07 June 2016 at 11:35 GMT
Risk sentiment is the main theme of today's European session as the market responds to last Friday's nonfarm payrolls disappointment – and the consequent headwinds for Federal Reserve policy normalisation – as a cue to buy risky assets.
Stocks, as such, are on the rise while gold holds steady but looks primed to test support in the wake of the weakness seen in USD and copper.
USDJPY is also holding the line, but Saxo Bank head of FX strategy is making a cautious play for some upside via options; for more on this SaxoStrats trade, click here.
As the June 23 Brexit referendum draws nearer, GBP and UK assets are caught in the shifting winds with the former moving in line with the latest polling data.
- US Q1 Final nonfarm productivity (minus 0.6% expected, 1230 GMT)
- US Weekly API Oil Inventories (2030 GMT)
EURUSD remains bid and is threatening the tech resistance of last three days at the 1.1390 area. Bid tone started in early European session and got a lift by Eurozone GDP figures for Q1 that were better than expected. Next level after 1.1390 is 1.1398 (highs of April 21) and then we have 1.1417 – the Fibo level we mentioned yesterday, and after that the Fibo level of 1.1493. The tech supports of note are the first decent one around 1.1300 (today's 55-day moving average) and 1.1294 9 (Fibo Level from the decline of May 3). USDJPY Saxo Bank head of FX strategy John Hardy is looking at the upside via options. The Fibo level at 107.80 still holding as resistance; the pair has been briefly above and it looks like USDJPY wants to rest above this level under current circumstances. Tech support at 106.93 area, a key Fibo level; the 108.50 area is the next Fibo level as tech resistance, this was the level that was initially broken on Friday and started the USDJPY collapse. GBP remains very poll-sensitive as usual and even more sensitive than previously as the date approaches. The latest YouGov poll says 43% Remain versus 42% leave with 11% undecided. If this figure changes to more Leave bias, 1.4500 could be taken out quickly.
FX Options volatilities
Reserve Bank of Australia unchanged with spot higher and volatility lower. The next interesting day is June 16, covering unemployment and the Federal Open market Committee, but beside that there is not much interest, so we expect the curve to stay offered.
JPY vols: Volatility in USDJPY is overall lower, particular in the back end. EURJPY is unchanged as markets don’t want to be short gamma over Brexit so some structure to buy post-Brexit and sell longer days.
EURUSD is almost unchanged from yesterday; 3 million trading 8.65 close to the low for 2015-2016, which is relatively cheap taking Brexit event into account.
GBP volatility started bid but is now trading unchanged compared to yesterday’s level.
EURCHF volatility is a lot higher with one-month trading as high as 7.3 % today (from 5.25% one week ago and 6.5 yesterday).
Yields are lower across the board after Fed chair Janet Yellen's speech yesterday. European core yields sit at year lows while emerging market bonds yields are also lower, continuing to outperform.
European markets continue to move higher after Yellen’s comments yesterday. With a US rate hike now looking very unlikely for this month, the EuroStoxx 600 is up 1.22%. Oil is having a positive session, helping that sector to outperform, while Healthcare and Consumer Staples lag.
K+S, the German agricultural chemicals business, is up 5.5% after Kassel prosecutors found no indication of criminal conduct in water pollution.
Man Group is down over 2% after earnings; the firm was downgraded by Barclays on weak AHL performance.
Natixis trades up 3.5% after Jefferies posted a positive note.
Valeant reported poor numbers in the US this morning and are currently trading down 10% premarket. The new CEO of the struggling drugmaker cut its 2016 profit forecast below expectations.
Click here for more on the Brexit referendum
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.
The main theme of today's session is risk. Photo: iStock
— Edited by Michael McKenna