Market volatility spikes on eurozone jitters

Wednesday, June 17, 2015

The pound sterling extended gains against the euro yesterday after a momentary pause on Monday as resistance held firm at the 50 day moving average towards 1.3840 euros to the pound. Ongoing Greek uncertainty has seen investors fall out of favour with the euro after a brief rally in the single currency against both the dollar and the pound at the start of the month when the outlook for a Greek deal was somewhat more optimistic. However, a combination of missed deadlines and lack of compromise from both sides have seen sterling gain 2.35% against the euro over the past six sessions. With the situation turning from bad to worse we expect further upside potential in the pound against the euro as investors seek safe harbour in the British currency.

Eurozone bond volatility surged on fears Athens would continue to reject bailout terms as EU finance minister met once again to try and reach an agreement to talks that have dragged on for months. Investor confidence was shaken after Greek PM Alexis Tsipras struck a defiant tone and rejected the plan put forward by bailout monitors as “humiliating for our people”, going further to accuse the IMF of “criminal responsibility” for the indebted nations troubles. 10 year German bund yields dropped for four straight sessions and are on track to add a fifth day of declines with yields currently trading below 0.8%. Investors sold off peripheral eurozone bonds and piled into safe haven assets and the nervous trading conditions were not strictly limited to the bond market, with the Euro Stoxx 50 Volatility Index climbing to a five month high this morning.

Another session of choppy trading is expected today with the Bank of England due to release minutes from their June meeting earlier this month as well as the release of unemployment figures for April and May. Over in the US the Federal Reserve is expected to keep its fed funds target rate unchanged at this evening's FOMC rates decision. Of greater significance however will be Janet Yellen’s comments at the press conference which market participants hope will offer further clarity on any potential rates rise as a growing number of investors anticipate a September hike.

EUR extends losing streak against GBP

GBPEUR Curncy GBP EUR X RATE 2015 06 17 07 38 56

German bund yields drop on haven demand

GDBR10 Index Germany Generic Go 2015 06 17 07 49 03

Eurozone equity volatility spikes

V2X Index EURO STOXX 50 Volatil 2015 06 17 08 03 02

Events for today

0930

UK

May

Claimant Count

0930

UK

Apr

BOE minutes

1000

EZ

Apr

Construction Output

1000

EZ

May

CPI

1530

US

w/e

EIA Energy Stocks

1900

US

May

FOMC Rate Decision

Topics: US Fed, BoE, EUR, GBP, Yields
More from: Kash Kamal