Yields on core European bonds went for a slide yesterday as prices rose in response to the ECB's decision to leave its QE programme unchanged – for now at least. Elsewhere, the USD continues to make gains on its peers.
Article / 29 August 2016 at 11:14 GMT

Mid-session Europe: Up for a hike in Jackson Hole?

Saxo Markets


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.

With the UK closed today, markets are quieter than usual, but the major FX pairs, gold and oil are all reflecting the renewed confidence in the greenback.


  • 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) 

Forex developments

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.

Fixed income

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.

The replay of our Morning Call can be found here.

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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.

Wall Street
Dollar bulls are back in the arena as the Fed normalisation 
narrative reasserts itself. Photo: iStock

— Edited by Michael McKenna

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


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