Mid-session Europe: Bourses track Asia slides
European indices are on the retreat Thursday tracking slides in Asia to send the Dax down by more than 1%. GBPUSD is also under pressure could be set for further downside below the 1.4450 zone as Brexit D-Day looms.
European Central Bank president has put a cap on EURUSD upside after his call on politicians to speed up structural reforms.
US Initial Jobless claims (270K exp.) (1230 GMT)
US April Wholesale Inventories (1400 GMT)
GBP remains volatile today, with cable pushing below 1.4500 early in the session to trigger stops before the pair found support at 1.4450: The next support level to note is at 1.4420/30. JPY overall bid tone has seen the GBPJPY cross fall sharply as well. Risk aversion flows in Asia as well as continuing fall in US yields have led to JPY to trade higher vs. USD and other majors. USDJPY traded past this week’s lows to reach 106.26. If the move continues, this may potentially open up a test for next support at 105.55 before the 105.0 barrier comes into play.
EUR lost its shine after Draghi's speech earlier today, calling on politicians to accelerate structural reforms. The market has taken this with some scepticism amid potential resistance from policymakers and turned this as an excuse to sell EUR vs USD and JPY. EURUSD reached day lows at 1.1345 while EURJPY broke below the 121.0 level.
FX Options volatilities
The one-week tenor today covers both the Federal Open Market Committee and the Bank of Japan meetings so is trading somewhat higher. Stronger JPY is also pushing volatility higher, especially one-month EURJPY has been paid at 13.5%, 0.3% higher than yesterday.
We have seen interest in USDJPY to sell strikes to the upside at 109-114 for mid-month dates in July and out to December, while market is bid for at the money and downside strikes 1-2 months. NZDUSD volatility is down after the Reserve Bank of New Zealand intervention for a 0.8% fall in one-month and a 0.2% slide in three-month vols. EURUSD volatility is trading a bit higher today.
GBP options are still all about not being short for the Brexit event and financing long post-Brexit strategies with short pre-Brexit. AUD options are only seeing selling interest of short-dated option (less than June 16), while longer dates are trading more neutral.
UK 10 year gilts traded at record low level today of 1.22%, as investors position themselves ahead of the upcoming Brexit vote. Elsewhere, ECB corporate-bond buying purchases continue today, with Volkswagen bonds reportedly part of the bank's purchases among others. On the back of this, European investment grade bond yields continued to decline today.
European markets trade lower for the second day following on from a weak Asian session. Risk-off appetite sees strength in JPY and record low yields in Government Bonds.
The strength in JPY saw the Nikkei close down 1%. EuroStoxx 600 is also down 1% with utilities and consumer staples outperforming relatively.
Telecoms underperformed with Vodafone weighing heavily on the sector. Vodafone is down over 4% after confirming it is to sell its New Zealand business to Sky Network Television for $2.4 billion.
British plastics supplier Essentra is down 30% after warning that it is unlikely to achieve anticipated trading levels for the full year. E.ON is down 6.5% after shareholders approved plans to breakup the company into two, to focus on renewable energy, networks and retail customers.
— Edited by Martin O'Rourke
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