06 September 2016 at 11:19 GMT
Foreign exchange Today's session is home to a broadly risk-on sentiment in the wake of a green Asian day and a rebound in crude oil that really comes down to a lot of verbal intervention – again.
The Reserve Bank of Australia's outing overnight was not particularly hawkish but investors are using the day's robust sentiment climate to give the Aussie a tentative positive bid.
Meanwhile, investors continue to weigh the chances of major policy shifts from the European Central bank, which meets Thursday, and the US Federal Open Market Committee which meets on September 20-21.
Expectations for the ECB are low, but it would appear that more than one in five (the approximate current CBOE chance of a rate hike) market participants expect the Fed to pull a rabbit out of its hat.
- US August ISM Non-Manufacturing Comp. (55.0 expected, 1400 GMT)
One of last key releases from US before September's policy decision will be the ISM non-Manufacturing print, so the market might react if the release is far out from consensus.
EURUSD has been roughly stuck in a very tight range since August 29, moving between its 100-day moving average at 1.1208 (it broke quickly higher on Friday only to be strongly rejected) and the 200-day MA at 1.1128 today. We need to see a close beyond one of these levels or else we risk going into a boring range ahead of the FOMC. AUDUSD is the main mover higher on the day following RBA’s statement, which was not hawkish but the market is feeling a risk-on environment which is helping the higher yielders. AUDUSD visited the 61% Fibonacci level at the 0.7653 area from the drop starting August 10. The 0.7690 area is the next tech resistance after 0.7653. This is so far the fifth continuous day of AUD rallying and so far AUDUSD rests above the 21-day moving average at 0.7619 that we mentioned in yesterday’s mid-session update as well as the 50% Fibo level at 0.7622 from the same drop starting August 10.
We preferably need to close beyond these supports on the day to confirm the positive move in AUDUSD.
FX Options volatilities
O/n volatility has traded lower so far today across the board, with the spot market not doing much. Thursday expiry (with the European Central Bank) and dates beyond have traded more sidelined despite low volatility in spot.
Not much is expected from this Thursday’s ECB meeting with 1w EURUSD trading at just 7.25 vol, which is very low for ECB historically.
Market consensus is also that ECB will leave its policy unchanged.
Yields break back lower having been on the rise since Friday’s job numbers, although volatility is rather limited. Attention is slowly turning to Thursday’s ECB meeting although the market only expects a continuation of the present asset purchase programme.
For credit it’s a quiet session so far with focus on new issues in Sanofi, BAT, and others.
European stocks traded higher on Tuesday following a positive Asian session overnight. Macro data out of Germany continued to disappoint, leaving room for speculation on more dovish stance from Draghi when the ECB meets later this week.
On corporate news, Bayer AG sweetened its offer for Monsanto to $56 billion or 127.50/share, citing ongoing negotiations.
Airbus shares were higher in Paris today after it was reported that company had secured $6.5bn in orders from three Vietnamese carriers.
German healthcare provider Fresenius is set to buy Spain’s largest private hospital company IDC Salud Holdings for €5.76bn.
US equity index futures traded flat ahead of cash markets open after the Labor Day long weekend.
The replay of our Morning Call can be found here.
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.
PICTURE FROM iStock
— Edited by Michael McKenna