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Article / 20 March 2017 at 12:22 GMT

Mid-session Europe: Article 50 set for March 29, GBP tumbles

Saxo Markets
Denmark

t

Foreign exchange

Forex
 
Today's early European session saw GBPUSD break north of the 1.24 handle for the first time since February 28, but cable couldn't enjoy that rarefied air for long as United Kingdom prime minister Theresa May's mid-day announcement that Article 50 would be invoked March 29 sent the pair below 1.2370 in a matter of minutes.

The invoking of Article 50, of course, will allow the UK and the European Union to begin their Brexit negotiations in earnest. Meanwhile, the euro's fortunes are likely being capped by a similar disruption across the channel as anti-EU populist Marine Le Pen has made notable gains in the polls ahead of tonight's presidential debate.

Both equities and crude oil continue to sell off on the day, with the USD also soft against all majors save JPY.

v
Forex developments

USD weaker across the board in general, except versus JPY. Note that USDJPY closed below its 100-day moving average on Friday. Currently this average sits at 113.27. Preferably USDJPY should return back above the average in the next few days to avoid a new range between 111.50 and the 113.30 area.

EURUSD weakened following poorer-than-expected German PPIs for Feb which came in at 0.2% versus an expected 0.4% (month-on-month). Diminishing risks in Europe are lending some support to EUR, but we continue noting the widening spreads between German and French 10-year bonds reaching a high for March around 67 basis points ahead of today's TV debate today between the presidential candidates in France.

GBP is pressuring the 100-day moving average at 1.2410 versus USD, and closing the day above this level would be first time since February 28 and would lend a positive bias for challenging 1.2700. 1.2500 has been very decent tech resistance almost throughout February.

FX Options volatilities
 
Vols

Vols
 
Overall volatilities in the majors are slightly better bid today after last week’s selloff. Unfortunately, the economic news calendar doesn’t give much in terms of short-term direction, so there will be some volatility.
Today main buying interest has been for two- and three-month tenors while longer-dated vols are still offered.

In USDJPY we have seen buying interest of three-month 118,00 and selling interest of six-month 110.

In EURUSD we have seen buying interests for two- and three-month ATM.
Implied versus historic is at decent levels. AUDUSD is a good gamma buy; USDJPY is a good gamma sell, while EURUSD is neutral.

Fixed income

Bonds

Commodities

Commodities


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Equities

Equities
 
European stocks are on the decline, led by a drop in oil and gas shares. The week started on a downbeat note in the wake of the G20 meeting that stoked tensions about global trade. 

Germany’s Dax30 fell 0.3% to 12,061, and France’s CAC 40 shed 0.4% to 5,009. The FTSE 100 gave up 0.2% at 7,407, hurt in part as the pound traded above $1.24 for the first time in three weeks (prior to the announcement that Article 50 will be triggered March 29).

Among the decliners Deutsche Bank AG shares fell 2.9% as the German lending heavyweight said it will issue 687.5 million new shares at €11.65 each, to raise €8 billion ($8.6 billion) as it moves to shore up capital. This move was announced earlier in the month by the bank.

Cap-XX lost 17% after poor quarterly earnings results.

Hugo Boss declined 4% after GBL denied owning any shares, contrary to a report last week.
In France, Atos denied that Worldline is preparing an Ingenico bid, according to Reuters. Ingenico stock is losing 3% at midday. 

Casino was cut to 'neutral' at Credit Suisse. The company had dropped 3% after the rating change. Another stock on the move today was Aryzta, trading up 4.5% after being raised to Buy at Berenberg.  

AB Foods also gained 2% after a rating change. Goldman Sachs raised it to “Buy” this morning.

The replay of our Morning Call can be found here.

Read more

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.




Theresa May
 Article 50 will be invoked before the end of the month says UK PM May. Photo: Shutterstock

— Edited by Michael McKenna

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