Article / 15 December 2015 at 12:54 GMT

Mid-session Europe: Stocks strike back as FOMC awakens

Saxo Markets


Foreign exchange

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.


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

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
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
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.




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.

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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: Oil and junk seep through the market

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

 Ready for the hike? Photo: iStock

— Edited by Michael McKenna

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