Fat Finger Spike in Cable and Aussie Climbs Post RBA

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Market Drivers June 7, 2016

RBA leaves rates on hold
Cable spikes 100+ points Remain regains lead
Nikkei 0.58% Dax 1.85%
Oil $49/bbl
Gold $1243/oz.

Europe and Asia:
AUD RBA rate on hold 1.75%
EUR GE IP 0.8% vs. 0.7%
EUR GDP 0.6% vs. 0.5%

North America:
USD Non Farm Productivity 8:30
CAD Ivey PMI 10:00

It been another night of unsettled trade in cable in Asian session dealing with the pair spiking nearly 200 points on a matter of seconds on what many traders believed was a fat finger trade during low liquidity time.

The latest YouGov polling has given the Remain vote a narrow lead and the Betfair website has placed the implied probability of UK staying in the union at 72%. The news stood in stark contrast to a series of polls at the start of the week that suggested the Leave campaign was gaining momentum.

The spike in volatility in cable – which is now essentially trading on Brexit polls and nothing else – has risen to its highest level since 2007 and is likely to remain elevated until the referendum is taken on June 23rd. With the general public essentially evenly split on the issue while 17% of the population remains undecided there is almost no way to handicap the results with any degree of confidence which leaves trading the pair a very treacherous process for the next few weeks.

Elsewhere, in Australia the Aussie received a boost from RBA when the central bank announced that it will stay pat on rates keeping the benchmark rate at 1.75% for the time being. Although the market expected no action from the RBA, the statement was read as slightly hawkish with the central bank noting that housing prices have started to rise while commodity prices have firmed.

The tone of the statement, along with the fact that RBA Deputy Governor Lowe will not assume governing duties until September has led the market to conclude that Aussie’s 1.75% yield will remain in place through the summer at least and the pair rallied up to 7450 level before finally succumbing to some profit taking. With Aussie on some firmer footing now and the Fed stationary until July at very earliest, the pair is now likely to target the 7500 level as the week progresses.

In North American session the calendar is light with only non farm productivity on the docket, but price action could remain volatile. The dollar arrested its slide yesterday and has even gained on the yen in the wake of yesterday’s remark by Ms. Yellen who left open the possibility of a hike over the near term horizon. Therefore today could see some good two way action with longs trying to push USD/JPY through the 108.00 figure while the battle in EUR/USD at the 1.1300-1.1400 range continues.

Boris Schlossberg
Managing Director

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