Article / 28 October 2016 at 12:11 GMT

Mid-session Europe: GBP hit as N.Ireland judge rejects Brexit suit

Saxo Markets


Foreign exchange
Sterling was hit again after a Northern Ireland judge rejected legal challenges to the Brexit process, clearing away an obstacle to UK prime minister Theresa May’s plan to start cutting ties with the European Union by the end of March.

Meanwhile, the US dollar has remained bid, supported by surging bond yields worldwide. USDJPY rose to 3-month highs above 105.25, and the yen is likely to stay weak if yields continue to climb.
European stocks fell as several companies' earnings missed market expectations and lowered guidance disappointed investors .

Gold and white metals remained range-bound .

For Saxo Bank's FX strategy chief John Hardy’s latest FX Update please follow this link .

Saxo Bank’s Chief Economist & CIO Steen Jakobsen prepared a compelling presentation on US Elections, please link to it here.

The replay of our Morning Call can be found here.

  • DE Provisional CPI (1200)
  • US Advance estimate Q3 GDP (+2.5% exp.) (1230)
  • US University of Michigan survey of consumers - final (88.5 exp.) (1400)
Forex developments

Once again GBP is the talk of the town and has taken a beating after the British government won a Brexit lawsuit in Northern Ireland. The GBPUSD 1.2080 area is where it has rebounded higher on two separated occasions (October 11 and October 25). But closing the day and week lower would further beleaguer GBP. Sterling is down even though the first set of GDP data from the post-Brexit period was better than expected. This is despite yields on UK Gilts being higher. The 1.2220 area, which is 10-day moving average, is where GBPUSD has been finding resistance since October 18. 

USDJPY: With the main indices in Europe in the red, USDJPY has been pressured down from a three-month high. The 105.80 level is around a technical resistance area from the end of July where this cross started closing below this level and collapsing, so there's interesting tech resistance. The 104.50/60 area is technical support, which were the levels that needed to be broken tor USDJPY to break higher on October 27.

EURUSD: There's further downside potential in EURUSD if 1.0950/1.1000 continues to provide resistance. The 10-day moving average at 1.0923 today has been a nice technical resistance level above which EURUSD has failed to close since September 30. The 1.0850 area is a decent technical level where EURUSD has been pushed back higher (though modestly) since October 21.

FX Options volatilities

EURUSD is still range-bound around 1.09, and volatility is lower as historic is now around 5%. 1-month now trading around 6.58; the low so far this year is near 6.3.

In EURUSD, 1.09 strikes dominate for the next few days, so we need some news to move away from this level.

The USDJPY curve has stabilised after two days dominated by buyers. Today we have seen a few big trades in USDJPY: 
- 3w 98 very low delta traded at 2 tics in 800 mio
- 21 apr 100 traded in 800 mio at 10.7%

Even with this buying interest, the market is unchanged or slightly lower, and there's a good chance the curve will be lower for next few days.

Fixed income

European equities fell as earnings of several companies missed estimates and downgraded guidance disappointed investors.

The FTSE100 is down 0.23% to 6,970 points, Dax slip 0.48% to 10,665, IBEX35 fell 0.59% to 9,143, while the CAC40 gained 0.14% to 4,539.

Danish drug maker Novo Nordisk's shares plunged 14.3% after the company cut its long-term guidance and narrowed its 2016 sales and operating profit outlook because of market difficulties in the US.

Digital security firm Gemalto's shares slid 10.1% after the company announced a worse outlook for 2017 than expected.

Brewer Anheuser-Busch cut its growth guidance for the year partly due to weak consumer spending in Brazil.

US futures point to a cautions open ahead of the US advance Q3 GDP estimate (1230 GMT), swinging between small gains and losses (DJIA down -0.03%, S&P500 up 0.01%, and Nasdaq100 down -0.07%).

US Q3 GDP is expected to show 2.6% growth vs 1.4% in the previous quarter.

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.

US:        US Market Wrap: Dollar firms ahead of Friday's GDP update

Asia:      Morning Report APAC: Bonds selloff, haven assets losing ground

Europe: Morning Markets: Dollar holds firm as bonds sell off

Europe: From the Floor: Bond yields on the move

London street
 Pound takes another hit on rejected legal challenges to Brexit. Photo: iStock

— Edited by John Acher and Clemens Bomsdorf

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


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