Article / 19 November 2015 at 13:03 GMT

Mid-session Europe: Stocks gain with FOMC fillip

Saxo Markets


Foreign exchange
FX Table
 Source: Bloomberg (range US close to 1000 GMT)

Eurorpean equity markets traded solidly in positive territory by midday on Thursday, helped by the new clarity that a US interest rate hike is now clearly on the table, as confirmed by the minutes of the Federal Reserve's October policy-making meeting.

UK retail sales came out weaker than expected for October, down 0.9% month-on-month excluding auto fuel sales vs -0.6%. The previous reading was also revised down to 1.5%.

Bunds advanced for a ninth consecutive day, with growing belief that the European Central Bank will act in December. And ECB executive board member Peter Praet said it is “essential that uncertainty should not give rise to indecision.”


  • Eurozone ECB account of recent meeting (1230) 
  • US weekly initial jobless claims (1330). Surveyed at 270k, Prior 276k 
  • US November Philadelphia Fed Index (1330). Surveyed -0.5. Prior -4.5 

  • US Fed’s Lockhart to speak (1730)
  • US Fed’s vice chairman Fischer to speak on emerging Asia (2145)

Forex developments

EURUSD: This pair has been rallying since European markets opened and returned to late Asian session highs above the 1.0700 area. It has been struggling to break the 10-day moving average at 1.0722 area. This moving average is quite interesting as it has been the ceiling for EURUUSD moves since around October 22. There's a risk EURUSD could stay in a boring tight range, and with boring ranges also comes risk of short squeezes.

USDJPY: Bids are reported in the 123 area. The market sold off on absence of Bank of Japan action (there was no strong conviction that the BoJ would act beforehand). But the focus remains on fiscal stimulus which has been rumoured to take place towards year-end.

GBP: GBPUSD has broken the 1.5250 area which we have been monitoring for a few days. Despite weaker UK retail sales, GBPUSD keeps above 1.5250. There are several decent moving averages that could act as strong resistances (55-day at 1.53 area and 200-day in the 1.5340 area) In EURGBP, we continue to like downside but are worried risk/reward could be unfavourable and risks of short squeezes present after a 2-figure drop since November 6. GBPJPY, has dropped since European exchanges opened and is flirting with first important support in the 187.64 area (100-day moving average). We believe GBPJPY needs to close above this level to maintain the bullishness or else it risks seeing a range of 186.10 to 187.60.

Commodity currencies: These currencies are generally stronger against USD due to the USD consolidation. Today we are looking for stronger AUDUSD short term. AUDUSD broke the 55-day moving average now at 0.7128 (that we have been following lately), and the next resistance area is the 100-day moving average at 0.7212 (100-day MA has been a decent moving average respected since the end of June) .

FX options volatilities
Vols Table

Vols are softer post-FOMC. One-month EURUSD is at 12.85%, so still in the high end, and the 2-week rolls to ECB and is trading at 12.35%. USDJPY vols have sold off after the BoJ announcement, with 1-month ATM down 0.4 to 9.0%.

EURCHF spot has rallied 70-80 pips in the last 24 hours, with market speculation that the next SNB meeting will follow up on whatever the ECB does to prevent EURCHF from falling.  We have seen buyers of upside lately via call spreads (2-month 1.10 vs 1.12 strikes).

Fixed income

Source: Saxobank

The FOMC minutes gave relief to bonds as more market participants believe the pace of Fed hikes will not be aggressive. Lower commodity prices, subduing global inflation, will weigh considerably on the Fed's decision.

Commodities Table


Equities Table

Higher risk appetite after the FOMC minutes has pushed European indices higher by over 1%. Uncertainty over when rates will rise is fading and boosting investor confidence. Miners and financial stocks are leading the pack, while consumer staples are underperforming.

Shares in Allergan in the US were lower after Wedneday's close after the US Treasury Department said more action was needed to deter corporate tax inversions. Allergan is based in Ireland which has a lower tax rate than the US. Following this, the financial press is reporting that Pfizer is near a deal to acquire Allergan for as much as $380 a share. The shares are up 2% in pre-market dealing.

Sodexo, the French food services group, is up 11% after first-half results beat estimates and cost savings were better than expected, and as it simplifies the organisation.

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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.

ECB Building in Frankfurt
After the Fed minutes come the ECB minutes to provide clues to 
monetary policy. Photo: iStock 
— Edited by John Acher

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