Article / 13 March 2017 at 12:51 GMT

Mid-session Europe: Stocks flat, markets await Draghi speech

Saxo Markets
Denmark

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Foreign exchange
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Major equity indices traded little changed by midday in Europe on Monday.
 
EURUSD pulled back after rallying on Friday, though the market has been abuzz with rumours of the European Central Bank possibly raising rates before quantitative easing ends. The rumours heightened the markets' interest in a speech by ECB president Mario Draghi in Frankfurt at 1330 GMT. 

Chipmaking giant Intel said it would buy autonomous driving technology company Mobileye for $63.54 per share in cash, or about $15.3 billion in equity value.

Markets are looking forward to a busy week, with potential for the British government to trigger Article 50 of the Lisbon treaty (the mechanism for proceeding to Brexit) on Tuesday, the Netherlands voting in an election and the Federal Open Market Committee meeting on Wednesday, the Bank of Japan, Swiss National Bank and Bank of England on the slate for Thursday, and G20 finance ministers' meeting on Friday.
  

Speakers
  • ECB's Draghi to speak in Frankfurt (1330 GMT)
            
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Forex developments

It's been a relatively quiet session in Europe, with the US dollar losing ground in general as 10-year yields drop below 2.56% after having broken the 2.60% barrier last week.
EURUSD is pulling back after rallying on Friday, but the market is still abuzz with rumours of the European Central Bank possibly hiking rates before quantitative ends. EURUSD broke the 100-day moving average and closed the week above it, so that is the first technical support of interest around the 1.0656 area. On the topside, EURUSD got rejected at the 23% Fibonacci level (1.0715 area) from the rally of January to highs of February 2. Risk-return in EUR might be more skewed upwards if reversal of shorts intensifies.

USDJPY failed to close above the 115 area last week, which shows how decent this technical resistance is. The rejection came as US 10-year yields dipped back below 2.60%. Technical supports around the 14.26 area (55-day moving average), then 114.05 (38% fibo from rally that began February 28).

GBP: Brexit gets closer by the hour, if all goes as planned and the government triggers it by the end of March. Talk over the weekend was that we can expect triggering of Article 50 this week. GBPUSD 1.2250/1.2300 is technical resistance that is very interesting and has separated the hard Brexit concerns from the soft. Note that recent UK ecnonomic data have not impressed, and this might be keeping a lid on GBP. 1.2150 has been a very decent technical support.


FX Options volatilities
 
Vols
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Vols have traded sideways today. Last week, we saw a big shift in the vol skew in EUR pairs, so risk reversals are pointing less towards EUR puts. In EURUSD, RRs still favour puts, but to a much lesser degree, with 3-month EURUSD 25d RR trading now at 1.7 for puts against 3.0 a couple of weeks ago. 

The calendar is busy this week, with the Dutch elections and Federal Open Market Committee meeting on Wednesday, and several other central bank events as well: Bank of Japan, Swiss National Bank, Norges Bank and Bank of England. We could also see a triggering of Article 50, which would allow the UK to proceed to Brexit. So 1-week vol is also marked in the higher end. 


Fixed income
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Commodities


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Equities

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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.


Asia:      Morning Report APAC: Crude extends its slide, gold finds support




ECB president Mario Draghi
 ECB president Mario Draghi is in the spotlight again on Monday. Photo: ECB


— Edited by John Acher 

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