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Article / 15 June 2016 at 11:30 GMT

Mid-session Europe: Coming up for air

Saxo Markets


Foreign exchange

Today's session continues to reflect an enormous amount of angst over the outcome of the UK's June 23 referendum on European Union membership, as well as the uncertainty present in nation after index after asset class. 

One notable recent move is the 10-year German bund yield's recent plunge into the negative (it has since somewhat recovered)  while the usual spate of JPY safe-haven buying has seen the Japanase finance minister out warning that Tokyo does not intend for the yen to leave earth's orbit without the Bank of japan stepping in to one degree or another.

Today's Federal Open Market Committee meeting appears to be flying under the radar which may or may not be a mistake given the Federal Reserve's history of surprising markets. Investors have apparently forgotten the policy normalisation/divergence narrative in light of the much larger and more immediate Brexit concerns, but the fact remains that the US is desperately trying to achieve the conditions for a rate hike while Europe is still happily adrift on the QE waters.


  • US May PPI Final Demand (0.3% exp., 1230 GMT) 
  • US June Empire Manufacturing (-4.90 exp., 1230 GMT) 
  • US May Industrial Production (-0.2% exp., 1315 GMT) 
  • FOMC Rate Decision (1800 GMT) 
  • Fed Chair Yellen press conference (1830 GMT) 

Forex developments

Markets are recovering slightly on the day, in what might be a short break before we go through rollercoaster ride again up until June 23 and beyond. The dollar is losing some ground against commodity currencies and safe-haven currencies are in general giving back some of their gains.

EURUSD: Brexit fears are spilling over to EUR and EURUSD is stuck in the lower part of its range and slightly above the 100-day moving average at 1.1217, with top technical levels at the 21-day moving average at 1.1227, then 1.1256 (50% Fibo level from rally starting May 30) and Fibo level 1.1294 (from the drop starting May 3 – note that it roughly corresponds to the 38% Fibo level from rally starting May 30). 

The more interesting tech support is at 1.1185/90 area where EURUSD has stalled for the last 24 hours, which then opens up to the 1.1130 area. Very decent tech support at 1.1100 (200-week moving average).

AUDUSD: AUD is one of the best movers on the day, in sympathy with better market conditions and expectations of a dovish Fed. Pushing at the 100-day moving average now at 0.7394 and next tech resistance at the 55-day moving average at the 0.7461 area.

Important technical support at 0.7326 (Fibo level 50% from rally starting May 30, and has survived two attempts).

FX Options volatilities

The options market has been under selling pressure today with vols coming off recent highs. Liquidity in broker market today is still poor. USDJPY one-month rose from 14.1 two days ago up to 15.0 and is now back just below 14.0.

All major currency pair vols trading lower. The FOMC meeting this evening seems not to be of great concern – market has been seller of the o/n in all currency pairs today. 

One-week tenor is the most illiquid; no one really wants to be involved as gamma is not in demand and it is just before Brexit, so result is wide spreads on this type.

Market seems content to stabilise at present levels, so now we are just waiting for FOMC.

Fixed income

Bunds are on the retreat following the shift in market sentiment and the future dips below the 165 handle, taking the yield narrowly back into positive territory at 0.01%. 

The uptick in spirits is giving way to a rebound in corporate bonds as well, although the 10 basis point rebound for ITRAXX XOVER is minor compared to the 60 bps spike so far this week. 

Our weekly bond update is out on where we dig into the discussion about a bubble in European government bond markets.




European shares trade higher this morning as a five-day losing streak is halted with attention turning towards the upcoming central bank meetings.

Mining stocks such as Antofagasta and Anglo American traded 3% higher as the price of copper rose. 

Financials lead the gains this morning as banking shares Unicredit, Santander, Standard Chartered and Soc Gen all trade over 2.5% higher.

Housebuilders Berkeley and Taylor Wimpey lead the decliners this morning as concerns over Brexit sees a 20% drop in new house reservations in the UK.

Zodiac Aerospace jumped 10% this morning after having posted a 5.9% rise in revenues and stated that the French aeronautical manufacturer was in line with its 2015/16 targets.

US equity index futures are trading 0.3% higher this morning and there are no notable US earnings slated for today. 

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The replay of our Morning Call can be found here.

For more on the UK referendum, click here for our Brexit page.

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.

Will they or won't they? Photo: iStock

— Edited by Michael McKenna

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