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Article / 01 September 2016 at 11:39 GMT

Mid-session Europe: Cheap sterling puts some whizz into UK output

Saxo Markets


Foreign exchange

European equity markets traded higher on Thursday ahead of key US jobs data tomorrow.
Meanwhile, European Manufacturing PMIs came out mixed: Spain and Switzerland beat expectations, Germany was in line but the Eurozone and Italian data were below expectations.

Finally, British output is on a roll boosted by the sharp drop in the value of sterling in response to the Brexit vote. UK PMI Manufacturing for August was 53.3 vs the 49.0 that was expected. This, possibly the sharpest rise in 25 years, beats by a wide margin and puts the index back into expansion territory. GBP spiked higher vs. majors on the news and GBPUSD posts a 1.3265 high. 


  • US Initial Jobless Claims (265K exp.) (1230)
  • US Q2 Final Nonfarm Productivity (-0.6% exp.) (1230)
  • US August Final Markit Manufacturing PMI (52.1 exp.) (1345)
  • US August ISM Manufacturing (52.0 exp.) (1400)
  • Fed’s Mester to speak (1625)

Forex developments

It has been a GBP dominated day. UK August manufacturing PMI came in at a whopping 53.3 vs. an expected 49. The previous month's reading was also revised a tad higher. The month on month increase is reported to be among the highest in 25 years. With Service PMI on Monday, a repeat of such a reading can give markets an indication that the Bank of England will not cut in November. 

GBP exploded higher on the release and finds first point of tech resistance ahead of 1.3286 area (55-day moving average) where there also is a small Fibonacci level around 1.3282 from the drop starting on Brexit to the lows of July 6. This is also area where GBPUSD was struggling to break on three occasions (August 24, 25 and 26) and now today as well. We have been above this level for 5 days since July 4 and quickly rejected a few days. It shows that this level has been an area where GBP sellers were coming in. But UK figures have been very positive lately so a close of day above these levels could be a positive sign, which opens up to 1.3350 area where GBPUSD was meeting resistance on the attempts higher after the July 4 and eyes turn to NFP tomorrow and UK Services PMI on Monday.
EURUSD is awaiting a trigger from US non-farm payrtolls tomorrow, and has again rested today on its 200-day moving average at the 1.1120 area.

FX Options volatilities
 Looking at the curve structure, the market expects vol to go lower after non-farm payrolls data, where 1w EURUSD is estimated to go down to trade around 6.5-7.0 level again and USDJPY around 10.0. Buying focus will be on the Bank of Japan and Fed meetings (September 21), which will stay expensive.
In USDJPY we have mainly seen selling interests. EURJPY we have seen interest to buy 3m as it covers the Italian referendum, while other tenors are trading neutral to offered. Overall most majors are trading lower.

Fixed income



European stocks climbed Thursday. CAC 40 index leapt 0.9% to 4,477.95 while Italy’s FTSE MIB rose 1.1% at 17,143. Bank and mining shares are putting the region’s benchmark on course to start the month of September with a win. 
Commerzbank picked up 4.6%, among the strongest gainers for a second day running following reports the German lender met with Deutsche Bank AG about a potential merger. The lender’s shares rose 3.4% in the previous session. The DAX 30 drove higher by 0.7% to 10,669.69.
U.K. manufacturing PMI in August was 53.3, hitting a 10-month high, and of Chinese manufacturing activity indicated the sector was in an expansionary mode. Macroeconomic data helped a lot indices to push higher yesterday and today.  
For the movers, Pernod Ricard rose 2.3% after the owner of Absolut vodka and Jameson whiskey said Thursday that continued growth in the U.S., better conditions in China and cost-cutting would help it to improve profitability next year.
Recruitment company Hays dropped 4.6% as it said uncertainty in the U.K. market has increased following the Brexit vote.

Technicolor rose 4.6% after Moody’s Investors Service late Wednesday after upgraded its rating on the French video production services provider to Ba3 from B1.

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

Read more

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.

US:        US Market Wrap: Dollar ends mixed after mixed data

Asia:      Morning Report APAC: Asian markets lower on oil selloff

Europe: From the Floor: Dollar prowling as NFP looms


UK output whizzes faster thanks to cheaper sterling. Pic: iStock

— Edited by Clare MacCarthy

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


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