03 October 2016 at 11:21 GMT
British prime minister Theresa May was out Sunday specifying the terms of the Brexit negotiations and calling for a withdrawal from the European Union by the end of March 2017.
The sudden and renewed reality of the vote and its consequences sent the pound lower and UK stocks higher as what had increasingly come to look like a post-ballot honeymoon for the UK currency smacked against the reality of life post-EU.
Beyond Brexit, crude oil continued to rally on the news of an Opec deal last week; though there remain a great many questions concerning the exact degree to which the deal might hike prices, Brent traders drove the variant over $50/barrel in the apparent belief that relief is on its way.
- CA Canada September Manufacturing PMI (1330 GMT)
- US September ISM Manufacturing (50.3 exp., 1400 GMT)
FX kicked off the week with volatility hitting GBP on back of the news of Article 50 will be triggered before the end of March 2017. GBP took a beating on opening in Asia before recovering half of its losses during the Asian session. As Europe opened, the selling continued.
GBPUSD is finding support at the lows of July 11 around the 1.2850 area which is some 50-plus pips above the all-time post-Brexit low around 1.2798 on July 6. A very good UK Manufacturing PMI failed to change sentiment and selling restarted just below the 1.2900 level, which is also current resistance.
Since May, cable has closed lower on a monthly basis. GBPUSD continues to move in a downward daily channel with top of the channel around 1.3000 for today. If we start seeing risk-off, we watch GBPJPY if 129.40 is broken.
EURGBP has currently recovered its collapse from July 2013, sitting currently at the 61% Fibo (at 0.8705) on monthly charts from the highs of December 2008. Important to see if this area becomes the fighting ground for this month. EURUSD: the focus is on US nonfarm payrolls later this week and the presidential elections are keeping EURUSD well contained in the tight range that it has seen since the latter part of September.
Note how EURUSD closed on its 100-week moving average on Friday around the 1.1221 area, which continues to be an interesting tech resistance as EURUSD tries to push higher. First tech resistance above current levels around 1.1250/55 which has almost been visited daily since September 22 before being rejected, and then interesting tech resistance at 1.1300.
Commodity currencies are the other big mover with AUDUSD approaching interesting tech resistance at 0.7700 which it has failed to close the day above since April 26. This resistance, if broken, opens up to next key level at 0.7755. Commodity currencies are getting a nice push from higher crude, with Brent continuing its upwards march past $50/b.
FX Options volatilities
GBP vol curve up this morning along with a selloff in spot after Brexit comments from UK PM May on Sunday. 1
One- month GBPUSD at plus 1.0 vol and RR also more bid for GBP puts. One-month EURUSD down 0.2.
JPY vols also easing lower with one-month down 0.2 after Friday’s semi-panic on Deutsche Bank.
The main event of this week is the US nonfarm payrolls on Friday. For our vol interpolation, we are pricing the NFP with a day weight of 2.5x a normal business day’s volatility. Historically that is pretty neutral.
European indices trade mildly higher today with Germany’s Dax closed for the Unification Day holiday.
The FTSE 100 surged to post-Brexit and 2016 highs as export-driven companies were buoyed by a weaker GBP as PM May announced a March 2017 deadline for Britain’s formal departure from the EU.
Hikma Pharma, Diageo and Unilever are trading 2.5%, 1.5% and 0.8% higher respectively on the weaker pound.
In the M&A space, fund manager Henderson Global agreed an all-stock merger with Janus Capital, valuing the group at $6bn. Shares in Henderson Global were up as much as 20% on the news.
Energy stocks were boosted by higher oil prices this morning as Opec members were expected to honour output cuts.
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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.
The British currency was rained out today as PM May's comments
revived the post-Brexit climate. Photo: iStock
— Edited by Michael McKenna