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 / 03 February 2016 at 12:30 GMT

Mid-session Europe: Markets fearing fear itself... and also oil

Saxo Markets


Foreign exchange

Today's session features a lot of range-trading with prices locked into flat-to-down patterns on broadly soft macro sentiment and an overall tone of indecisiveness.

In the major FX pairs, the day's most notable trend is perhaps the strength of the commodity dollars which are defying the risk-off headwinds to post gains against the USD. Some of this may be down to speculation of an oil production cut deal between Opec and non-Opec nations, leaving the trend vulnerable if nothing comes of this.

In commodities, crude oil is consolidating after its two-day rout and traders will keep an eye on today's US inventory report for further guidance. Meanwhile, gold is trading in a tight range on expectations of a dovish Federal Reserve, but strong US data – particularly strong nonfarm payrolls data this Friday – could send the yellow metal lower.


  • US ADP Employment Change (1315 GMT)
  • US Final Markit Services PMI (1445 GMT) 
  • US Jan ISM Non-Manufacturing (1500 GMT) 
  • US Fed Beige Book (1900 GMT)    

Forex developments

EURUSD: The EURUSD range continues to narrow, looking set for a potential breakout. The 100-day moving average is dropping down to the 1.0963 area after having been been tested three times since January and even more so back in December. The last time this average was broken was back in October, so will be interesting to see if EURUSD can take this out as the pair has been too comfortable working in this range so far. In terms of downside, the first technical and psychological support lies at the 1.09 area and the 21-day moving average kicks in at 1.0878. Then we have the 55-day moving average at the 1.0842 area. The ADP jobs print from the US and the ISM non-manufacturing release could take out ranges here as well.

USDJPY: This pair has started looking ugly again. On previous Bank of Japan moves, USDJPY remained supported, but this is not occurring now. We are back at levels seen last Friday (still post-BoJ statement where it was at the 118.50i level). The first technical support point lies at the 10-day moving average of 119.15. Before last week's central bank move, the 118.80 area was the level that USDJPY was struggling to break since January 7.

GBP: Sterling is rallying in Europe and has broken resistance at 1.4445. This level has marked resistance for two days and the breakout opens the way to 1.4520 which is the 38% Fiboacci level from the highs of December 11 to the lows of 21 January – a key level if the downtrend in GBP is to continue. The range in GBPUSD is defined between 1.4350 and 1.4520, and a break of these levels post-Bank of England tomorrow could give further moves. EURGBP is largely the same story as GBPUSD with the pair testing important support at the 0.7550 area, which then opens way to 0.7500. Technical resistance lies at the psychologically important point of 0.7600 just above the 10-day moving average at 0.7593; then  there is the more important 0.7660 level north of that.

Commodity currencies: Despite risk-off sentiment the commodity dollars are stronger against USD so far, maybe on speculation of an agreement between Opec and non-Opec members which is giving commodities a bid tone, but this is likely to reverse if risk-off continues and/or if the talk proves unfounded.

FX Options volatilities
It's a quiet day in the options space. USDCNH volatilities traded higher in Asia again and both at-the-money and risk reversals are very bid there. The EURUSD frontend is trading a bit lower again today as spot continues to be stuck in a tight range. GBP options are trading firmly and we also have the BoE out tomorrow tomorrow, so overnight GBPUSD is marked higher and trading around 19% today.

Fixed income

Bund futures continue to trade firmly on the back of declining government bond yields in Europe, the US, and Japan. US 10-year Treasury yields fell to the lowest level seen since April 2015 yesterday, reaching 1.8575% on the back of a weak US equities session and global growth fears.




Stocks in Europe fell this morning, tracking losses in the US as oil fell back below $30/barrel yesterday evening. 

Earnings from several large corporates also added to the declines as Novo Nordisk, Swatch Group and Nomura all missed earnings estimates. Nomura’s earnings, released in the Asian trading session, came with an announcement of a postponed target for overseas profitability causing the stock to fall by as much as 10%. 

Switzerland's Swatch Group said this morning that sales fell for the first time in six years while Danish pharmaceuticals giant Novo Nordisk said growth in its diabetes drug was slowed by rival products.
Meanwhile, lower oil prices once again highlighted concerns of defaults by commodity producers as oil giants such as BP and Royal Dutch Shell headed lower in this morning’s trade.

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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.

Asia:      Morning Report APAC: Capital flight causes concern for China

Storm clouds
 The signature investment outlook for 2016 has become
 a worried glance at the horizon. Photo: iStock

— Edited by Michael McKenna

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


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