaign in the UK's EU referendum has gained ground and is now sporting a 13% lead has calmed market nerves and sent vols lower. "Two-month implied vols have fallen to 14.18% – their lowest level in around a month," reports Christoffer Moltke-Leth of Saxo's Singapore trading desk.

Gains for 'Bremain' soothe nerves and GBP's risk status:
 Source: Bloomberg, Saxo Bank

Another day, another Greek deal

Back in Europe one would be forgiven for muttering "déja vu" as yet another game of Greek brinkmanship has resulted in an eleventh-hour settlement – the beleaguered Eurozone member has been offered a deal involving €10.3 billion in disbursements and restructuring of its debts.

Peter Garnry, Saxo's head of equity strategy, reports that Greek stocks are reacting positively: "They've broken above the 20-day moving average and I would not be afraid to have exposure to Greek stocks, I think it could actually continue."

FTSE Athens 20 ETF daily share price since Jan 2015 :
Source: Bloomberg, Saxo Bank 

But the favourable news that has been underpinning most asset classes this morning is, of course, bad news for the traditional safe haven of gold , reports Saxo's head of commodity strategy, Ole Hansen. "The risk-on sentiment is driving the dollar, stocks and bond yields higher and that's not a good backdrop for gold performance. We have seen the market drifting lower and $1,205 and $1,175 are the key levels to look out for for now."

A pro-trend correction should be limited to $1,206 and no lower than $1,175/oz
 Source: Bloomberg, Saxo Bank

Finally, Hansen reports that following the drop in API crude oil inventories of 5.1 million barrels last week  is helping oil to dodge the headwind from the stronger dollar. The EIA's latest statistical update later today is expected to show a 2m/bbl decline which should be supportive of crude. However, with the impact of the Canadian wildfires on supply still an open question, gauging precisely is difficult.

Another day, another Greek deal. Photo: iStock 

Clare MacCarthy is deputy editor of

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.


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