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 / 27 March 2017 at 12:05 GMT

Mid-session Europe: Equities drop as Trump worries spread

Saxo Markets


Foreign exchange

European stocks fell on Monday as the US administration's stunning defeat in its efforts to repeal Obamacare on Friday sparked worries among investors about president Donald Trump's capability to push through other reforms from tax reform to economic stimulus.

The US dollar is weaker across the board, with EURUSD reaching new 2017 highs at 1.0872.

Germany's Ifo business climate index for March rose to 112.1, above an expected 111.1.

Crude oil is down after a Kuwait meeting of officials from Opec and non-Opec producers on Sunday issued an ambiguous statement that left markets wondering whether production cuts will be extended or not.

  • US Fed’s Evans to speak in Madrid (1645 GMT)
  • US Fed’s Kaplan to speak (2230)
Forex developments

USDJPY is falling sharply and has important technical support around 109.92, which corresponds to the 50% Fibonacci retracement level from the Trump victory rally. Quite an important support and, if taken out, the pair will start looking down at 107.86 areas.

EURUSD is breaking February 2 highs and flirting with the 200-day moving average at 1.0880, which should be decent technical resistance and also around 1.0900 where support was taken out on election night and started the strong USD rally. The 1.09 level also roughly corresponds to the top of the channel from the rally that began on March 9. Tech support is at 1.0828.

GBP is rallying with a weaker USD. The market's focus is on the British government's awaited triggering of Article 50 of the Lisbon Treaty (the mechanism to proceed to Brexit) on Wednesday. UK quarterly GDP data on March 31 could be important, especially if starts to disappoint. 1.2700 is key technical resistance around the 200-day moving average and around highs from February 2. EURGBP has a nice downward channel, with key tech support around 0.8568 (200-day moving average). The top of this channel coincides with the highs of today around 0.8684.

FX Options volatilities
The volatilities market started on a slight bid tone this morning, mainly driven by a deterioration of risk sentiment. The VIX volatility index climbed to 15.0 from 13.0 on Friday. 

There's been very little news out today. The most important item was Germany's Ifo business climate index, which came out better than expected, so, considering the unimpressive movements in FX spot, we expect vols to be offered for the rest of the day.

Risk sentiment is still indicating higher volatility, while actual movements and a lack of upcoming important news point towards lower volatilities.

EURUSD is creeping higher, and we see demand for upside gamma and selling interest of downside strikes in the medium term.

USDJPY is very calm, and we haven’t seen any significant new trades going through, but the market is still bid for 2-month to 3-month downside strikes. We need 10-year US yields to break through 2.30% low to get the market exited. At present, we getting close to a good buying level. The 2-month USD 113.00 call was last indicated at 70 pips.

Fixed income


European stocks fell on Monday, as investors fretted about the Trump administration's prospects for pushing through its reforms after the repeal of Obamacare failed. Germany's Dax 30 gave up 0.8%, while France’s CAC 40 lost 0.3%, and Italy’s FTSE MIB was down 0.8%.

Banks, which have benefited from the reflation trade, were among the biggest decliners in Europe on Monday. Shares of Lloyds Banking Group dropped 2.2%, UBS Group AG fell 2%, Deutsche Bank lost 1%, and Société Générale fell 1.5%.

The risk-off trade also hit miners and oil companies, with shares of metals giant Glencore down 3.1% and energy heavyweight Royal Dutch Shell off 0.7%. Energy sector stocks were also hit by a 0.6% drop in oil prices this morning, as concerns over the rising US rig count outweighed chatter about Opec possibly extending its production cuts.

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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.

Asia:      Morning Report APAC: Wall St, commodities weigh on sentiment in Asia

Hospital staff
 Opponents of the withdrawn Republican healthcare bill said it 
was dead up arrival. Photo: Shutterstock

— Edited by John Acher

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


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