Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 14 March 2017 at 12:24 GMT

Mid-session Europe: GBP retreats as London pushes hard Brexit line

Saxo Markets


Foreign exchange


Yesterday's early-session rally in sterling was well and truly scuppered by Monday's conclusive vote against the reciprocity amendment proposed by the House of Lords as well as Scottish first minister Nicola Sturgeon's call for a second independence referendum. 

At present, GBPUSD is trading around 1.2125 with sterling's fortunes now tied rather directly to the rumours, headlines, and utterances that will doubtlessly surround the Brexit process.

This week, of course, the big news is the US Federal Open Market Committee meeting where the Fed is widely expected to introduce a 25 basis point rate hike. The hike itself has been priced in for some time, but gold traders will continue to balance in the expected hike against a suite of worsening geopolitical situations.


  • US February PPI Final Demand (1230 GMT) 
  • Weekly API Oil Inventories (2030 GMT) 
Forex developments

Having almost fully priced in a rate hike at this week's FOMC meeting, financial markets are now focused on how fast the Fed wants to normalise monetary policy. 

EURUSD trading around day lows at 1.0630 with little volatility seen so far.  

USDJPY remains upbeat with the FOMC meeting approaching and a 25 bps hike almost fully priced in. This will have a bearing on UST/JGB yield spreads across the curve and the direction of USDJPY. All things being equal, USDJPY is likely to extend its recovery as the technical outlook is still bullish for the 115.93 level, or the 61.8% retracement of the 118.60 to 111.59 (January to February) fall. Currently we are trading around the 115 level.

GBP suffers as Brexit trigger looms, GBPUSD down 0.75% at 1.2125 currently. EURGBP traded as high as 0.8785 this morning, but fell back to current levels around 0.8765 by mid-day. 

FX Options volatilities

EURCHF vols are very bid ahead of tomorrow’s Swiss National Bank meeting, with one-week paid at 6.0 vol and one-month at 5.25, their highest since December 16. However, not a lot is expected from the SNB, which is stuck in the dilemma of rising inflation and an appreciating currency.

GBP vols are a touch higher after a bigger dip in GBPUSD spot this early morning, as UK lawmakers have greenlighted the triggering of Article 50, which is expected to take place end of this month. One-month GBPUSD is trading at 9.7, up 0.65 today.

Thursday expiry is the important date covering the Dutch election and FOMC. O/n EURUSD today is at 8% and tomorrow o/n is implied to start at around 16 vols. Direction wise there is no real bias, with RR trading close to flat. Selling of RR in two-month and out has paused for now, where we did see a big correction in the skew last week (less in favour of EUR puts). 

Fixed income






European stocks took a little breather this morning ahead of tomorrow’s Dutch election and Fed rate decision. Stoxx Europe 600 is 0.20% lower on light volume. Utilities and Consumer Staples are largely up on the day while banks underperform.

RWE trades 8.5% higher following a report that Engie was considering making an approach for its renewable energy unit, Innogy. Innogy is up 7.5%.

Ocado is up over 5% after reporting steady sales growth although it flagged signs of rising prices.

Aker Solutions in Norway is up 15% after Halliburton was reported to be in advanced talks with the company.

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.

Fading away: The British pound is again on the back foot as Article 50 and a second Scottish referendum loom large in traders' minds. Photo: Shutterstock

— Edited by Michael McKenna

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


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