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 / 21 March 2016 at 12:41 GMT

Mid-session Europe: Central bank silence holds prices steady

Saxo Markets


Foreign exchange
This week's data calendar is light, as is volatility ahead of the Easter holidays and following the central bank blockbusters of the past few weeks.

With the policy taps thus twisted shut, markets are twisting in the wind as vols sell off and currency pairs such as the GBPUSD and AUDUSD look primed to correct following the ultra-dovish, USD kick in the teeth that was the March 17 Federal Open Market Committee meeting.

European stocks are up following some positive news from China while crude oil is down on rising US inventories. All in all, though, it's a quiet day on the European front save for a selection of materials names weighed down by the strengthening USD


  • - RU Unemployment Rate (1300)
  • - US Feb Existing Home Sales (1400)

Forex developments

EURUSD: A bearish Asian session was followed by a bullish European market as most of the momentum was probably gained from EU equities and profit-taking. The German Dax gained 1% and tested the 10,050 level.

We don’t expect a change in the bearish sentiment before the IFO data release tomorrow. Market makers indicate increased resistance above 1.1275, while there is a lot offered in the 75-85 range and bids look rather thin.

USDJPY: This pair is reflecting an overall appetite for US dollars with a very tight 40 pips range, lack of bias and thin liquidity. Note that social media is red hot discussing the pair going lower than key level of 111. 

There are several options here, given it's a third attempt to breach the level:

  • A technical breach with BOJ intervention to stabilise the price above 111 
  • A break through towards the 105 level that could pin the price to 107-108 regardless of the Bank of Japan's ability to intervene 
  • A technical bounce to 115 without an attempt to break 111 – that would mean a delay of the next attempt as the pair is suffering from strong bearish bias.

GBP: We see some profit-taking and a correction from last week's rally; the pair found support at the 1.44 mark and liquidity remains below average. Note the inflation expectations in tomorrow’s UK data release – there is room for surprise as they are overly optimistic.

FX Options volatilities
Vols are overall offered as a weak economic calendar and the upcoming Easter holiday have resulted in a selloff in volatilities from overnight out to two weeks.

There is buying interest in one-month EURUSD strikes, mainly puts. The 1m date has rolled to the next European Central Bank meeting, which is the reason for the uptick in implied vols there.

Fixed income

Casino Guichard-Perrachon is the talk of town following its downgrade to junk territory on its senior bonds from S&P today. The subordinated 4.87% perpetual bond was downgraded to B-plus. This is not a huge surprise as this bond already reflected a lower rating level, and trades down a further two to three points from Friday’s close.

At the current price level of 83 it yields 12% if called in 2019. The senior bonds, however, have recouped early losses and are now trading higher due to a coupon step up clause which is triggered with the downgrade.

The 3.311% EUR bond with 2023 maturity will step up by 1.25% in coupon and now trades above par at 100.50 and a 4.5% effective yield including the step-up.





European equities are trading up on Monday after a positive news flow from China. Top Chinese officials said on Sunday the economy was showing signs of improvement while capital outflows from the county were moderating. 

China's state margin lender, the China Securities Finance Corp, said it would resume some short-term lending after suspending parts of its business 18 months ago. It also cut brokerages' borrowing costs which are a clear signal that regulators are ready to provide the market with cheaper funding.  

At mid-day, Germany’s DAX 30 climbed 0.8% to 10.025. France’s CAC 40 was up 0.1% at 4.466 while the U.K’s FTSE 100 moved up 0.08% at 6.194, after swaying between small gains and losses, with investors monitoring moves in the USD and in oil prices.

The dollar rebound hurt dollar-denominated commodity prices. Mining shares were hit, with platinum producer Anglo American PLC off 2.5%. Industrial miner ArcelorMittal SA gave up 2.8%. Shares of oil producer Tullow Oil PLC were down 2.6% and oil-field services provider Seadrill Ltd. shed 4%. In Paris, oil company Total is down 2.1% at EUR 42.02.

Elsewhere in the European market, Telecom Italia SpA shares climbed 3.5% after the company said it is set to part ways from Chief Executive Marco Patuano after clashes over strategy after France’s Vivendi SA took a near 25% stake last year.

US stock futures pointed to a firmer open for Wall Street as Dow Jones Industrial Average futures rose 46 points, or 0.3%, to 17,536 while S&P 500 futures added 4.6 points to 2.042. Nasdaq 100 futures added 10 points, or 0.2%, to 4.405.

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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.

Still waters run deep. Photo: iStock

— Edited by Michael McKenna and Clare MacCarthy

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


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