Article / 18 November 2016 at 12:25 GMT

Mid-session Europe: Populist pressure

Saxo Markets


Foreign exchange

Donald Trump's victory has travelled from being an unimaginable dark horse to a fait accompli, but the big question at the moment is whether his success will be mirrored by that of other populist movements, groups, and tendencies – particularly in Italy and France.

The euro posted its ninth straight day of declines versus USD yesterday and one-month vols covering the December 8 European Central Bank meeting and the Italian constitutional referendum are significantly bid, reflecting a profound unease about the future of the current European order.

The same is true of one-year EURUSD vols covering next spring's French election, where the right-wing Eurosceptic Front National party appear poised to venture further towards the halls of power in Paris.

We are also seeing US and European bond yields continue to diverge on this and related currents, but there has been no word yet from ECB head Mario Draghi as to what actions, if any, the central bank in Frankfurt may be planning.


  • Canada Oct CPI M/M (exp. 0.2% m/m, 1.5% y/y, 1330 GMT)
Forex developments

EURUSD: Another drop yesterday marking the ninth straight declining session. Today the same has been happening with EURUSD lower on the day, but so far attempting a comeback up to its opening level at the 1.0624 area, where is has found slight resistance towards mid-session. 

Yesterday we spoke of the 1.0640 level that, if taken out, opens to 1.0552; this remains the case, and 1.0640 would be first tech resistance. Last Friday we mentioned that such drops in EURUSD on weekly charts have usually resulted in a continued drop from a chart perspective and this we have seen this week. 

Looking at weekly charts again, with this kind of collapse and momentum the charts show that the drops continued (extreme cases were the weeks starting December 15, 2014 and October 19, 2015 as recent examples). 

1.0750 is the current key tech resistance on top side which started the fresh collapse lower.

USDJPY: This pair sees the 55-week moving average at 109.96 as the level to challenge as we enter the weekend, so this is currently the tech support and closing the week higher could be a positive sign. USDJPY has failed to close weekly higher than 110.38 since April 2016. When we broke 111.38, this gave way for new dive lower back then on the weekly charts. So that too marks a nice signal for USDJPY bulls if we close higher. 

Commodity currencies: AUDUSD sees more weakness here as the carry trade unravels and US yields give USD a boost. AUDUSD is right below the Fibo level we mentioned yesterday at 0.7386 area from the rally starting in May, next tech support being 0.7300 from the lows of the post-Brexit collapse. The AUDUSD levels at 0.7440-60 we mentioned yesterday have so far become tech resistances.

FX Options volatilities

Strong USD spot keeps driving ATM vols higher across the board, especially vols in USD versus emerging market currencies have traded higher recently. 

One-month USDTRY is trading at 16.5, so plus one vol today and up 3.0 vols since the US election. 

EURUSD vol has also been very bid, especially the one-month covering the Italian referendum, the European Central Bank and the Federal Open Market Committee... this is trading at elevated levels. 

Also we see the six-month EURUSD covering the French election in good demand, with RR very skewed for EUR puts.

Fixed income

Fixed Income
US and European yields are going their separate ways as the Bank of Japan introduces unlimited bond buying.

Expectations for the December ECB outing are building while the Fed’s Yellen reiterates yield hike ambitions; Italian and even French government spreads continue to expand on election uncertainty.





European stock markets traded in the red for the first half of the day with the main indices – the CAC40, Dax 30 and UK100 being on the downside from minus 0.50% to 0.60%. US equity index futures were also offered at minus 0.15% on average.

Despite having committed to act, as warranted, by using all instruments available, ECB head Draghi didn’t bring anything new on whether the current bond-purchase programmr will be extended past March 2017. The next ECB policy meeting is scheduled December 8. 

One of the main headlines of the morning is Volkswagen confirming plans to cut 23,000 jobs in Germany targeting €3.7 billion in costs reduction. Gapping up in the first hour of trading, the stock price erased early gains returning to trade flat versus the previous day's close.

The biggest gainers so far include the UK consumer sector’s Electrocomponent (ECM:xlon) adding 16.5% on surprise H1 results and Spanish eDreams (up by 8.5% on reporting for H1).

The top laggards today include UK’s Cape Plc losing about 15% on its recent trading update and Bekaert (BEKB:xbru) down 10% on Q3 sales results.

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.

Dark horse
The dark horse of populism continues to stalk financial markets. Photo: iStock

— Edited by Michael McKenna

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


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail