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Article / 05 October 2016 at 11:28 GMT

Mid-session Europe: GBPUSD clings to wreckage above 127.0

Saxo Markets
Denmark

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Foreign exchange
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Sterling may have sank to a fresh 31-year low overnight of 1.2687 against the dollar, but a tentative recovery has put it back on the foothills of the lower 1.27 plus area, at least for now.

European shares in general are weaker on the day after the European Central Bank indicated it might cut back on the pace of bond buying. Twitter shares continue to rise, however, as it was suggested takeover bids could be in place later this week.

There was also some cheer out of the Eurozone PMIs and the UK which all performed better than expected.

Watchlist

  • US September ADP Employment Change (165K exp.)                           (1215)

  • US September ISM Non-Manufacturing Composite (53.0)                       (1400)

  • US August Factory Orders (-0.2%)                                                           (1400)

  • US August Final Durable Goods Orders                                                   (1400)
          

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Forex developments


Mid-week and EURUSD is back to the levels it has been challenging since September 28, where EURUSD has failed to close above 1.1221 area on daily charts, with 1.1215 (the 21-day moving average) the magnet at which EURUSD is returning to in this period. The article on ECB tapering might be the trigger to start closing above these levels. Tech supports of note are the 100-day moving average at 1.1179 and tech resistance at 1.1260, where EURUSD has failed to close day above since August 25, and then more psychological resistance at 1.1300.


USDJPY closed slightly above the tech resistance we had taken note of yesterday  at the102.80 area which was the high on the back of the Bank of Japan, so this would be first interesting tech support that needs to hold, or else we could risk going back into old space. Next interesting tech resistance is  the 100-day moving average at the 103.72 area. The moving average was tested in the start of this year before swiftly being rejected, on massive risk-off hitting market. Also reports of Sompo Japan Nipponkoa Insurance acquiring US Endurance Specialty Holdings for $6.3 billion later this week is believed also be behind the lift in USDJPY.

GBPUSD continues under pressure and has hit the lower part of the daily downward channel from September 6. This level is around the 1.2680/90 area for today. UK Services PMI came out showing continued growth at 52.6 and above forecast but lower than the previous reading of 52.9. So we have had better-than-expected Manufacturing and Construction and are seeing growth in the more important services, but GBP is still under pressure, with better-than-expected US figures this week in the offing. Remember GBPUSD has closed lower for five consecutive days in a row with downward momentum building up since start of this week and with and no proper relief, so is it time for some relief? The top of the daily downward channel and potential decent tech resistance is around 1.2970 area.

FX Options volatilities
 
Vols
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GBPUSD made a new low and vols continues to be bid, but nothing wild had been trading in the market. EURUSD did not extend the move lower after yesterday’s ECB comments, and the vols are slowly turning offered here. In the emerging markets area, Hungary's currency continues to be bid and Turkish lira is offered.

Fixed income
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Commodities


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Equities

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European shares fell on concerns that the ECB might reduce the pace of bond buying before its purchase programme ends, turning less attractive to investors. Utilities and real estate stocks were the biggest decliners.

The Dax fell 0.72% to 10,543, Cac40 pulled back 0.75% to 4,469, FTSE 100 retraced 0.43% to 7,043 and the Ibex35 fell 0.60% to 8,716.

Movers: Tesco PLC rallied 11% after the company said its half-year loss narrowed to £91 million from £365 million a year earlier. Other supermarket stocks climbed; Morrison Supermarkets ws up 1.2% and J Sainsbury 1.3%.

Shares of United Utilities Group and Seven Trent were down 1.7% and 1.3% respectively after they were downgraded to underperform at RBC.

SFR Group fell 4.5% after France’s market watchdog blocked an all-share buyout offer from rival Altice.

Insurer NN Group fell 3.7% after launching a bid for smaller peer Delta Lloyd.


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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.






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It's a new dawn, it's a new day, but sterling isn't feeling fine. Photo: iStock

— Edited by Martin O'Rourke

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