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#SaxoStrats
Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 01 April 2016 at 11:25 GMT

Mid-session Europe: Can jobs growth save the greenback?

Saxo Markets
Denmark

t

Foreign exchange

Forex
 
Today's trade sees equities lower in the wake of a soft Asian session largely produced by a startlingly downbeat Tankan survey out of Japan. Beyond lingering macro woes, today's big release is of course the US nonfarm payrolls report, but given the now-global trend of central bank dovishness, it does not look like jobs are enough to push the Federal Reserve into normalisation mode.

Multiple assets and commodities are awaiting the USD's reaction to the jobs print with gold and silver notably locked in range. While a big beat may – and we emphasise "may" – spark a significant USD rally, there is strong support for precious metals in the current macro atmosphere.

In forex, EURUSD is bumping up against 1.15 again, a level it has failed to meaningfully break for quite some time.

Watchlist

  • US Change in Nonfarm Payrolls (+205K exp.) (1230 GMT) 
  • US Unemployment rate (4.9% exp.)(1230 GMT) 
  • US Average Hourly Earnings (1230 GMT) 
  • US March Final Markit Manufacturing PMI (51.5 exp.) (1345 GMT) 
  • US March ISM Manufacturing (51.0 exp.) (1400 GMT)       

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Forex developments

Market participants are awaiting the US jobs data release later today, with the headline change in nonfarm payrolls expected to come out at plus 205,000 for March. The USD is feeling the pressure this week after Federal Reserve chair Janet Yellen's dovish Tuesday remarks with EURUSD trading above the 1.1400 level and USDJPY at 112.20. 

EZ PMI data came in slightly better than expected with the EUR holding recent gains against the JPY and GBP. 

EURGBP is testing new multi-month highs at 0.7980 and cable traded lower, breaking below 1,4300 after a lower UK PMI data release. 

FX Options volatilities
 
Vols

Vols
 
Not a lot to report as the market is waiting on US jobs data for new direction on interest rates. Brexit is still dominating market interest, so a lot of buying post-election and selling pre-election. 

In JPY, there is still good interest to buy one-month covering both the Federal Open Market Committee and the Bank of Japan. 

Looking at EURUSD current vol levels, we expect one-week to trade around 8.0 vols after today's numbers unless we get a big surprise.

Fixed income

Rates















Commodities


Commodities

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Equities

Equities
European stocks began the second quarter with a drop on Friday ahead of a closely watched U.S. labour market report. European indices are following in the footsteps of declines in Asian markets early on Friday. The Nikkei Stock Average tumbled 3.6% after a key survey showed Japanese business confidence dropped sharply in the first quarter. The Tankan survey highlighted concerns that Japan’s efforts to fight deflation and encourage growth are losing impact.  

European equities were also feeling the pinch from a rise in the euro which was up 0.2% at $1.1403 versus the USD. On the top of that, stocks remained lower after the release of Eurozone manufacturing data early this morning. Markit’s purchasing managers’ index rose to 51.6 in March, higher than the flash estimate of 51.4, but prices for factory made goods drop in March at their steepest pace since 2009.

Bank shares managed to edge higher, with Italian issues improving after a rough session the previous day. Technology and basic materials also moved higher.

ArcelorMittal gained 7.3% and Thyssenkrupp AG climbed 4% after a German newspaper report stated that Tata Steel Ltd. may be looking at taking a stake of Thyssenkrupp’s European steel business. Meanwhile, other sectors like consumer goods (auto, food etc.) suffered in today’s session. 

Novartis fell 2.6% following a ratings downgrade to neutral from buy at UBS, with the bank saying it foresees “no meaningful earnings growth before 2018.”

Germany’s Dax 30 fell 1.5% to 9,814.76, while France’s CAC 40 dropped 1.6% to 4,313.38. In Italy, the FTSE lost 0.7% to 17,992.50, and in Spain, the IBEX 35 pulled back 1.1% to 8.622.40.

The replay of our Morning Call can be found here

Join our Weekly OptionsLab on Wednesday  to find out more on covered call strategy.

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Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.






Nonfarm payrolls
Markets expect the US to keep piling up new jobs, but without much hope of Fed normalisation, the reaction to even a blowout number might be muted. Photo: iStock

— Edited by Michael McKenna

The Global Sales Trading desk is a multi-asset team providing customised trading solutions

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