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Article / 12 October 2016 at 11:22 GMT

Mid-session Europe: Sterling catches its breath

Saxo Markets
Denmark

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Foreign exchange

Forex
 
The greenback continues to charge higher ahead of today's minutes release from the September Federal Open Market Committee meeting. Little is expected from the minutes, but given the dollar rally is near-entirely predicated on monetary policy forecasts, any surprise will likely be taken as significant.

The British pound is finally able to stop and breathe a sigh of relief today after a 'hard Brexit' selloff drove it down to the depths, and even below the euro at some airports.

Today, UK prime minister Theresa May has come out suggesting that the Brexit process will be home to more discussion than was thought to be the case last Sunday when Brexit fears retook the market in earnest.

European equities are broadly down, as were Asian shares overnight and Wall Street yesterday.

Watchlist

  • US MBA Mortgage Applications (1100 GMT)
  • USDA World Agriculture Supply and Demand Estimates (1600 GMT)
  • US FOMC Minutes (1800 GMT)

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Forex developments

EURUSD: USD continues its charge against EUR, with attempts towards the 1.1000 area that have been rejected so far. First technical and psychological level is 1.100 area, then around 1.0955, where EURUSD bounced off back in July. The Brexit low in EURUSD was around 1.0910, which would be a key level of tech support. We are seeing three days so far of decent drops and in all have EURUSD down some 1.65% from start of this week. So question is if any relief coming after FOMC before drop continues provided we remain below 1.1100.

GBP: Sterling getting a lift post-Theresa May’s news that parliament will be more involved in the Brexit decision. But nothing has changed fundamentally, so the risk is that any rallies will be chance to get out of sour longs or take profit or establish new shorts. GBPUSD sees 1.2330/40 area as decent tech resistance level around highs of today and lows of October 10.

Commodity currencies: AUDUSD stuck between its 100-day moving average at 0.7528 area and the 21/55-day moving average around 0.7596/0.7602 area.

FX Options volatilities
 
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Equities

Equities
European stocks followed Asian and US markets lower with technology shares sharply lower as Ericsson AB stock tumbled after a profit warning. Oil stocks are on the advance. 

Also, disappointing earnings reports from aluminium producer Alcoa and diagnostics test maker Illumina yesterday cast a cloud over the start of earnings season.

FTSE is down 0.35% to 7,046, CAC40 fell 0.22% to 4,462 and Dax lower 0.18% to 10,558 .

Ericsson Shares plunged 17% heading the biggest loss since 2009 after the company warned that third-quarter earnings will be significantly lower than expected. Finnish telecommunications maker Nokia was struck down 4.50%.

Crude prices were slightly higher but gains were limited as doubts over Russia’s willingness to reduce output continue to spread.

In the oil group, shares of Lundin Petroleum rose 2% and Spain’s Repsol SA climbed 1.4%. Italian oil contractor Saipem SpA picked up 1%.

Markets now focus on to the minutes from the US FOMC September meeting, scheduled for release later today.

The replay of our Morning Call can be found here.

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.





London
A ray of light hit sterling today as UK PM May backed off slightly 
from her hard line on Brexit talks. Photo: iStock

— Edited by Michael McKenna

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