John J Hardy
The UK’s exit from the European Union is causing volatility in GBP, says Saxo Bank’s head of FX strategy John Hardy, and may be the start of a squeeze on sterling pairs.
Article / 20 June 2016 at 11:38 GMT

Mid-session Europe: Risk appetite returns but take care

Saxo Markets


Foreign exchange

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%

Forex developments

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).

GBP 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.

Fixed income
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” .



Latest and still open equity trades on #SaxoStrats

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.

Asia:      Morning Report APAC:  British voters to decide fate of forex, gold

Europe: From the Floor: Brexit tilt derails gold juggernaut

brexit  Risk appetite roars back after a fresh poll gave a narrow lead to Remain. Pic: iStock

— Edited by Clare MacCarthy

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


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail