20 June 2016 at 11:38 GMT
The early part of Monday's session has seen a strong rally for European indices and GBP as Brexit chances decline
Risk-on sentiment is hitting markets, but caution is needed. The worst scenario if this pricing continues is that should a reversal of UK opinion poll sentiment (or a Brexit itself) occur in the next few days that massive volatility would be unleashed.
The economic data release is pretty thin but we did get better than expected German PPI readings. Month-on-Month for May at 0.4% vs. expected 0.3% and with prior at 0.1%. Year-on-Year was also ‘better’ than expected at -2.7% vs. expected -2.9%, with prior at -3.1%
- Thin calendar with no major releases
- Canadian Wholesale Trade Sales Mom for April (12:30), Estimates at 0.5% vs previous -1%
EURUSD crossed its 55-day moving average at 1.1305 today, which has been the ceiling since around June 10 in sympathy with the GBP moves and relief there so far. If risk-on does continus then we're expecting EUR strength to be temporary. Tech resistance at the 1.1410 area. USDJPY
: not really seen the risk-on sentiment here. Tech resistance of note 105.50 and then 106.19 (200-week moving average).
is the main mover on the day with polls now turning showing “Remain” leading 45 to 42. GBPUSD finding resistance at the 200-day moving average at 1.4687 today. This moving average has not been broken this year and last crossed November 5. From the drop 11 Dec 2015 to lows of Feb 29, 2016 there is a 61% Fibo level also around the 1.4700 area. GBPUSD has pricked through but not managed to close day above on 4 daily occasions this year. EURGBP slamming through its 100-day moving average at 0.7830 area and now finding first tech support at 0.77329 area (Fibo level) from rally starting May 25.
USDJPY we've not really seen the risk-on sentiment here. Tech resistance of note 105.50 and then 106.19 (200-week moving average)
FX Options volatilities
GBPUSD: Implied vols have traded significantly lower compared to last week. The change in Brexit polls in favour for a “stay” is currently dictating the market.
Overall: Vols have overall traded lower today on the back of a “risk on” relief rally. We have however seen some renewed interest in buying USD calls against other majors.
There's been a strong reaction to the increased ”Bremain” chance across European fixed income markets, reversing much of last week’s moves. Core yields rise, led by the bunds future dropping to 164.20 and a 0.06% positive yield (10 bps off the low), while Peripheral spreads contract with Italian and Spanish 10 year bonds some 6 bps tighter. Corporate bonds in demand as well, XOVER dips more than 25 bps to 345 bps and liquidity on offer side is soft.
European markets are trading sharply higher after the latest surveys showed a return in support for the UK to stay in the European Union with UK bookmakers decreasing the implied probability of a Brexit.
Germany’s DAX 30 gain 3.11% to 9,932, France’s CAC 40 gain 2.98% to 4318 and UK FTSE 100 gain 2.59% to 6,176.
All sectors were higher with bank shares fronting the advance. Royal Bank of Scotland surged 7,43%, Banco Comercial Portugues (BCP) pushed up 6,8%, Deutsche Bank rose 5.4% and Lloyds Bank picked up 5.6%.
Dow futures point to a 200 point gain, while S&P 500 futures gain 26 points and Nasdaq 100 futures add 56 points. Share to watch this Monday: Disney could be in focus after Pixar Animation Studio set a box-office weekend record for the animated film “Finding Dory”
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.
Risk appetite roars back after a fresh poll gave a narrow lead to Remain. Pic: iStock
— Edited by Clare MacCarthy