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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 / 11 May 2016 at 11:37 GMT

Mid-session Europe: Greenback backs down

Saxo Markets
Denmark

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Foreign exchange

Forex
 
Today's European session has seen equities slip lower while the materials sector is up on new comments from Glencore citing increased demand across the board.

Crude oil is up on supply outages in Nigeria, but the real driver remains this afternoon's US inventory report. Meanwhile, the recent greenback rally appears to have run out of steam as hopes for policy normalisation stateside wane.

Watchlist

  • US Weekly DOE Crude Oil Inventories (1430 GMT)
  
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Forex developments
EURUSD: We are seeing the return of the tight range which we last experienced from April 1 to April 12 where we opened and closed at roughly the same areas. Still contained in the area we mentioned yesterday 1.1354 (21-day moving average) and 1.1426 (today's 10-day moving average), so we might have to start seeing closes post these levels for further momentum. With little on the calendar, the trigger might be missing for bigger moves.

USDJPY: We like to play the downside via a bought put option in case of a final leg lower in USDJPY. Failed yesterday to break the 109.50 area, which is around the Fibonacci level from collapse on April 28, and around 109.5 to 110, where we need to clear on the top side. The technical 108.70 levek, which we were looking at yesterday, held during most of the Asian session but is now acting as first technical resistance area.

AUDUSD: This pair is mostly under pressure in the European session with speculation of future cuts in Australia still putting AUD under pressure. Currently AUDUSD sits at a very interesting level above the 100-day moving average at 0.7337 and this is also close to the 50% Fibo level at around 0.7333. We have been below these levels during the week, but closing below this technical level could just give USD bulls more confidence. 

USDCAD: Yesterday we mentioned 1.2885 as first technical support, and so far this seems to be the case, but we are quite close to these levels now. The oil inventory report today could be a trigger for breaking on stronger crude. Topside, we see decent technical resistance at 1.3000/20 where we have both psychological levels as well as the highs around May 9 in addition to  the 55-day moving average there. 1.28 is the next technical support, which is a Fibo level as well as psychological support.

FX Options volatilities
 
Vols

Vols
 
Overall there is still interest to buy post-Brexit and sell pre-Brexit. EURUSD has been dominated by sellers today, one-week vols traded as low as 6.8 in a move was very limited on little or no news. One-month vols traded down to 7.90.
In the USDJPY market, we have seen buying most of the day, the curve is up 0.2 vols and has stabilised now, and we will probably see more selling interest going into the afternoon. No real directionality to read out of today's flow.

Fixed income
Rates
 
Jumping ahead of yesterday’s rumour that Italy is considering a 50-year bond issuance, Spain launched a new 50-year bond today. Despite this supply threat, Eurozone core yields are rather unaffected this time, as the 10-year German yield marches lower again down to 0.11%. 

Same picture in corporate bond markets as credit markets remain rather strong despite a surge in primary market activity.
The Weekly Bond Update has just been published on TradingFloor.com, where we take a closer look at the outlook for US rate hikes this year.

Commodities

Commodities

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Equities

Equities
 
European equities fell this morning as US stock futures and crude oil slipped lower, weighing on sentiment in Europe. 

From a corporate earnings perspective, ABM Amro posted a 13% decline in Q1 earnings and subsequently traded 3% lower while Deutsche Post’s profit rose at the fastest rate in more than three years and rallied nearly 2%. In Denmark, Carlsberg slid 2.4% lower after weaker than expected Q1 sales.
Energy producers also weighed on markets, most notably Total and Eni as WTI slipped back below $44/barrel, while the raw material sector was buoyed by comments from Glencore that industrial metals from aluminium to zinc would rise on increasing demand exceeding supply; BHP Billiton rose 1.5%.

The replay of our Morning Call can be found here.

Join our Weekly OptionsLab on Wednesday  to find out more on covered call strategy.

Read more

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.





Federal Reserve
With markets now viewing the Fed as another dovish central bank, 
the greenback is flying low. Photo: iStock

— Edited by Michael McKenna

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

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