Article / 02 August 2016 at 11:28 GMT

Mid-session Europe: Equities hit two-week low

Saxo Markets


Foreign exchange

Last week's stress tests provided scarce good new for the European financial sector, dragging down both banking shares and overall indices.

Japan's introduction of a $274 billion government stimulus package left markets underwhelmed, driving the yen higher on the day.

This week's key remaining risk events are the bank of England on Thursday, where a rate cut is expected, and the latest US nonfarm payrolls release for July on Friday.


  • US Personal Income (1230 GMT) Expected 0.3%, Prior 0.2% 
  • US Personal Spending (1230 GMT) Expected 0.3%, Prior 0.4% 
  • CA RBC Canadian Manufacturing PMI (1430 GMT) Prior 51.8 
Forex developments

USD still on the back foot and comfortably above the 50% level at 1.1169 in EURUSD, with next tech resistance still being the 100-day moving average at the 1.1234 area. EURUSD has found decent support around the 55-day moving average at 1.1156 today. 

The USDJPY market was disappointed with the fiscal measures from the Japanese government and USDJPY testing 101.80 area (around 76% Fibo level from rally that started July 8). This then opens the way to the 100 area if we end up closing lower and on continued disappointing US releases. 

GBP got a lift against US on the releases of the Japanese fiscal measures with tech resistance at the 1.3260 area. Still awaiting the Bank of England on Thursday for the bigger moves. We have failed to close above 1.3260 since July 15, then the 1.3300 area comes in as a decent tech resistance. Risk is for upside if BoE fails to match overall market expectations of at least a 25bps cut. We remain looking for GBP weakness in the longer term. 

AUDUSD, post- the rate cut in Australia, is stronger on the day and found support at its 100-day moving average at 0.7487 (which we looked at yesterday). With global easing from major central banks and lack of guidance from RBA – plus the yield element on AUD supporting AUD higher – we prefer if closes above 0.7600 for confirmation.

FX Options volatilities

Vega bid in USDJPY as the market is anticipating a move by the BoJ. One-month trading back and forth around 11.3, but we expect it to fall back if we don’t see a further selloff in spot.

European majors are in general offered, but Thursday and Friday are bid in GBP as we have BoJ on Thursday, where a cut is expected, and NFP on Friday, where a good number can open the door for a Fed hike in 2016.

Fixed income





European equity indices hit a two-week low this morning impacted by the banking sector and poor results. 

Credit Suisse and Deutsche Bank fell 4.5% and 3% respectively as a reshuffle of components sees the tier-one banks fall out of the STOXX Europe 50 Index. Commerzbank released a profit warning, sending its shares down 7%. German retailer Metro fell 5% after reporting a Q3 loss due to restructuring costs.

UK lenders also suffered as the FCA proposed a longer deadline for mis-sold PPI claims; Barclays, Royal Bank of Scotland and Lloyds all fell the best part of 3%.

Commodity stocks are also trading sharply lower as WTI crude oil slipped below $40/barrel.

In the tech sector, chip maker Infineon fell 4% after missing estimates mainly due to falling demand at its power management and card payments businesses.

US earnings to be released today include AmerisourceBergen, Archer-Daniels-Midland, Procter & Gamble, Pinnacle West, Royal Caribbean, and SodaStream.

The replay of our Morning Call can be found here 

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.

 All looknig good at Swiss Lake Lucerne, but Credit Suisse got hammered today. Photo: iStock

— Edited by Michael McKenna

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


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