Video

#SaxoStrats
The current mixture of strong macroeconomic signals and what is expected to be a strong showing from today's nonfarm payrolls report is flashing a "green light" to Federal Reserve hawks. Meanwhile, fear of Sunday's Italian vote seems to be fading.
Article / 19 September 2016 at 8:53 GMT

From the Floor: Mildly upbeat ahead of crunch central bank meetings

Your Next Trade

  • Modest oil gain boosts risk-on sentiment  – Liu
  • BoJ and FOMC meetings Wednesday are the week's key events 
  • "Will they/won't they" narrative misses the salient point – Hardy
  • There's only a very slim chance of a hike on Wednesday 
  • Vols continue to underperform – Larsen
  • Oil pretty close to the bottom of the range – Hansen
  • Bayer/Monsanto deal might still fail – Boye
  • CLICK HERE FOR A REPLAY OF TODAY'S MORNING CALL
morning call
 By Clare MacCarthy

Asian equity markets and US futures finished Monday's sessions modestly higher despite a weaker close on Wall Street Friday and the explosions in New York over the weekend, Edmund Liu reports from the Singapore trading floor for Saxo Bank's regular morning call. Risk-on sentiment was buoyed by a modest rise in oil prices following a renewed outburst of violence in Libya. Meanwhile, Japanese markets were closed Monday for a holiday (and will be closed again on Thursday) while the opening of the Australian bourse was delayed by a technical glitch.

rate
 Source: Bloomberg

But the real focus of the week is Wednesday's pair of central bank meetings, where first the Bank of Japan and then the Federal Open Market Committee decide on the monetary policy trajectories of their respective economies. 

On Friday the USD jumped in response to US inflation data showing a 2.3% increase Y-o-Y in core CPI, a rate which matched the previous post-financial crisis high This, coming as close as it does to the FOMC meeting "keeps the plot plenty thick", says John J Hardy, Saxo's head of FX strategy. One key point to note, Hardy says, is that the media narrative is focusing almost exclusively on the "will they/won't they hike rates", whereas he believes the salient point is "the overall theme shift away from quantitative easing and towards fiscal policy". 

That said, (and despite Friday's unexpectedly strong CPI), expectations that the Fed will increase rates this week have melted away to just 20% (chart above), and a separate proprietary survey by the Financial Times pegs the probability even lower at just 15%.

Friday's CPI-inspired selloff in EURUSD saw the pair move lower through the 1.1200 support level, returning the focus to the pair's 200-day moving average, Hardy says. "It's clear that something's going to happen, given the 61.8% retracement level is at 1.1109, so there's the possibility of a shift lower to 1.1000," he concludes.

Dan Larsen, of the FX options trading desk, also has the 1.10 eurodollar level in his sights: "Vols are still underperforming and we would need to break this level in the coming trading sessions as otherwise we could see a drop in volatility again".

Sell-off Friday took out 1.1200/50 pivot area – next key is 1.1100/25
eurusd
 Source: SaxoTraderGO

In the commodities sphere, meanwhile, the strong US inflation print on Friday has piled pressure on gold and this, combined with the stronger dollar, sees the yellow metal struggling and looking for direction, reports Ole Hansen, Saxo's head of commodity strategy.

The action is livelier in crude oil: It got a boost over the weekend as the first scheduled shipment out of Ras Lanuf in Libya since 2014 was halted by fresh military clashes there. Still, oil is "pretty close to the bottom of the range and a price of $47.25/barrel for Brent is probably as far as gold could go at this stage," Hansen says.

Gold trading close to the edge ahead of FOMC. $1,300 and $1,350 the big levels :
gold
 Source: SaxoTraderGO

Finally, the upcoming central bank meetings are keeping a definite lid on action in the bond markets. "We can expect some very quiet sessions ahead of the FOMC meeting," says Michael Boye of Saxo's fixed income trading desk. One thing to keep an eye on in the corporate bond market is the Bayer/Monsanto merger: regulatory hurdles imply a risk that the "deal still can fail" Boye notes.

capitol hill
 Time to start focussing on the politicians instead of the central bankers? Photo: iStock

Clare MacCarthy is deputy editor at TradingFloor.com

Follow Saxo Squawk live throughout the day. Sign up here to keep abreast of all developments affecting your portfolios.

Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


Relevant articles for you

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail