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Peter Garnry
After the Italian referendum, investors are worried about the policy trajectory for the Italian banking system. Saxo Bank head of equity strategy Peter Garnry, however, believes that Italian banks will pull through.
Article / 06 June 2016 at 11:43 GMT

Mid-session Europe: FX market marked by unease

Saxo Markets
Denmark

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Foreign exchange

fx
 
The British pound is the big loser of the day have dropped to its lowest in three weeks after an opinion poll put the Brexiteers in the lead in a fresh EU referendum opinion poll. The US dollar continues to bear the scars of Friday's nonfarm payrolls shocker though it has clawed back some of its pre-weekend losses.
FX struggling
With worries such as these to the fore, gold is gaining once again and a generally upbeat tone for other commodities has seen mining equities track higher.

In data releases, a sour note from Germany – factory orders were -2% vs -0.5% month on month, while year on year -0.5% vs expected 0.6%

Speakers

  • US Fed chair Janet Yellen to speak at event (1630 GMT) 

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Forex developments

EURUSD: Quite an aggressive move Friday and EURUSD closed slightly above the 50% Fibonacci level at 1.1356 level from the decline starting May 3. This level needs to hold to avoid opening up to next Fibo level at 1.1417 area. The first decent technical support around 1.1300 (today's 55-day moving average) and 1.1294 (Fibonacci level from the decline 3rd May 3).

USDJPY: Weakening Fed expectations hit USDJPY like a stone on Friday but it has now relaxed a bit and back above the 106.94 area (Fibo level from the rally that started in May). The Fibo level 107.80 area from rally in early May is first tech resistance. Difficult to see what would take it higher under these circumstances, especially with the lack of urgency from Bank of Japan/Japanese government. Main tech level to watch is 105.94 (200-week moving average) then 105.50 around lows of May 2, then can start looking ugly below these levels if “sleeping JPY shorts” start unwinding.

GBPUSD:  is the main mover today following new polls giving “Leave” campaign an edge. The Telegraph’s average last six polls shows the Remain campaign still slightly ahead but has since the 22 May continuously lost ground and currently stands at 51% Remain/49% leave (excluding unsure voters). GBPUSD survived today's 100-day moving average at 1.4342 and Fibo level of 1.4338. Important that we do not start threatening those levels again. Continue to see 1.45 as the Brexit referendum tech resistance if Remain campaign gets a slight advantage. EURGBP also threatening some important technical levels at 0.7924 (200 week moving average), which if taken out opens to 0.8000

FX Options volatilities
 
vols
 It's been a slow morning: USDJPY volatility in general better offered also risk reversal slightly better offered. 3 month 103 given 200 million at 11,975.
AUDUSD is waiting for the Reserve Bank of Australia meeting and the curve overall is offered. Overnight trading around 17.0 so not huge expectation for RBA action.
EURUSD buying interest for Brexit days.
Market expects now nothing for Fede3ral Open Market Committee meeting in June so front end gamma offered, while demand for July FOMC has increased.
EURJPY see demand for medium term upside strikes.


Fixed income

FI
 
Commodities

Comm
 Source: Bloomberg and Saxo Bank.

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Equities

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European stocks edged higher with DAX30 up 0.4% at 10,139 and France’s CAC 40 added 0.2% to 4,432 while UK’s FTSE 100 trades 0.7% higher at 6,255. Gold and other metals have jumped after weaker-than-anticipated U.S. jobs report last Fiday, though the precious metal was little changed on Monday at about $1,240.30 an ounce. Gold and other safety plays have seen increased haven demand, plus a weaker dollar has helped send metals prices higher.
Consequently, mining shares have jumped this morning and helped European indices to trade in positive territory. Anglo American PLC is now trading up 5.8%. Rio Tinto PLC advanced by 5.1%, BHP Billiton PLC tacked on 5%, and Glencore PLC rose 4.5%. Elsewhere, International Consolidated Airlines Group SA was among the day’s decliners, as analysts at Barclays delivered a downbeat note on European airlines and cut their price target for IAG to 700 pence. Shares in British Airways parent IAG dropped 1.3%, while rival EasyJet PLC fell 1.2%
On the macro side, total orders for Germany’s manufacturing sector dropped 2.0% in April from the month before, while economists polled by The Wall Street Journal had forecast a fall of just 0.6%, showing another erratic number.
Fed Chairwoman Janet Yellen is due to speak after European markets close at 1630 GMT. Looking beyond the dismal May job report, Boston Fed President Eric Rosengren said in Finland this morning that he expected sufficient economic growth to justify higher interest rates in coming months.

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Brexit

brexit
 Click here for further Saxo Bank research on Brexit.

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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:  Dollar at a loss after NFP shock

Europe: Morning Markets: Yellen prepares for about-turn


eu That shocking poll is getting plenty of attention today. Source: Business Insider

— Edited by Clare MacCarthy

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

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