Article / 26 April 2017 at 11:48 GMT

Mid-session Europe: Gold regains ground above $1,264/oz

Saxo Markets
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Gold is often as good a barometer of political risk as any, and after clawing its way back above support at $1,264/oz (it was at $1,265.24/oz at 1128 GMT), it's reasonable to assume the market has an eye on the White House gathering and has also moved into wait-and-see mode on president Donald Trump's tax-cut plan.

The gathering of 100 senators may well be to do with North Korea which has sent a geopolitical tremor through markets and diluted the risk-on sentiment that has been in vogue since Emmanuel Macron emerged as a red-hot favourite for the presidency of France after Sunday's first-round vote. Trump may well be able to reignite the risk-on nevertheless if he does indeed deliver a corporate tax cut to 15% although the thornier problem of getting it through Congress down the line will remain.

Elsewhere, beleaguered oil bulls will be fixated on this afternoon's EIA report after last week's gasoline build sparked an 8% slide from which the market has not yet recovered.

Watchlist

  • CA Canada February Retail Sales         (1230 GMT)

  • US Weekly DOE Crude Oil Inventories  (1430)
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Forex developments


The first half of the European FX session has seen the greenback attempting to retrace the recent selloff, yet facing strong headwinds near local resistance levels at 99 points in the USD index. It is currently at 98.90, representing a +0.25% daily change. The key market theme remains the Trump tax reform plan expected to be released in the near future.


EURUSD was rejected at 1.095 in the morning hours, with the potential to fall to support at the 200-day EMA level, which is currently near 1.08. Currently, the pair is at 1.0887, an intraday slide of 0.35%. USDJPY continued to garner strength above 111 on the "Trump trade" revival, but is finding local resistance at 111.50. GBPUSD traded in a 1.28–85 range, underpinned by the 200-day EMA, which is just below 1.28.


FX Options volatilities
 
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It has been another day of repricing euro crosses after the first round of the French election last weekend. The euro upside strike is still in demand, and risk reversal continues to move less favourably for euro puts.

EURJPY is still sees buying interest at the 2-3-month area, USDJPY is slightly higher, and the EURUSD curve is unchanged. Most of the repricing may have been done, and curves will stabilise with some sellers appearing again.

The VIX volatility index is trading at historical lows. USDJPY vols in the 3-month tenor look expensive relative to that of EURUSD. EURUSD appears slightly toppish at the 1.09-10 area, looking at present interest rate differentials, which could indicate that most of the short positions that had been put on related to the French election have been bought back, and now we need to look forward to new data for future direction.

That could come from the European Central Bank though little is expected of the ECB's policy meeting on Thursday, or from the Federal Open Market Committee in June. An alternative way to play a close top in EURUSD could be selling EURCAD spot or selling euro calls.

We are looking to sell the 1-month call od 1.4800 which is paying 142 pips.

Fixed income
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European stocks leaned lower with investors assessing a new batch of earnings while they wait to hear much-anticipated tax plans from Trump.

Following on from higher earnings posted by Credit Suisse and Banco Santander today, Bloomberg data shows that banks are expected to increase profits by about 16% this year.


Basic resources stocks underperformed, falling 0.7%, and utilities, pulled lower by disappointing earnings results, were down 0.3%. 


France's CAC40 was higher 0.1%, lifted by Kering's 10% rise, while Germany's Dax was mostly flat and the UK's FTSE100 fell 0.1% to 7,269.58, led by losses among utility and industrial shares.

Credit Suisse will raise around CHF 4 billion through a rights offering to catch up to European rivals on capital, ditching plans to float a minority stake in its Swiss banking unit.

Standard Chartered shares gained 2.7% as the Asia-focused lender said first-quarter pretax profit nearly doubled to $990 million and that its restructuring strategy is paying off, raising expectations the bank will start paying dividends again soon.

London Stock Exchange Group rose 0.9% after the exchange operator posted an increase in quarterly income and gross profit.

Copper miner Antofagasta PLC reaffirmed its 2017 production outlook as it reported a 9.4% increase in first-quarter copper production compared with the year before. The shares were down 0.5%.


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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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Quite the barometer of global risk. Photo: Shutterstock

— Edited by Martin O'Rourke

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

2y
fxtime fxtime
When does the Trump Tax fanfare begin ?
2y
fxtime fxtime
FWIW my guess is that there will be a new Dollar coin minted in gold ofcourse with the blessed Trump face on one side as he always covets his image and bling. Any other fiscal thoughts anyone ?
2y
yuiyui yuiyui
I heard tax cuts can be quick but not changes to the tax code which needs to go through congress

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