Article / 27 February 2017 at 12:43 GMT

Mid-session Europe: Pound hit by Scotland referendum jitters

Saxo Markets


Foreign exchange

Sterling fell on Monday, with cable bouncing off key technical support levels on reports that the British government is preparing for the possibility of a Scottish referendum on independence

Markets otherwise are in wait-and-see mode before US president Donald Trump’s speech to both houses of Congress on Tuesday and a raft of macroeconomic data this week.
The EU business climate index was in line with forecast (0.82).  EU indices were muted ahead of Trump’s speech on Tuesday.

Gold traded in a tight range, with potential for $1,278/oz on a break above $1,262/oz.

  • US Advance report on durable goods (1330 GMT)
  • US Pending home sales (1500)
Forex developments
GBP is the main story of the day in the FX markets, with renewed noise — namely a possible referendum in Scotland — putting pressure on sterling. GBPUSD has bounced off key technical support levels at the 100-day moving average in the 1.2403 area. That l100-day MA has survived several attempts and the pair has not closed below it since before January 23. Also note there is a 50% Fibonacci level in the 1.2389 area, from the rally of January 16 to February 2. If cable starts closing below that, the way is open to a next level in the 1.2294 area (61% Fibo level). 1.2480 has been a magnate lately, so if it fails to pull GBPUSD to it in coming days, that could also be a sign that the focus is changing for a downward bias.

EURUSD remains in its downward channel from February 2, but close to the technical resistance on the top of the channel at around 1.0600. There is also a 50% Fibo level from the rally that began on January 3 at 1.0585, which was a decent tech resistance last week. Above 1.06, the next technical level is around 1.0643 (38% Fibo from the same rally).

USDJPY: lower US yields are keeping a lid on the pair. USDJPY has decent technical support around the 112 area. First there is a 38% Fibo level around 111.97 from the Trump rally starting November 9. Second, there is technical support at 111.80 (100-day MA), which was also where USDJPY found support on February 3 and 7. Below 111.97, Fibo opens to the 109.91 area (50% fibo level). Higher US yields are needed to drive USDJPY higher, and we will keep an eye on Trump's speech tomorrow for triggers in yields

FX Options volatilities
Volatilities are trading softer this morning, with spot markets in tighter ranges. The GBP vol curve is unchanged despite speculations of a potential Scottish referendum on independence.

The EURUSD vol curve is marginally lower, with 1-month at-the-money down 0.2 this morning. We see Wednesday to 1-week expiry quoted with some extra risk premium due to Trump’s speech on Tuesday evening and Yellen's speech on Friday.




European stocks were little changed by midday on Monday. The FTSE 100 was up 0.4, France's CAC 40 gained 0.2% to 4,854 and Germany's DAX 30 tacked on 0.2% at 11,830 points. Investors appeared to be avoiding big bets ahead of President Trump's policy speech on Tuuesday.

Shares in Deutsche Börse fell 4.8% and in the LSE by 3.4%, as the exchanges' planned mega-merger looked less likely after the LSE said late on Sunday it wouldn’t sell its majority-owned fixed-income trading platform in Italy to appease antitrust concerns over the deal.

Direct Line Insurance was another big loser, sliding 6.3% after the insurer said a change to a key rate will cut into its profit.

Associated British Foods fell 1%. The company’s shares had risen out of the gate after it projected a rise in sales at his clothing unit, Primark.

Bunzl shares gained 2.3% after the supplier of disposable products reported a rise in full-year pre-tax profit.

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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.

Scottish castle
 Scottish castle. The pound took a hit from worries about a Scottish 
independence referendum. Photo: Shutterstock

— Edited by John Acher and Clemens Bomsdorf

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