01 June 2016 at 11:44 GMT
Today’s European session is characterised by a wave of risk-off sentiment derived from Chinese data released during the Asian session. The risk-off trend has given JPY, EUR and even XAU a bid while the USD is struggling to maintain its recent rally.
In commodities, crude oil remains on the retreat from recent highs ahead of tomorrow’s Opec meeting in Vienna; the market appears to be waiting on the cartel for new direction.
In fixed income markets, a new poll showing a more robust ‘Leave’ faction in the upcoming Brexit vote has GBP on the defensive as 10-year bund futures have spiked beyond resistance at 164.00 on the news.
- US May Markit Manufacturing PMI (50.5exp.) (1345)
- US May ISM Manufacturing (50.4 exp.) (1400)
- US April Construction spending (1400)
- US Fed Beige Book (1800)
EURUSD: We see a moving range between the 200-day moving average (1.1096) and its 100-day counterpart (1.1176) on the top side but the downward channel created from the start of May is being threatened as EURUSD is bid for the day on the risk-off sentiment, which gives EUR a lift. A close above 1.1176 could also confirm that there is some relief in USD strength for the time being. The next interesting level is the 1.1221 area (Fibo level from the drop starting early May), and also around the interesting highs of late which then opens up to 1.1268 (the 21-day moving average). USDJPY: Two days above the 55-day moving average at 109.89 today, and now lower again (not a great sign). We are watching 109.18 (Fibo from the May rally) and also 109.24 (the 21-day moving average) which are the interesting technical supports on the daily charts. All indices in Europe are in the red so if these levels are broken, will USDJPY take another leg down? 108.5 is the 50% Fibo level from the same rally, and this would need to hold to avoid a sharper move down. Strange to see USDJPY sharply weaker but gold not reacting, as lately a stronger JPY also gives us a stronger XAU. GBPUSD We have been talking lately of 1.45 being a possible magnet into the Brexit. Downside tech support is 1.4415 (50% Fibo level from rally starting mid April) then 1.4338 (61% Fibo level), and also around the 100-day moving average. 1.4500 is technical resistance under these circumstances.
FX Options volatilities
There is renewed risk of a Brexit after a new poll yesterday showing 42% remain vs 45% leave. GBP vols spiked higher together with a selloff in GBP spot. Also ATM and RR in EURUSD have traded higher despite no bigger initial reaction in spot on the poll release. JPY vols also well bid after comments from Japan's prime minister, Shinzo Abe, which sent USDJPY 1 figure lower. The market has been very bid for downside USDJPY strikes this morning except for June 16 Bank of Japan date, where we have seen some interest to buy low delta upside as protection vs possible intervention.
Brexit turnaround chance catapults the bund future back above 164 resistance level. European high yield spreads failed to break below 300 bps. Saudi Arabia are Dubai said to be considering international bond issuances.
European stocks struggled Wednesday. Risk sentiment is slightly off after yesterday’s news that a Brexit phone poll showed a lead for the Leave camp also continued to weigh on sentiment.
Germany’s Dax 30 lost 0.5% at 10,215.27, and France’s Cac 40 shed 0.4% at 4,487.87 with only the health care and consumer goods sectors showing small gains. The basic materials group lost ground after the release of Chinese manufacturing data. The official purchasing managers’ index for manufacturing was unchanged at 50.1 in May, while the private Caixin index slipped to 49.2 from 49.4 in April. A final reading of Eurozone manufacturing PMI came in at 51.5 for May, unchanged from the flash estimate, according to Markit.
Amongst the movers, Royal Ahold rose 2.9% as the Dutch supermarket operator posted a 13% rise in first-quarter profit to 241 million euros ($269 million) on a 4% rise in sales. Ahold is moving closer to finishing its merger with Belgium’s Delhaize Group. Delhaize gained 2.2%.
US stock futures signalled a lower open, putting the market on track to extend the prior day’s decline as investors stayed cautious ahead of big economic releases later this week. Reports are due on monthly car sales, manufacturing and construction spending, and accessories sellers Michael Kors Holdings Ltd. and Vera Bradley Inc. are expected to post earnings before the open.
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.
Poor Chinese data sent investors scurrying for cover. Pic: iStock
— Edited by Clare MacCarthy and Michael McKenna