Article / 31 August 2016 at 11:29 GMT

Mid-session Europe: Month-end and NFP wait tame markets

Saxo Markets


Foreign exchange

The US dollar is still broadly higher, fuelled by heightened expectations that the US Federal Reserve will raise interest rates next month. European equities, on the other hand, are limping towards an uninspiring end to the month while gold is struggling and crude oil is being pummelled lower, partly due to the greenback's strength.

In data releases so far today, the Eurozone unemployment rate held steady at 10.1% in July but the bloc's inflation rate remains aggravatingly weak –  prices only increased 0.2% in August. This was the same as the previous month and is prompting speculation that European Central Bank chief Mario Draghi may indulge in a spot of "verbal intervention at his press conference next week.

Watchlist (GMT)

  • US Fed’s Kashkari to Speak (1200)
  • US Aug. ADP Payrolls Change (1215 ) Expected at 175k vs. Prior 179k
  • Canada Jun. GDP (1230) Expected 0.4% vs. Prior -0.6%
  • US Aug. Chicago PMI (1345) Expected at 54.0 vs. Prior 55.8

Forex developments

Generally, it's fairly quiet as markets are getting ready for Friday’s nonfarm payrolls. The fact that today marks the end of a month also keeps trading on a lower scale. 

EURUSD: almost unchanged as better German unemployment data lifted the cross from the lows. The 1.1110/00 level can open decline further to 1.1000 and the post-Brexit low around 1.0910. The 50-day moving average at 1.1130 and 200-day at 1.1117 are also of note.

USDJPY: retested the high above 103.30, supported by market expectations of further Bank of Japan easing on Sep 21. BoJ official was heard to say that they don’t see any limits on easing. Levels of note: 104.50 Ichimoku cloud bottom and 61.8% retracement, and top of the cloud above 105.00. Better US NFPs and earnings can create volatility within the range of 100-107.50.

GBUSD: is testing the 1.3150 level after the UK’s August house price index rose more than expected. Lots of positioning was going on here as speculators were on the short side while big money had to decide whether to sell or wait for a squeeze. The trigger for the squeeze could have been the break of 0.8500 level in EURGBP.

FX Options volatilities

USDJPY risk reversals opened more in favour of USD calls, but flows today has seen buying interest of downside gamma, while upside strike has been offered. Curve is marked lower now compared to yesterday's close. It looks like we have found a decent neutral level for spot where option market is ok for further upside and is now looking to get downside gamma in at relatively cheaper levels in case Fed/BoJ disappoint.
EURUSD curve stays bid most trading focused on rebalancing short-term strikes.
Overall historic vs implied is becoming very expensive which happens almost every month end, so the market is now looking for nonfarm payrolls on Friday and in case of a strong number volatility will probably stay bid on the curve while 1e will be dropped. In case of a weak number the whole curve will probably get sold again.

Fixed income


European stocks edged higher with CAC 40 rose 0.3%, FTSE MIB added 0.2% while IBEX 35 gained 0.6%. Merger talks between Deutsche Bank and Commerzbank helped lift shares of the German banking heavyweights. Commerzbank added 4%. While shares of banks gained, the DAX 30 was slightly lower, down 0.1% at 10,644.25.
In France, Bouygues popped up 3.8% after the French conglomerate backed its full-year revenue and earnings targets. The group, whose companies include Bouygues Telecom, said it should continue to improve its profitability in 2016. Still in the telecom industry, Iliad, gained almost 6% after announcing that growth continues. Then French telecom company took no.3 position in French mobile market. Alphabank/Eurobank traded up by 8% with Alphabank Q2 net loss narrowed.
On the downside, Grafton, which manufactures and retails building supplies lost 10% after FY estimates cut. Steinhoff, the discount retailer that manufactures and retails household good and clothing in Europe and Africa, also lost 5% after Q4 EBIT missed estimates. Inmarsat traded 5% down after Announcing a convertible bond sale.

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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.

US:        US Market Wrap: Confident consumers lift US dollar

Asia:      Morning Report APAC: US consumer confidence at highest level in a year

Europe: Morning Markets:  Jobs data versus the greenback

Europe: From the Floor: Pent-up dollar poised to unleash

 Europe's unemployment rate may be steadying but inflation is disappointingly low. Pic: iStock

— Edited by Clare MacCarthy

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


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