17 August 2016 at 11:27 GMT
Yesterday's European session saw a reversal in USD pairs as New York Fed chief William Dudley made a surprise statement that markets were underpricing the chances of a rate hike. Today, all eyes are on the release of the FOMC minutes as investors try and gauge whether Dudley's hawkish stance is shared by Fed chair Janet Yellen.
The change in the dollar's fortunes was felt in commodity markets as well with silver, gold and platinum all in corrective mode after their strong recent rally.
European stocks are largely down as markets await news from the policy normalisation frontline in Washington.
- US crude EIA report (1430 GMT)
- US Federal Open market Committee Minutes (1800 GMT)
- Japan July Trade Balance (2350 GMT)
- US Fed’s Bullard to Speak (1700 GMT GMT)
Awaiting FOMC Minutes today with EURUSD continuing to trade clear of the 1.1200/50 zone after yesterday’s break higher – looking for confirmation follow-up higher or a rejection back lower post-minutes today. EURUSD lost ground following good UK employment figures influenced by same move in EURGBP. The 1.1310 tech resistance we spoke of yesterday briefly breached before sharp move lower on more hawkish Fed comments. We watch this level on the top side post-FOMC as well as 1.1200/30 (around the 100-day moving average at 1.1226) on the support side to see if we can close day beyond to determine any new direction. USDJPY dips may be worth picking up here if bond markets correct (yields pulling higher) and the FOMC minutes are supportive of the USD. Saxo forex head John Hardy is buying USDJPY on this basis. Good employment releases from UK moved GBPUSD sharply higher before sellers came quickly in again to erase the gains. Selling rallies below 1.3100 has worked well so far, but the pair finding it difficult at present to stay below 1.300 keeping the range quite limited. The risk remains if we see 1.3100 taken out that another leg higher. 1.3060 area is around Fibo level from the drop starting August 3. Closing day above 1.3060 area keeps pressure on taking out the 1.3100 area and possible visits higher.
FX Options volatilities
EURUSD: After the pickup in front-end vols over the last couple of days, we start to see the one-week vol trading lower again. Feels like the market is having some short gamma above 1.1300, but a lot of it has been covered. One-week 25 day Risk Reversals are still favoring EUR calls, but are also under pressure today.
Overall demand for gamma today while interest on the curve is neutral. Two-week is hard to get offers in. Seen buyer of four-month GBPJPY which is the December Bank of England meeting, so more event-driven.
The market is also beginning to prepare for autumn which also creates some buying interest. One-month not particularly bid today.
In USDJPY we have 1.2 billion of 101 expiring tomorrow, so this could be a magnet area.
European stocks have slipped this morning as investors await the Fed minutes this evening.
ASML Holding dropped 5% following news that Intel will discontinue using the company’s lithography technology while in Denmark Carlsberg fell 4.6% after weakness in the Russian rouble eroded earnings for the company in that region and meant a miss on the analysts’ expectations.
Following Britain’s EU referendum, Wienerberger announced a cut in production of clay bricks to the UK which saw the shares fall 7.4% while on the flip side UK home builder Balfour Beatty posted a beat of its first half profit and announced plans to reinstate the dividend saying it had not experienced any fallout from the Brexit decision yet.
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Will the Fed move quicker than markets expect? Photo: iStock
— Edited by Martin O'Rourke and Michael McKenna