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"The data highlight in the UK overnight was not able to attract much FX attention either, with an on-consensus UK CPI not able to inspire much from the GBP. Tomorrow’s BoE minutes are the main UK event for the week though, where focus will be on the sensitivity of the MPC decision on further asset purchases," says Shaun Osborne at TD Securities.
Turning to the euro we see continued robust price action which has pressured the pound to euro exchange rate lower.
|Live EUR/GBP Chart
"The EUR managed to hold above key short term support in the 1.3030/40 area over the past 24 hours, and has recently outdone yesterday’s high. Draghi’s comments yesterday seemed to reiterate his preference for more targeted tools to address the Eurozone’s issues (v. blunt rate cuts) and that has provided support to the currency. The 1.3140/50 remains the key topside level holding the pair," says Osborne.
Option markets see strong demand for 6 month dated GBP
Turning to the foreign exchange options markets we see volumes are elevated at present with interest spiking up following yesterday's heavy sell-off in the commodity sector.
Stephen Gallo at BMO Capital Markets notes that there is strong demand for contracts in the 6 month time frame. Gallo says:
"Looking at the volume runs the GBP looks quite cheap as well, although EURGBP and GBP gamma has really done nothing for a week which has put pressure on the front end. All the buying interest in GBP has been in the 6 month over the past few days, and it feels like the market is all one way on that bucket."
Markets steady but more weakness ahead for gold and silver
Markets have steadied after yesterday’s weakness in stocks and commodities.
European equities are still in the red while US futures are modestly positive at writing but precious metals have improved, with gold around 5% higher than the fresh cycle lows reached overnight.
It still looks as if there is more weakness ahead for gold and silver after breaking below recent key supports in the low $1500s and $26 area respectively but in the short run, the market may look to consolidate the heavy losses seen in the past couple of sessions.