29 August 2016 at 11:14 GMT
Foreign exchange Today's session has opened to broad-based USD strength following US Federal Reserve chair Janet Yellen's hawkish remarks on Friday. With the chances of a US rate hike – or even two – on the rise following both Yellen's address and several corroborative outings from Fed members, dollar bulls are making their presence felt across world markets.
One forex pair that may prove particularly sensitive to US data, and particularly Friday's nonfarm payrolls release, is USDJPY. A big move here would likely relate to policy divergence between the Bank of Japan and a newly hawkish Fed.
- US July Personal Income (0.4% exp., 1230 GMT)
- US July Personal Spending (0.3% exp., 1230 GMT)
- US July PCE Deflator; PCE Core (1230 GMT)
USD has clearly benefited from last Friday's Jackson Hole event, strengthening versus the majors and emerging market currencies. Fed chair Yellen’s remarks that the case for rate hikes has strengthened, as well as Fischer's follow-up comments that two hikes are in play if the data are strong enough, were interpreted as a hawkish signal.
Today the UK is out for its Summer Bank Holiday hence we see a more quiet start, and the US jobs data release this Friday is the main focus of the week. It’s important to note that US yields also broke above key resistance levels, further supporting the case for a stronger USD in the near-term.
EURUSD stayed below 1.1200 throughout the session so far with dips lower not providing enough follow-through. USD has been more active versus higher-beta currencies including JPY – the latter also helped by Kuroda’s comments overnight. USDJPY traded towards 102.38 highs, and 102.50 is the minor resistance level. GBP was heading lower versus USD since Friday as well, with 1.3088 the low for the day so far. We expect the move to continue as long as USD is stronger across the board.
FX Options volatilities
Volatility is higher in the majors with ATM vols as well as risk reversals favouring USD calls compared to Friday.
London is not in today so not much is going on; we see small selling interest front-end, which is quite normal.
Buying focus is mainly for September's Bank of Japan meeting and for the three-month area in general, as it covers the referendum in Italy and the US election.
Focus will increase for important USD economic data up to the Federal Open Market Committee meeting in September.
The US rate hike chances have been boosted as several Fed members have backed up the hawkish Yellen comments at Jackson Hole
Two-year Treasuries jumped to a three-month high with liquidity low due to the UK holiday. Weaker opening in credit expected – focus on EM.
European stocks kicked off the week in negative territory; the Dax 30 slid 1.2% to 10,470 while the CAC 40 index gave up 1.1% to 4,395 with rising expectations that the Fed will raise interest rates later this year, punching the air out of the recent rally.
The most important data point standing between the Fed and another rate hike is the upcoming nonfarm payrolls number due Friday. In Italy this morning, the consumer and manufacturing confidence indices came out lower than prior – and lower than expected – providing investors a risk-off feeling.
Alstom is one of the movers today with the share gaining 2.3% after the French infrastructure company said it signed a €1.8 billion deal to design and build 28 new high-speed trains for US rail operator Amtrak.
In Switzerland, Roche Holding opened higher after the Swiss drugmaker said it had received an “emergency use authorization” from the US Food and Drug Administration for its Zika test.
Shares, however, erased gains and traded 0.2% lower in the morning
US futures slightly traded in negative territory (minus 0.03%) before the personal income and personal spending data release at 1230 GMT.
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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.
Dollar bulls are back in the arena as the Fed normalisation
narrative reasserts itself. Photo: iStock
— Edited by Michael McKenna