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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 19 April 2016 at 11:28 GMT

Mid-session Europe: Gold defies trend, joins risk rally

Saxo Markets
Denmark

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Foreign exchange

Forex
 
Materials are up, European stocks are at three-month highs and the yen is beating a hasty retreat. Such is the situation today as risk sentiment comes roaring back to markets on the back of increasing global iron shipments, surging post-Doha oil prices (we are presently flirting with Friday's close in WTI), and a European Central Bank meeting slated for Thursday.

The oil story is perhaps the most interesting as many investors had assumed that Doha hopes were holding up prices to a much greater extent than they actually were, while gold is playing the iconoclast today and rising along with risky assets.

One currency to watch in the medium term is sterling, which is firming today as the "leave" side of the Brexit argument appears to be losing ground.

Watchlist

  • US March Housing Starts (1230 GMT); expected at 1,166k, prior 1,178k
  • US March Building Permits (1230 GMT); expected at 1,200k, prior 1,167k

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Forex developments

EURUSD: We are seeing a third day of rallies in a light calendar so far. EURUSD is captured between its first technical resistance level at 1.1342 (the 10-day moving average) and then after that, the more important 1.1400 area and the support point of 1.1300.

USDJPY: This pair likes the risk-on sentiment, and 110 is a key technical resistance level at the moment. Rallying strongly above 110 might be difficult without the help of the Bank of Japan. The 108.80 area (the 10-day MA) is technical support.

GBP: Sterling is stronger on the day ahead of Bank of England governor Mark Carney’s testimony to parliament. Markets may believe it to be more favourable for the “remain” campaign, with polls now showing now 52% of people who will definitely vote to “remain” versus 43% for “leave”, according to the Telegraph. 

GBPUSD has technical resistance around the 1.4350/70 area. The 100-day moving average is now at the 1.4450 area that is also expected to be resistance. Main level is 1.4500 which has been the "referendum resistance" area so far – the point where GBPUSD has failed to break since the announcement of the referendum. 

If we start getting clearer signs of a “remain” lead, this level becomes less important. Technical support at the 1.4255 area (the 55-day moving average). EURGBP broke its 200-week moving average yesterday at the 0.7928 area, which is now the new technical resistance of note. 

FX Options volatilities
 
Vols

Vols
 
Volatilities are  trading lower again today, with risk-on sentiment defining the market. GBP vols have been particularly offered, and fears of Brexit consequences have declined. 

Overnight EURUSD has today traded at 9 with the German ZEW release as the main event. Tomorrow's overnight expiry will roll to the European Central Bank meeting and we should expect overnight at around 17-18 vols, which is relatively low compared to the last three ECB meetings where we have seen overnight vol above 30.

Commodities


Commodities

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Equities

Equities
European equities climbed to a three-month high on Tuesday as a post-Doha rebound in oil prices and upbeat corporate updates lifted the markets. Oil prices recovered on Tuesday, with crude up 1.7% to $40.45/barrel, which helped boost energy companies. Shares of BP PLC rose 1.6%, while Royal Dutch Shell PLC added 0.7%.

The European basic resources index rose 2.5% to its highest level since November, with sentiment improving after Rio Tinto reported global iron shipments rose 11% in the first quarter year-on-year (but were 12% lower than the prior quarter because of seasonal factors). 

Rio Tinto PLC gained 2.7% after the news. Shares of Anglo American PLC jumped 4.1%, and Glencore PLC added 3.1%.

For the other movers, L'Oreal rose 5.5% as it pledged to outperform the market in 2016 and confirmed its ambition to achieve another year of sales and profit growth after first-quarter sales rose more than expected. Swedish investment firm Kinnevik rose 5.9% after the company proposed a SEK 5 billion ($616.52 million) cash distribution to shareholders. 

Advertising group Publicis gained 5% after reporting higher Q1 revenue, helped by accounts won at the end of last year and growth at digital business Sapient.

At midday, the UK’s FTSE 100 index rose 0.7% to 6,396.60, while France’s CAC 40 index added 1.3% to 4,564.59. 

Germany’s DAX 30 index rallied 2.1% to 10,334.17 after ZEW data showed investor sentiment in the country picked up in April.

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The replay of our Morning Call can be found here.

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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.





Crude oil
Even the failure of the Doha summit can't knock the "oil recovery" 
narrative from its perch. Photo: iStock

— Edited by Michael McKenna

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

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