Article / 23 August 2016 at 11:31 GMT

Mid-session Europe: Sleepy markets await Yellen

Saxo Markets


Foreign exchange

FX, bond and forex options markets are all treading water so far this session as the dreary wait for the Jackson Hole symposium on Friday drags on. Equities have edged lower despite the welcome news that Eurozone output is pushing higher and remains unaffected by Brexit.

French Preliminary Manufacturing PMI out at 48.5 vs the expected 48.8. Services PMI out at 52.0 vs. expected 50.5.  German Preliminary PMI was in line for Manufacturing at 53.6. Services out less than expected at 53.3 vs expected 54.4 

The gap between the French and German Composite PMIs is narrowing to the tightest since mid-2015.  The Brexit effect is still not being felt in Eurozone PMIs, and could be more visible in the future once the exit negotiations begin.


  • US Manufacturing PMI (1345) Expected 52.6, Prior 52.9
  • US Aug. Richmond Fed Manufacturing Index (1400)
  • US Jul. New Home Sales (1400) Expected at 580k, Prior 592k
  • New Zealand Jul. Trade Balance

Forex developments

EURUSD: Yesterday's rally in USD faded quickly but we're finding resistance around the area we mentioned yesterday at 1.1365. The risk now is revisiting this area can snap this resistance and open to 1.14. Otherwise the bottom of the range is still the 1.1270 area.

USDJPY weakens in line with the weaker USD after being strongly rejected yesterday in thesame fashion as the attempt on August 17, which again confirms it's very difficult to break higher before at least the start of next week. We still like buying calls in USDJPY for 23 Sep around the 102.5 area.

GBPUSD: We spoke of critical resistance of around 1.3177, which was broken today early in the morning and took GBPUSD 30 pips higher in early Europe. This was maybe not as much as expected but shows how much technical it is becoming on breaks. Now resting above this level (1.3177) so it's the first support, and a close above here would be more a confirmation that this level is becoming more support. Next tech resistance being 1.3250 area – both a slight Fibo level as well as a level where GBPUSD failed to close above since July 5 – bar two days (July 14 & 15). USD is not expected to perform much until Jackson Hole

NZD: Governor Wheeler’s comments overnight aggravate recent strength in a low yield environment. There may be further upside if NZDUSD can clear the heavily trafficked 0.7350 zone after Yellen on Friday, which opens to 0.7500 area, which represented the start of the drop in NZDUSD towards 0.6250 area. Closing above let alone hitting 0.73500 has failed on all attempts this year, and shows how important this level is.

FX Options volatilities
Little activity this morning. Market mostly concentrating on rebalancing books, so sellers of front end 1 priority to sell gamma 1-4 days and, secondly days between 1 Sep to 21 Sep, while the market is still bid for 2m and further out.
AUD and NZD are better offered in general today .
Very low delta USD calls in demand as protection against underlying short spot position .
Historic against implied is becoming expensive looking at 2week and out but market only willing to sell very front end.

Fixed income
The positive correlation between government bonds and risk assets continues today in a positive manner, as rate hike fears subside and government yields drop back. Focus in corporate market in the Bayer and Monsanto deal, which is reportedly moving closer. Perpetual bonds are down about 1 full point, the 2024 EUR call bond trading at 101 and a 3.6% yield to that call.




Asian shares closed mixed, while European stocks rose across the board after PMI data showed the Eurozone recovery picking up pace. French flash composite PMI for the month hit a 10-month high of 51.6. A reading above 50 signifies expansion. DAX 30 rose 0.3% to 10,520.05, and CAC 40 picked up 0.4% at 4,405.85 while the FTSE 100 rose 0.5% to 6,861.72, on track for its best gain since Aug. 11.
Amongst top gainers this morning, UniCredit gained 2.6%. The move came after a Reuters report that PZU, Poland’s largest insurer, is talking to the bank about buying Poland’s second-largest bank, Bank Pekao SA, from UniCredit. The financial sector was outperforming other sectors this morning.
The mining sector was also raising the prospect of a second day of gains for the market with heavyweight BHP Billiton PLC, whose shares climbed 3% after a ratings upgrade to buy from hold at Jefferies.
US stocks were set for another upbeat trading day on Tuesday, as investors shook off another steep slide in oil prices and instead looked ahead to Federal Reserve Chairwoman Janet Yellen’s speech at Jackson Hole. An update on manufacturing activity and new-home sales data due Tuesday morning were also in the spotlight..

Join our Weekly OptionsLab on Wednesday  to find out more on covered call strategy.

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: Greenback drifts down in a no-news day

Asia:      Morning Report APAC:  Wheeler keeps shots in locker

Europe: Morning Markets:  Oil fast losing sight of $50/b

Europe: From the Floor: Gold miners to give up some gains?

factory Eurozone output is on the way up – unaffected by Brexit. Pic: iStock

— Edited by Clare MacCarthy

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


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