27 June 2016 at 11:29 GMT
The Brexit fallout has sent GBPUSD to a fresh 31-year low as the UK struggles to deal with the fallout. Equities are also on the slide as UK politicians try to calm nerves — unsuccessfully.
- US Advance Goods Trade Balance — Expected -59.4b, previous -57.5b
- US Jun. Preliminary Markit Services PMI — Expected 51.9, Previous 51.3
- US Fed Chair Yellen to speak at ECB event (1730 GMT)
- -ECB President Mario Draghi to speak (1730 GMT)
EURUSD: EURUSD is acting as a safe haven alongside JPY. EURUSD closed a whisker above the 200-day moving average on Friday (200-dma 1.1099) and today this acts as key resistance. Downward pressure remains the theme. JPY has room for more strength. A close of day below the101.10 area on USDJPY opens it up for new attacks on sub-100. 101.10 area was a very decent support level for an extended time back in Q4 2013 and almost for another year before heading north on Bank of Japan stimulus. GBP: GBP has taken another dive lower, the downward pressure quite clear, but the difficult part is finding the levels to sell at as with such volatility stops could get hit easily. it is now at new historic lows. Technical chart do not tell much in such a scenario, but a Fibo chart of lows of March 1985 to the highs of Nov 2007 shows a Fibo at 1.2910.
FX Options volatilities
Volatility is slowly coming lower, but the market is still not at full liquidity and therefore is still sensitive to any negative news or uncertainty.
Most activity is in EURUSD and GBPUSD, while in less liquid crosses like GBPJPY, AUDJPY or even EURAUD, there is only limited interest.
Implied vs historic analyses indicate curves to go lower over the coming days, but this will only happens gradually and require better liquidity in broker market.
There is a risk-off tone to early trading this week following the political chaos in UK, which has Bunds recovering some of the losses in Friday’s rebound move. Corporate bonds, which saw very minor improvements in Friday’s session, have taken out the spike highs in CDS markets as the ITRAXX XOVER climbs another 20 basis points to 410 bps. The underlying cash market however is slightly more firm as liquidity has returned.
European stocks extend their post Brexit losses with the EuroStoxx 600 down 2.44% on good volume. Banks are in focus with the referendum decision most impacting the sector. The decision is thought to further damage their earnings when already under pressure.
A number of Tier 1 banks posted negative notes on European banks. The sector is therefore underperforming along with technology and consumer discretionary. Utilities, Energy and Health Care sectors are in positive territory.
The Italian government is said to be looking at various policy options to help its banks. UniCredit is down 5% and Intesa Sanpaolo down 5.75%. In the UK, there are big downward moves in the sector with RBS down 15% and Barclays down 13.5%.
Home builders continue to suffer, all down in excess of 10%. Persimmon is down 12%, Taylor Wimpey is down 15%, Berkeley Group is down 11.50% and Barratt Development is down 13%.
Gold prices continue to push higher helping the likes of Randgold Resources which is up 7.5%.
Airliners are being taken lower as GBP weakens. Ryanair is down 9.3% whilst Easyjet announced a profits warning which sees it lower by 19%.
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.
London is still trying to navigate the maze after last week's landmark decison. Photo: iStock
— Edited by Martin O'Rourke