Yields on core European bonds went for a slide yesterday as prices rose in response to the ECB's decision to leave its QE programme unchanged – for now at least. Elsewhere, the USD continues to make gains on its peers.
Article / 28 June 2016 at 11:33 GMT

Mid-session Europe: A Schrödinger's cat bounce

Saxo Markets


Foreign exchange


Today's session marks the first real period of pullback/consolidation from the post-Brexit washout late last week.

In short, sterling is up, gold is down, the USDJPY is climbing out of the depths and both copper and oil are enjoying the upturn in risk sentiment.

One wonders if this is a simple case of buying-when-fearful or whether markets are beginning, as newscasts fill with long and involved stories involving the Lisbon Treaty and similar, to wonder whether a Brexit vote is the same as an actual Brexit?


  • US Q1 Final GDP (1.0% exp, 1230 GMT) 
  • US Q1 Final GDP Price Index (0.6% exp., 1230 GMT) 
  • US April S&P/Case-Schiller House Price Index (186.7 exp., 1300 GMT) 
  • US June Consumer Confidence (93.6 exp., 1400 GMT)  
  • US June Richmond Fed Manufacturing Index (1400 GMT) 
  • US Weekly API Oil Inventories (2000 GMT) 

Forex developments

We are seeing improved risk sentiment on the day following a mixed close in Asia. All leading European indices are strongly higher, taking GBP and EUR higher on the day. 

EURUSD dancing around the 200-day moving average at 1.1097, which is to be the first technical resistance with a key psychological point around 1.1100, after that around 1.1140, which was an area EURUSD rested on back in late May and was also a support area at the start of June. 

If we draw a Fibo level just from the highs of June 23 to the lows that same day, then 1.1108 area is the 38% Fibo level, then around the 1.1170 area (50% Fibo level).

USDJPY rallying with the better risk mode. There has been speculation of a massive fiscal stimulus from the Japanese government, but this has not really moved USDJPY that much higher. On the downside, we watch the following levels of importance: 101.50 (weekly 50% Fibo level from rally starting week September 10, 2012) and also the 101.10 area we spoke of yesterday. 

Closing below the latter exposes us to the sub-100 levels. Back on August 20, 2014, the 103.08 had to be taken out on interest rate hike speculation in US, so this could be first tech resistance level of interest.

GBP: if the market starts believing that Article 50 will not be invoked soon, or there is the possibility of a new referendum on a new EU deal (all speculation, by the way) then the dead cat bounce in GBP could be quite substantial. 

No technical levels of note. The only ones are 32-year old levels, with highs of GBPUSD from August 1984 being around 1.3400, then the 1.3500 area which were the lows of the financial crisis in January 2009. These could be the levels worth noting.

FX Options volatilities

Vols are being sold off heavily, with risk-on sentiment driving the market today (and also the fact that currencies are not as volatile as implied vols were priced here in the Brexit aftermath). 

Also, liquidity seem to be coming back in GBP as well; GBPUSD July 1 expiry strike 1.3300 trading in 500m, from 25 down to 24 vols. 

Fixed income

Fixed income markets are in rebound mode with much of yesterday’s moves reversed so far. Corporate bonds are seeing good demand with XOVER back below 400 basis points although some of the contraction in index terms could possibly be related to improved liquidity in cash markets as well. 

UK gilts are also giving back some of the gains and the 10-year yield is testing the 1% mark from below again, but move is probably more related to general risk-on sentiment than the overnight credit downgrades which were well-anticipated by the market.




European markets are rallying for the first time since the referendum vote with the trends inversing. Gold gave up some of its gains, oil is positive and the banks are one of the best performers after their recent battering. 

The Euro Stoxx 600 is up 2.5% on good volume with telecoms and banks outperforming while energy and healthcare lag.

Home builders are trading positively after two days of heavy losses. Redrow provided a trading update confirming its pre-tax profits are expected to beat forecasts. The firm commented that it was too early to foresee the impact of Brexit on future sales. It are off the highs but currently up 2.5%.

Ocado is trading up 10% after reporting strong H1 numbers and says it expects further growth despite the threat of Amazon’s new fresh food delivery service.

Fresnillo and related companies are seeing some profit-taking after the precious metals sector outperformed in recent days.

The replay of our Morning Call can be found here.

Join our Weekly OptionsLab on Wednesday  to find out more on covered call strategy.

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Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.


Up or down? Photo: iStock

— Edited by Michael McKenna

The Global Sales Trading desk is a multi-asset team providing customised trading solutions


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