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Daily Roundup – Markets review

December 04

For those traders based in Europe, it may be difficult to escape the Brexit headlines and the accompanying volatility for the Pound, but beyond this, one major currency pair which saw heightened volatility overnight was Dollar-Yen. Risk-on sentiment in the wake of the weekend’s G20 meeting has seen an exodus from US treasuries, driving yields sharply lower. Traders have been moving dollar exposure to Japanese Yen and as a result we’ve seen a big figure on USD/JPY lost in the last 15 hours or so.

With a generally quiet day elsewhere in terms of economic data, Brexit does have the potential to once again take centre stage. A number of senior Bank of England representatives are currently addressing a panel of UK lawmakers and this does seem to be providing a little respite for Sterling right now, although what’s been reported so far can hardly be seen as ground breaking. Deputy Governor Ben Broadbent’s comments over how markets are currently pricing against a range of outcomes may provide clarity for politicians, but the upside for GBP is arguably being found off EU clarification that the UK can abandon ‘Article 50’ and simply carry on as usual with its EU membership, if so desired. Given the constitutional crisis the UK is currently walking towards, this outcome shouldn’t be completely discounted.

There are a number of US markets closed tomorrow as the country observes a day of mourning, following the death of former President Bush. Direct impact on currency markets is likely to be limited, although data releases are to be delayed by a day and Jerome Powell’s hearing with lawmakers has been cancelled. This could have contained some pivotal clues over just how quickly the Federal Reserve can relent on its rate hike campaign whilst the underlying US economic data continues to impress.

Technicals

 

USD/JPY is still showing strong sell signals, although the issue here is that any reversal in risk sentiment could initiate a reversion. Mid-November lows around 112.30 may well be achievable.

 

CHF/JPY has some downside potential in the short term, with the 23.8%retracement of the Autumn sell-off holding meaningful potential around the 113.15 level.