Article / 14 June 2016 at 11:32 GMT

Mid-session Europe: The British empire of uncertainty

Saxo Markets


Foreign exchange

As the UK's Brexit referendum draws closer, the shadow it casts over markets spreads to engulf the whole world. Example? The Japanese yen, perhaps, which continues to plunge, currently sitting south of 106.00 as it absorbs wave after wave of safe-haven buying.

In Europe, 10-year German bund yields are in the negative and stocks are wilting for a fifth straight session. Equity indicies are not helped by falling oil prices and the consequent energy sector weakness.

The last four prominent national polls have given a distinct edge to the Leave option, a distinct change from last week.


  • US May Advance Retail Sales (0.3% exp., 1230 GMT) 
  • US May Import Price Index (0.8% exp. m/m, 1230 GMT) 
  • US April Business Inventories (0.2% exp., 1400 GMT) 

Forex developments

EURUSD has been under pressure this morning where there seems to be negative correlation whether risk-on or risk-off in EUR. Has been very technical since Friday, working in the range of the 55-day moving average at 1.1312 and the 100-day moving average at 1.1214. Yesterday the pair closed right below the Fibo level we have been watching at 1.1294. 

USDJPY is still threatening important levels that, if taken out, can force further unwinding (i.e 105.50). The 200-week moving average at 106.07 area is the major resistance in the European session. If we start closing below the 106.07 area on the day, it could be more confirmation that USDJPY wants to head lower if risk-off continues.

GBP: The odds of “Leave” are increasing and stand at around 42% now. We have gone from 25% probability to these levels in space of a few weeks, and this is showing strongly in GBP. Four polls from the last 24 hours show “Leave” ahead, and now The Sun tabloid is out endorsing “Leave”. 

Levels that could be noted are the 1.4110 area around lows of last two days and then 1.4078/90 (the lows of January 21 and April 14, respectively). To the upside we have the 1.4260/80 area which was a tech resistance back in early March and early to mid-April. 

EURGBP is pushing very strongly back from the highs today at 0.7979 area and is now below the 200-week moving average at 0.7925. Yesterday we ventured above this level to the 0.7985 area but failed to close above 0.7925, so we might be wanting to test again higher. Liquidity is becoming thinner and thinner with nine days to the referendum.

FX Options volatilities

All dominated by Brexit, gamma bid, low liquidity. EURUSD risk reversals in demand today; one-month trading around 3.3 favour downside coming from 2.3 a few days ago. 

GBPUSD two-week (June 28) was paid at 42.0 % in broker 930 pips for a straddle. 

Fixed income

For the first time on record, the 10-year German government bond yield has turned negative as the bunds future reacts to another round of Brexit risk-off sentiment and jumps to 165.60.

European credit continues to suffer, especially in the high-yield market which has seen equity-like treatment. 

XOVER index is out by another 20 basis points to 370 bps – a massive 60 bps expansion for the week which has seen bid-side liquidity soften dramatically as well.




European markets are trading lower for the fifth consecutive session as investors are very cautious and very risk-averse ahead of the central bank meetings (FOMC, BoE and BoJ) and the Brexit referendum.

Investors have been moving into the fixed income market on a hunt for safety. Yields on Germany’s 10-year bunds have turned negative for the first time on rising uncertainty. 

Last four polls put the UK on the verge of leaving the EU and The Sun newspaper is the first major newspaper with a formal recommendation endorsing the Leave option. 

Germany’s Dax 30 fell 1.13% to 9,547.92; France’s CAC 40 fell 1.51% to 4163.20; and FTSE100 fell 1.26% to 5,968.20. 

Oil is also trading lower with WTI remaining below $50/barrel adding pressure to commodity and mining stocks. 

US stock futures signalled a lower open as investors are still showing signs of anxiousness. 


For more Brexit research, click here

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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.

Asia:      Morning Report APAC: Only certainty is volatility amid Brexit risk-off

Europe: Morning Markets: Risk-off market crowds the yen

brexit  Another day, another wave of Brexit-inspired fear sweeps the markets. Photo: iStock

— Edited by Michael McKenna

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


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