A global bonds selloff has pushed yields up across the board towards post-Brexit highs while the anti-establishment wave sweeping the western world could force a 'No' vote on the Italian referendum in December.
Article / 28 June 2016 at 14:00 GMT

FX Board: Where to fade the bounce

Head of FX Strategy / Saxo Bank
  • 'Fiscal stimulus meme' spurs risk appetite starting in Asia
  • Commodity currencies, sterling, EM assets rise
  • CHF's safe-haven status may be in doubt

Brexit-submerged assets surged back to life today, but the operating 
assumption remains that this is a dead cat bounce. Photo: iStock

By John J Hardy

Key developments in FX today
  • Beginning in Asia, a fiscal stimulus meme had risk appetite back on the bid after two days of trauma and the dead cat bounce across risky assets and the pound was on. GBPUSD probed above 1.3400 at one point, emerging market currencies firmed, commodity currencies bounced, and the yen retreated. 
  • Most of the action represented consolidation after a couple of days of hyperextended selling in sterling and anything correlated with risk appetite, but a couple of developments were worth noting, including a EURCHF that managed to bounce all the way back into the pre-Brexit vote range. This suggests that the market is not finding the franc to be a comfortable safe haven.
  • Other interesting observations on the day were the lack of pep in CAD's step relative to commodity currency action elsewhere,

Note that I recorded a screen video of some of the charts below earlier today – have a look for further insight.


EURUSD technicals a bit more orderly compared with the traumatised GBP charts. Today's resistance was found around the local 38.2% retracement level of the recent selloff, which was just above the 200-day moving average and previous range low around 1.11000. 

After today's action, the importance of this area is underlined and the bears will be impatient for a follow up move to perhaps the 1.0800 area next.


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Source: Saxo Bank 


Intraday ranges are enormous for the highest beta GBP pairs, even if dwarfed by the trauma of last Thursday. The key zone, structurally speaking, remains 1.3800-1.4000, while today's high just above 1.3400 could privde an interesting resistance point if we reverse now to test the cycle lows toward 1.3120. 

Source: Saxo Bank 

We've covered this one before and the pair did find resistance ahead of the key Fibo's, including the 61.8% above 0.7515, but for the bears to pick up interest here, we need a follow through below 0.7300/0.7275 to suggest a move back to the 2015 lows.

Source: Saxo Bank 

The Swiss National Bank confirmed that it was intervening in the market after the Brexit vote, but it is still interesting to note that EURCHF has managed to bounce all the way back into the area in which it was trading before the UK referendum last week. 

Still, we'll have to see how the pair behaves on the next round of risk aversion to get a firmer sense that the CHF continues to lose its safe-haven bid. 1.0800 is approximate support.

Source: Saxo Bank 

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank 
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FX Board for Tuesday, June 28, 2016


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