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    GBP tumbles ahead of Brexit vote, volatility rises

    Market Brief

    G10 Advancers and Decliners vs USD
    JPY 0.41
    AUD 0.20
    CHF 0.07
    CAD 0.05
    EUR -0.09
    DKK -0.09
    NOK -0.19
    SEK -0.27
    NZD -0.35
    GBP -0.67
    Global Indexes Current Level % Change
    Nikkei 225 Index 15859 -1
    Hang Seng Index 20478.03 -0.17
    Shanghai Index 2828.522 -0.16
    FTSE futures 6030 -0.49
    DAX futures 9596 -0.91
    SMI Futures 7721 -0.95
    S&P future 2078.7 -0.84
    Global Indexes Current Level % Change
    Gold 1279.15 -0.37
    Silver 17.33 -0.67
    VIX 20.97 23.14
    Crude wti 48.41 -0.96
    USD Index 94.44 0.09

    Investors across the globe started to show signs nervousness as we are getting close to several key dates. Almost all equity indices ended in red yesterday as traders piled into safe haven asset, pushing volatility to sky-high levels. The CBOE volatility index (VIX) climbed more than 23% on Monday after a surge of 16% last Friday, while the S&P 500 lost 1.70% over the same period. Looking at the option price on the S&P 500, it seems that investors are getting reading for a drop of the index as the 1 month 25 delta risk reversal fell to -7.50% on Monday compared to -4.50% on Friday. However, given the substantial gains of the equity market over the last few months, investors are less reluctant to spend some money to buy protection and secure those gains.

    In the FX market, the pound sterling is the main focus of the attention as the June 23 vote is getting closer. The pound fell 0.67% against the US dollar to 1.4157. Since the beginning of May, the currency is down 4.10% and is now testing the low from mid-April as a Brexit seems to have gained traction over the last few days, according to the latest poll. The consequences of a Brexit are difficult to price in and the market is monitoring closely the polls. So even in the event of a Brexit, the sterling may not move much lower.

    EUR/CHF stabilised somewhat in Asia but the bias remains on the downside. On Thursday the SNB will communicate its interest rate decision as well as its latest forecast. The CHF should remain under substantially buying pressure as we are getting closer to June 23. Moreover the mounting risk-off sentiment accelerated the franc’s rise. We do not expect the SNB to remain sidelined for too long; however Thomas Jordan still has some room before stepping into the market to defend the CHF.

    USD/JPY moved slightly lower overnight as equities were set to end the day in negative territory. On the downside, the strong 105.23-55 support area is still standing. However, given the solid demand for safe haven asset, investors may want to test that level further during the upcoming days. The US retail due for release this afternoon may be that trigger in the case of a poor reading.

    In the equity market, the rebound is not for today as most Asian equity indices continued to lose ground. The Nikkei 225 was off 1%, while the broader Topix index fell 0.98%. In mainland China, the CSI 300 was down -0.10%, while offshore the Hang Seng slip 0.17%, the Taiex bounced back 0.47%. In Europe, futures on the Footsie are down -0.49% and the ones on the DAX -0.91%. The SMI was down -0.95%.

     

    Swissquote Sqore Trade Ideas: https://en.swissquote.com/fx/news/sqore

     


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