Article / 13 October 2016 at 11:27 GMT

Mid-session Europe: China-led selloff extends into Europe

Saxo Markets
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Foreign exchange
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China's dismal overnight exports data sparked a selloff in Asia and that has extended into the European day sending the major indices sliding as the focus returns to the global economy after becoming Brexit-dominated for so much of the past three months. USDCNH hit a six-year high as yuan went well beyond the usual 6.700 line in the sand.

Brexit is of course not without its global implications and sterling's hardy efforts to retrace ground towards the 1.25 zone are looking quite fractious as it continues to bob in and out of the 1.22.0 waterline as we go to press.

Watchlist

  • US Initial Jobless Claims (253K exp.)                 (1230 GMT)

  • US September Import Price Index                       (1230 GMT)

  • Weekly DOE Crude Oil Inventories                      (1500 GMT)

       

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Forex developments


Post the Federal-Open-Market-Committee minutes, USD was bid from the mid-Asia session until the early European session.

EURUSD: The 1.1000 tech support we mentioned Wednesday was taken out in early Europe today for a 15-pip drop. Next level to the downside of interest is 1.0955, where EURUSD bounced off back in July and key tech support is at the Brexit lows of the 1.0910 area. Lows of August 5 are at 1.1045 and lows of October 11 at the 1.1048 area are the first decent tech resistance.

GBPUSD: It is quite difficult to be convinced that the drop is over unless we start seeing some stability. Breaking lows of around 1.2080 would start taking us into a new range. Since the massive drop of last week, the technical levels become difficult if looking on daily charts, where resistances are a distance away. Looking at two-hour charts for example, 1.2112 is the 21-day moving average. At 1.2250, GBPUSD was broken back on October 11 and took us to where we are now, so this would be another tech level to watch. With no data today out from UK, any rallies again might be an excuse for selling.

AUDUSD bounced off interesting tech support area around 0.7500 but still sees the 100-day moving average at 0.7531 area where we are above now. We have closed below the 100-day moving average on several occasions since June, only to revert back above a few days later. So higher US yields might be needed to convince of moves beyond the 0.7500 area. The next level is at the 0.7430 area where AUDUSD bounced off back in September and most of July.

USDJPY: talk of a large expiry at 104 today might be the magnet to keep spot revolving around that area. USDJPY has had a nice upward channel since around the end of September that sees low of this channel at the 103.30 area, which is around the 100-day moving average as well (the 103.36 area). USDJPY has found the 100-day moving average as the support so far this week.


FX Options volatilities
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EUR 1-week maturity rolls to the European Central Bank, and hence it's higher from yesterday. There are a few buyers of both front-end and vega from the morning, but as EURUSD stays calm for a few hours, sellers are now out. 1-year EURUSD given at 9.5% then 9.45% with offer on within a few minutes. GBP vols are still firm, but we expect sellers in EURUSD will look at GBP eventually. However it might take some time, as the quick selloff in GBP spot still looms large in the memory of the market.

Fixed income

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Commodities
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Equities

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European stocks turned sharply lower Thursday. The StoxxEurope 600 dropped 0.9% to 335.57, U.K’s FTSE 100  fell 0.4% to 6,993, Dax 30 traded down 1.4% to 10,379 and Cac 40 was off 1.5% at 4,387.

The selloff sparked after Chinese economic data highlighted worries about slowing growth in the world’s second-largest economy. Chinese exports fell by a more-than-expected 10% in September. Also, Chinese imports declined by more than anticipated at 1.9%. China is a major buyer of industrial and precious metals.

Among the movers, the iron ore producer BHP Billiton was pushed down 4.5%, French metals producer Imersys lost 0.7%, and steel producer ArcelorMittal slumped 2.7%. However, Randgold Resources PLC  was up 1.3% as gold prices gained. Gold turned higher late Wednesday after minutes from the Federal Reserve’s meeting in September suggested policymakers are getting closer to lifting interest rates again.

Unilever fell 2.6% after the maker of Dove soap and other consumer products reported a slowdown in third-quarter revenue growth. Tesco fell 2.1%. Shares in rival supermarket chain J Sainsbury, which has also been approached by Unilever, was down 1.6%.

S&P 500 futures slumped by 15 points, or 0.7%, to 2,116.50, while Dow Jones Industrial Average futures shed 120 points, or 0.7%, to 17,933. Nasdaq-100 futures  lost 34.75 points, or 0.7%, to 4,778.75.


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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.





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China's overnight trade data unmasked a wealth of issues facing the economy. Photo: iStock

— Edited by Martin O'Rourke

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