Article / 15 December 2015 at 12:54 GMT

Mid-session Europe: Stocks strike back as FOMC awakens

Saxo Markets
Denmark

t

Foreign exchange

FX
 
Today's session lies squarely in the shadow of the ongoing Federal Open Market Committee meeting whose results will be announced tomorrow. Markets, of course, are pricing in a rate hike that will represent a landmark move towards policy normalisation in the US. In light of this year and quarter's mixed data, however, as well as soft energy, inflation and global demand, some analysts are calling for the Fed to go dovish on everything save for the hike itself. 

Given the above, today's narrative is one of positioning. At ground level, European equities are seeing some positive movement as are gold, silver and particularly platinum, which is soaring on the collapse of the South African rand and the consequent boosting of mining profits.

In forex markets, USDCAD is finally taking a breather from its recent rocket ride but as weakness in oil is not going anywhere soon, neither is weakness in the loonie. As with the EURUSD, however, it all comes down to the Fed.

Watchlist

  • US: Nov CPI (1330 GMT)
  • US: Nov CPI ex. Food and Energy (1330 GMT)
  • US: Dec NAHB Housing Market Index (1500 GMT)

v
Forex developments

EURUSD: EURUSD started off with a rally in Europe, again attempting to break yesterday's highs. The pair was rejected at its 100-day moving average (the 1.1058 area) before giving up gains as European exchanges opened higher and continued to weaken as risk-off sentiment was less of a focus. EURUSD is presently hovering at the 1.1000 area with its next support at 1.0980 (highs of December 3), then the 1.0963 area (55-day moving average). The pair''s range since December 9 has been dropping, most likely as the focus is FOMC positioning/unwinding.

USDJPY: Yesterday we were bearish on USDJPY and we saw it at lows around the 120.34 area yesterday, but today it's rallying on back of higher equities. The pair is not, however, expected to do much before the FOMC. The move over the last two days shows how confused USDJPY is at the moment; in general it is difficult to say whether USDJPY is out of the woods before a close north of 121.60 as well, of course, as the FOMC decision.

EURGBP: EURGBP keeps working in the range between 0.7200 and 0.7300 and is moving in tandem with risk sentiment. The pair tried breaking the 0.7300 level and was a whisker above that point before being rejected. This range needs to be broken soon, one way or the other. Still looks like it wants to take the 0.7300 area, but that depends on the return of risk-off sentiment. GBPUSD is finding its first technical support at the 21-day moving average near 1.5124. Today's UK inflation figures were mixed, with PPI being more on the negative side. 

Commodity currencies: CAD finally forces USD to retreat on higher oil, but this looks more of a consolidation. What needs to be watched is that no bigger correction has happened in USDCAD, so any short covering in oil and/or USD-negative FOMC surprises could see this pair correct more strongly. First technical support lies at the 1.3620 area (the highs from December 8-9). NOK also strengthening on higher oil but remains in the wide range ahead of the Norges Bank decision. Levels to watch for EURNOK are 9.4500 area and 9.62 on the topside; the weak oil story isn't going anywhere just yet.

FX Options volatilities
 
Vols
The EURUSD vol curve has traded more or less sideways so far this week with one-month at-the-money around 10.2 vols. The main event this week is of course the FOMC meeting tomorrow evening, but we do also have a fairly good amount of data today and tomorrow with US CPI, German ZEW and Euro PMI data tomorrow. 

For an indication of the range to expect, o/n EURUSD is at 14.0 vols this morning which is 64 pips for a straddle. Tomorrow when o/n expiry is covering FOMC, o/n should come in at around 25 vols. 

Sweden's Riksbank kept its rate unchanged which was in line with consensus but there were also some who predicted a smaller cut. EURSEK spot lower and vols as well, with one-month ATM down 1.0 vols on the day. 

Fixed income
Rates
Core yields are climbing on the back of stronger European figures with bunds settling in at 157.70 (a 0.65% 10-year yield) for now. We are also seeing a rebound in credit markets with XOVER almost 20 basis points tighter back to 340 bps.

Commodities

Commodities
 

d
Equities

Equities
European shares traded higher for the first time in six days buoyed by firmer energy and credit markets. The Stoxx 600 index was up 1.9% with Tullow Oil leading the gainers in the energy sector, up over 7% after announcing a successful well that has increased the potential of its discovery in Kenya.

Also driving equities higher was the auto sector as figures released this morning showed European car sales increased by 14% in November; Volkswagen got a particular boost from the news, trading up 3.2% after the release.

In France, Sanofi climbed 5.2% after announcing that it intends to swap assets worth over €18bn with Boehringer. Sanofi’s animal health business (worth €11.5bn) swapped with Boehringer’s consumer healthcare assets (worth €6.7bn) and a cash payment to Sanofi of €4.7bn. Sanofi shares climbed over 5% on the news.

Also in the chemicals sector, Swiss-based Syngenta rose 1.9% after a story broke claiming that China National Chemical Corp is interested in a takeover proposal.

Latest and still open trades on #SaxoStrats
SaxoStrats
 
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.


Asia: Morning Report APAC: Oil and junk seep through the market

Europe: Morning Markets: Fed can't repeat September fiasco


FOMC
 Ready for the hike? Photo: iStock

— Edited by Michael McKenna

The Global Sales Trading desk is a multi-asset team providing customised trading solutions
3y
tradingwithapro tradingwithapro
This comment has been redacted

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail