06 December 2016 at 12:36 GMT
An Italian bank bounce back Tuesday after the post-referendum plunge has helped spur equities higher with oil's rally from last week's Opec deal still reverberating through the complex.
Will markets now calm? That might all depend on what emerges out if this Thursday's European Central Bank meeting and thos bad debts in Italy still shadow the market. Some key data out of the US this afternoon might put the brakes on the counter-intuitive post Italy-vote rally in EURUSD.
- US October Trade Balance (-42.0B USD) (1330 GMT)
- US October Factory Orders (2.5% exp.) (1500)
- US October Final Durable Goods Orders (2.0% exp.) (1500)
- US Weekly API Oil Inventories (2130)
EURUSD: Again started the European session in rally mode following some impressive factory orders from Germany for October at 4.9% versus an expected 0.6%. 1.0808 remains an interesting tech resistance level which is 38% Fibo level from the collapse following the US elections. We have seen a number of these one-day squeezes in the EUR in recent years that have not led to immediate follow through in the direction of the fresh momentum. USDJPY: Indices are in again in the green, but US yields are flat on 10-years from Monday. USDJPY is still finding tech support around the 10-day moving average at the 113.28 area, which we watch to see if iy will be broken to the downside. Momentum has come out of the USJDPY move, though 115.00-plus may yet come into play before we see notable consolidation, as long as US yields remain on the high side or stretch to new highs. USDJPY has tried to close above 114.44 back on November 30 and December 1. These levels also happen to be the highs of March, so a close above could be further signal for the bulls, and 115 a main tech resistance which started the hold collapse back in February when then level was taken out downwards. GBP: The Supreme Court case on Brexit is the main theme to watch with the result due in January. Inflation releases next week are also on tap. The GBPUSD 100-day moving average is the next main tech level at the 1.2793 area. This moving average was last broken downwards on the Brexit result (June 24) and has not recovered since. It is thus interesting to see if the Supreme Court decision could see GBPUSD take that level out. After that, the key level is at 1.300, where GBPUSD hovered around for a considerable time back in mid/late September. AUDUSD took a beating post European opening following the Reserve Bank of Australia's unchanged interest rate policy as global commodity prices pickup. AUDUSD has been challenging the 0.7500 level and failing which is the first decent tech resistance. Upside, there are several decent tech resistances of note (200-dma at 0.7528 and 100-dma at the 0.7575 area) which could make the upside more compact.
FX Options volatilities
Overall , the market is very calm and slightly uninspired. The EURUSD curve is trading lower today down 0.2%. We see interest to buy low delta EURUSD upside expiring in December. Good buying interest this morning for both upside and downside strikes for Thursday when the ECB meetin takes place. They were filled within first trading hours and is now offered.
USDJPY is unchanged to slightly lower. We have seen some interest to buy downside USDJPY. AUD, NZD and CAD show very little flow and if any, it is more about rebalancing the shortdated position.
Technically, historic volatility is now heading south as until Thursday and we need a relative decent move on Thursday after ECB to keep the market bid or else the medium-term curve especially will go lower.
European stocks edged higher Tuesday, as utility shares gained and as banks recovered from the fallout from this weekend’s referendum in Italy. Matteo Renzi‘s resignation was accepted, but he has been asked to stay on to oversee the passage of Italy’s 2017 budget. In Frankfurt, the DAX 30 index notched a 0.1% gain at 10,695, the IBEX 35 pushed up 1.3% to 8,776, while the CAC 40 moved up 0.2% to 4,583.
On the upside, the utility sector logged the strongest gains, with E.On climbing 5.9% and RWE AG up 3.7%. A German court ruled on Tuesday that parts of the government’s nuclear phase-out law are unconstitutional, opening the door for utilities companies to sue for damages. The advance was held back by weakness in key sectors: oil and gas, basic materials, and industrial stocks.
Bank stocks, which bore the brunt of the intraday selloff on Monday, brightened on Tuesday. Banca Popolare di Milano picked up 1.9% and Unione di Banche Italiane moved up 2.6%. But shares of Banca Monte dei Paschi di Siena were down 3%. The world’s oldest lender is working to sustain its €5 billion recapitalization plan, with the prospect of state aid being raised. The lender is expected to meet with European Central Bank officials on Tuesday, media reports said.
On the downside however, IG Group plunged 31% after the UK’s Financial Conduct Authority said it plans to crack down on the sale of certain financial derivative products. The FCA said it’s concerned consumers are opening and trading products “that they do not adequately understand.”
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Dax frothing around the 10,700 zone. Photo: iStock
— Edited by Martin O'Rourke