Cable to new lows after Carney's comments


Fundamental View

Yesterday’s main fundamental driver was the Greek political upheaval; as political instability risk increased the Athens stock market took the largest plunge seen since the 1980s. This has huge negative implications as yesterday’s fall was larger than any single down-move during the Eurozone debt crisis in recent years. The risk was triggered by the calling of a Greek presidential snap election, amplified by the recent down-move in crude oil and also the decline in China. The risk which market participants are pricing in here is that, if he lost it could open the door to snap general elections, elections which the opposition party, Syriza, is likely to win. Syriza are anti-EU and anti-Troika which would lead once again to Eurozone uncertainty. This saw short term yields ramp higher to 8.2%, reading higher than the Greek 10year and thus inverting the yield curve. This short term default risk also saw ESTOXX and the DAX make legs to the downside; US equities also followed the move lower before finding support and taking back the majority of losses during the Asian Session.

Today’s View

This morning we have seen the negative sentiment abate slightly with both ESTOXX and DAX consolidating in a small range. The currency space has yielded the most movement with commentary from Bank of England’s Mark Carney stating that it is right to keep stimulus in the UK economy and also stressed once again that rate rises would be steady and slow-paced; this causes us to once again question whether the Bank of England can afford to keep a slow pace hike. Cable has broken to new lows on the session The data calendar today is fairly light with only MBA Mortgage Applications due at 12pm with no analysts’ expectations to trade off of. We do have Department of Energy Crude Inventories due at 1530pm. API Crude Oil Inventories read at a build of 4400k barrels overnight, implying that there is likely to be a glut in supply in the DoE reading this week. We will therefore be looking to take short positions in oil.

Alternative View

Any developments in Greece are likely to impact both the stocks and the EURUSD. Positive Greek sentiment could provide a lift in equities and render our S&P Strategy invalid.

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