Italexit on hold for now

The Day So Far

A relatively quiet session thus far as markets take stock of the recent developments in Italy. I think you would have been hard pressed to have found some one who could have forecast that EUR/USD would rally some 300 pips from the low Sunday night, and so far today the market seems to be giving Italy the benefit of doubt, at least for the time being. How long this can last is questionable but one of the interesting patterns to emerge from our junior traders was that the more inexperienced trainees actually out performed, as overall I think it was their ability to trade what was in front of them instead of overthinking the logic that gave them the clarity of thought to execute objectively. What is becoming increasingly evident in modern financial markets is that market dynamics in this post multi-dimensional monetary policy era are causing what can only be deemed as unexplainable moves from time to time. For me the important factor here is not to be to suborn in holding an opinion when the market consistently proves you wrong, but ultimately be flexible enough to adapt to the change in day-to-day sentiment and strength of cross correlations of assets.

A quick look elsewhere and cable is sitting in close proximity to the key 1.2806 level in the futures market which defines the low in the immediate aftermath of Brexit. Whether or not the level gets tested may come down to any news flow relating to the UK Supreme Court ruling on Article 50. As discussed in the briefing this morning GBP has been well bid in recent days and is certainly positioned for the Supreme Court to ratify what we heard from the High Court last month – anything short of this would likely cause an aggressive pull back in the pair.

The Afternoon View

Equities remain firm for the time being with the DAX holding on to the majority of the gains that were seen yesterday. Certainly on the data front the German economy is shifting back into gear with the latest factory orders report coming in at 4.9% M/M vs Exp. 0.6% – the fastest growth since July 2014, driven by strong demand from both domestic and overseas. With this in mind and given the consolidation of the S&P close to record highs we maintain our long bias for the spoos and consequent short in T-notes. However, the one change to today is the EUR which we are reluctant to stand in the way of the recent move so will look to join the move higher on any pullback to pivot.