Article / 07 September 2016 at 11:34 GMT

Mid-session Europe: German miss casts shadow over ECB

Saxo Markets


Foreign exchange
A big miss in German industrial production for July was perhaps the last thing the European Central Bank need before it convenes Thursday.

USDJPY continues to test in and around the 101.50 area and a close below 101.36 could open up a move to the 100.0 handle. EURUSD meanwhile is caught in no-man's land between the German slump and the poor US data that has dollar reeling.


  • US MBA Mortgage Applications                                                              (1100 GMT)

  • Bank of Canada Interest rate decision (expected unchanged at 0.50% (1400)

  • US Fed Beige Book                                                                                 (1800)

  • US Weekly API Oil Inventories                                                                (2030)       

Forex developments

GBP was weaker on the day following mixed releases, with Halifax House Prices month-on-month weaker and a second month of declines and Manufacturing Production m/m also considerably weaker than anticipated. With Bank of England governor Mark Carney speaking later today, a continuation of the tone of the last meeting could add negativity to GBP. 1.3350-60 area is the first level of tech support, as this is the area GBPUSD broke above in July and August. After the 1.3350/60 area, there is a Fibo level at the 1.3220 area from the rally starting August 15. Any GBP strength also looks sidelined with JPY showing its teeth in general.

USDJPY: 101.36 is a Fibo level we should see as first tech support, and it would be preferable not to close below this level on the day, as this then starts opening down to 100. The concern is if the Fed is out of the picture for Septembe, then all eyes will be on the Bank of Japan to impress.

EURUSD has been stable through the European session, finding nice tech resistance at the 100-week moving average at 1.1264. Closing the week above this level could be a trigger higher. Markets are waiting for the European Central Bank meeting tomorrow so USD bulls might be drawn in if we start going below the 100-day moving average at 1.1209 post this event, with little major releases left ahead of the FOMC.

FX Options volatilities

Vols are trading a touch higher in USD pairs after yesterday’s weak ISM number. One-month USDJPY is up 0.25% vol. JPY calls are very bid. Two-week expiry rolls to BoJ meeting on September 21. With tomorrow's ECB meeting on tap, overnight EURUSD is at 14% vols.

Fixed income


Yields continue to dive in Europe ahead of the ECB tomorrow, although the market isn’t firmly looking for more than an extension of the existing purchasing programme. The primary market is very active with new issues today from the likes of Thermo Fisher, Ferrovial,  AVIVA and Nationwide. Despite the supply, the high-yield credit market is making another attempt at breaking the 300 bps barrier and has improved 3-4 bps for the session. Our Weekly Bond Update is out now on, where we this week look into the Asian bond market and the concerns over the Chinese economy.





European stocks darted between small gains and losses. The Cac 40 index was up 0.2% at 4,539 paralleling Dax's rise to 10,709. Concerns about Europe’s largest economy cropped up as German industrial production dropped 1.5% in July, as manufacturing output declined. Economists had forecast a monthly fall of 0.3%.

The report arrived a day before the ECB releases its policy decision Thursday. While investors are becoming increasingly convinced the ECB will extend its asset-buying program beyond March 2017, there’s still question as to whether the bank will move on Thursday.

Equities were showing some gains especially in the oil and gas, basic materials and technology sector.

In Germany, Volkswagen AG   rose 1%, with the German carmaker in advanced talks with a Chinese automaker China Anhui Jianghuai Automobile Co. to produce electric cars in the country.

In the UK, Worldpay Group dropped 3.8% as private equity firms Advent International Corp. and Bain Capital LLC sold more shares of the payments processor than planned in a placement. The firms raised nearly a £1 billion ($1.3 billion) from the sale.

Sports Direct dropped 9% after the apparel retailer said it expects full-year 2017 earnings to be “in the region of £300 million”. That compares with a profit of £381.4 million for 2016. Sports Direct is holding its annual shareholders meeting Wednesday

Ashtead Group was rising 7.2% after the equipment-rental company upgraded its fiscal 2017 expectations after recording first-quarter earnings growth.


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.


Could something rather nasty be blowing the way
of the US after another data disappointment? Photo: iStock

— Edited by Martin O'Rourke

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

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