06 October 2016 at 11:21 GMT
Today's markets are operating under the shadow of two hawkish, or at least hawkish-for-2016, narratives. The first, of course, is the lingering concern that the European Central Bank may taper its asset-purchase programme. The second is the apparent surge in the chances of a US rate hike in December or even November.
The key fulcrum here will be tomorrow's nonfarm payrolls report where a bullish surprise, combined with yesterday's strong ISM non-manufacturing release, could spark a policy normalistion move from the Federal Reserve.
Stocks, meanwhile, are broadly down and the dollar is up on this possible path to a hike.
- US Initial Jobless Claims (256,000 expected, 1230 GMT)
- US Weekly EIA Natural Gas Inventories (1430 GMT)
EURUSD: alternating daily with hitting the 100-day moving average since 27th September (100 DMA at 1.1179 today), and it looks like it wants to break free from the 200-day moving average at 1.1163 area and the daily magnet which has been around the 1.1215 on the topside. EURUSD has been closing above 1.1200 since September 22, so we will watch if it manages to regain that territory (or if the market wants USD stronger ahead of NFP). USDJPY had a critical break yesterday, and both then and now it was rejected at around the 100-day moving average, which is at 103.66 today (103.72 yesterday). Remember this moving average was broken once this year before being rejected on a massive risk-off move. GBP: is finding it difficult to break and remain above the 1.2730 area versus USD. Yesterday’s very modest gains were taken out today and downward pressure continues. The lower side of the downward channel around the 1.2670 area for today. Yesterday’s resistance of 1.2770 looks like decent tech resistance. Hit the level yesterday and also hovered briefly around it on October 4 before resuming the selloff. Commodity currencies have been losing ground and are at the lower end of the range with rising US yields. AUDUSD finds its first interesting tech support coming in the form of the 50% Fibo level down at 0.7575 from the “reach to yield” rally that started in AUDUSD back on September 13. NZDUSD is on an even more interesting level in the form of its 100-day moving average (0.7142 area) and has still to touch it for the day (it attempted to yesterday but failed and so far the same for today. Last time this average was touched and briefly broken was in May. We watch this space as Kiwi has benefited most from “reach for yield” as we are still up some 12% from lows of January; topside tech resistance around the 55-day moving average at 0.7238.
FX Options volatilities
In spite of tomorrow's NFP print, o/n options are not very bid. O/n EURUSD started out at 11-13, but has already been sold and offered on.
GBP vols got paid up aggressively the other day, when spot took a big hit, however it's coming back today as spot is pretty tame.
In EM crosses vols continue to get sold with MXN coming down especially hard from the elevated levels.
Stocks came under pressure this morning, halting the surge that took indices close to all-time highs earlier in the week as markets turned their attention to concerns that the ECB is turning less accommodative and that a Fed rate hike is imminent. EU banks posted their best sector performance this morning.
EasyJet slid nearly 6% after announcing the first decline in profit since 2009 this morning; the company cited fears of terror attacks and a weaker GBP as reasons for the weak numbers.
Meanwhile, merger and acquisition talk was a theme with UniCredit up 1.2% on a report that Amundi may offer €4bn for its Pioneer Global Asset Management unit, Fujitsu in Japan rallied 5.7% overnight on a story that it was in talks to sell its personal computer business to Lenovo Group and in the pre-market in the US, Twitter has fallen 11% following a report that Google is not interested in buying the company.
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Are equities about to take a sharp turn off easing street? Photo: iStock
— Edited by Michael McKenna