Article / 23 September 2016 at 11:40 GMT

Mid-session Europe: Oil spikes on Saudi-shift speculation

Saxo Markets
Denmark

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Foreign exchange
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Oil is spiking as we write after Reuters reported Saudi Arabia was getting ready for a radical shift in its 'supply-and-rule' strategy that could lead to a cut in production if Iran accepts a freeze deal at 3.6 million b/d. Tehran as of yet has not responded. Brent crude is on the cusp of $48/barrel and WTI is pushing to $46.50/b.

The focus on next week's oil producers meeting at Algiers has subsequently intensified.

Elsewhere, it's three months since Brexit and GBPUSD is once again struggling to hold on to the 1.30 handle. It was at 1.2962 at 1125 GMT.

Watchlist

  • Canada Aug. CPI Expected at 1.4% vs previous 1.3%                                 (1230 GMT) 

  • Flash Markit Manufacturing PMI. Expected at 52. vs previous 52.0             (1345 GMT)

  • German, French Finance chiefs to hold press conference                           (1400 GMT)
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Forex developments

Post-FOMC turbulence continues to hit most of the G10 currencies.
USD index' recovery attempt met strong resistance around 95.50, pushing USD to the sell-side in most of the crosses with exception of GBP, which is being sold even more. EURUSD bounced from around 1.12 to the current 1.1215. As we approach end of week, EURUSD is again finding the 100-week moving average as tech resistance, which is at 1.1234 this week. EURUSD has failed to convincingly close the week above this average since 2014 (though closed a tad higher in the week ending August 15). So worth noting this level on break outs. 
USDJPY erased early gains and is traded back to 100.75-80 levels, making the market’s longer-run assessment of the Bank of Japan this week hard to predict.
EURNOK continues to slide on the strong demand still seen for Norwegian krone. Correction of late yesterday is now downplayed with current levels back to below 9.10, making 9.09-092 the key resistance level before targeting 9.
AUDUSD has chopped back and forth recently, at times rising on the AUD-supportive recovery in some key commodity prices. The mid-September bounce off the 200-day EMA still looks very supportive despite a descending channel well seen on the daily charts.
Lastly, sterling is back to below 1.30 in the cross to USD, currently losing around -0.75% during the day, which appears to be nearing key trigger areas both in EURGBP and against the USD as the recent mention of an Article 50 invocation in early 2017 seemed to be the trigger for renewed sterling selling .

FX Options volatilities
 
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Front-end selling interest is still dominating market for most majors and buying interest is primarily around the three-month area that includes the December Federal Open Market Committee meeting.
In general, there is little activity among brokers today, we are having CPI and retails sales out of Canada which is keeping volatility bid, but we expect vol to fall particularly in 1-week to two-month after the event today.
Market consensus seems to be range trading to continue until November, and focus is now more on more odd crosses such as AUDNZD, EURNOK, NOKSEK, EURAUD. Unfortunately liquidity is not the same in these crosses so, it is a slower process. 
EURUSD 1 month is heading towards 6.0 soon.
Implied vs. historic will soon be expensive again even at these low levels

Fixed income
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Commodities

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Equities
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 European markets are trading softer Friday, paring gains following on from this week’s Fed and BoJ meetings. 

Financials and mining stocks led the way lower as cheaper metal and crude prices (before the Saudi-led speculation spike) impacted the sector.

Shares in BP and Royal Dutch Shell along with Fresnillo and Randgold Resources are all trading lower this morning with Polymetal Intl the biggest loser with shares down 8%. 

Danish pharma Lundbeck fell the most in the STOXX 600 today. Shares are down 15% as its Alzheimer drug failed in a late-stage study. 

UK sports retailer Sports Direct International rallied 6% after the resignation of CEO Dave Forsey, leaving the company’s founder Mike Ashley to take over. 

US Equity Index futures traded 0.1% lower after yesterday’s positive session and pre-market earnings are expected today from Finish Line. 


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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.





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 London hitched a ride out of the European Union on June 23 and yet, three
months on, we seem to have entered the twilight zone. Photo: iStock



— Edited by Martin O'Rourke

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