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    Risk-off sentiment pushes yields lower as GBP heads south

    Market Brief

    G10 Advancers and Decliners vs USD
    JPY 0.70
    CHF -0.11
    EUR -0.16
    DKK -0.17
    SEK -0.25
    CAD -0.28
    AUD -0.29
    NOK -0.39
    NZD -0.80
    GBP -0.81
    Global Indexes Current Level % Change
    Nikkei 225 Index 15378.99 -1.85
    Hang Seng Index 20402.03 -1.68
    Shanghai Index 3009.747 0.11
    FTSE futures 6484 -0.25
    DAX futures 9440.5 -0.82
    SMI Futures 7875 -0.29
    S&P future 2076.7 -0.29
    Global Indexes Current Level % Change
    Gold 1365.74 0.7
    Silver 20.21 1.37
    VIX 15.58 5.48
    Crude wti 46.67 0.15
    USD Index 96.29 0.12

    The pound sterling fell below the 1.28 threshold amid renewed concerns about the impact of Britain’s decision to leave the European Union on global growth. GBP/USD reached 1.2798, the lowest level since June 1985 before stabilising at around 1.29. It is hard to tell how far the pound can actually fall but given the uniqueness of this event and especially the fact that there is no historic benchmark, we suspect that the pound sterling still has some downside potential with the 1.25 level as the next support.

    The Japanese yen surged strongly and hit 100.58 against the US dollar as investors piled into safe haven assets. Similarly, but to a lesser extent, the Swiss franc surged slightly against the single currency, with EUR/CHF sliding as low as 10794 before bouncing back to 1.08. Most interestingly, the CHF weakened against the USD (-0.15%), while the yen surged 0.75% against the greenback, suggesting that the SNB has convinced the market of its determination to prevent further appreciation of the Swiss currency.

    Commodity currencies also had a tough night with the Aussie falling 0.50% against the greenback, the Kiwi slid 0.90%, while the NOK fell 0.35%. Commodity currencies were under heavy cross-fire as crude oil prices slid further and sovereign yields took a hit. The West Texas Intermediate fell as low as $46.15 a barrel in Asia, while the international gauge, the Brent crude, slip as low as $47.53 a barrel. Australian 10-year treasury yields printed a new all-time low at 1.84%. Similarly, New Zealand 10-year treasury yields fell to 2.22%, a fresh all-time low.

    The single currency was also under selling pressure, mostly against the JPY and the USD as risk sentiment worsened. EUR/JPY slid to 111.04, while the EUR/USD hit 1.1036 as German treasury yields set another all-time record with the 10-year -0.1904%.

    Gold strengthened further, boosted by the strong haven demand. The yellow metal tested $1,371.39 an ounce before stabilising at around $1,366, up 0.72%. The closest resistance can be found at $1,392.33 (high from March 2014). Silver rallied 1.41% to $20.51 and will soon test the $21 resistance level again.

    Today traders will be likely focussed on the broad-based sell-off rather than the economic calendar. However, a few key economic indicators are due for release today: industrial output from Spain; Riksbank interest rate decision from Sweden; Markit retail PMIs from France and Germany; MBA mortgage application, trade balance, Markit services and composites PMIs and ISM non-manufacturing from the US.


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