27 May 2016 at 11:43 GMT
Today's session is both sparse and quiet with many traders having apparently copped an early weekend ahead of the UK and US holidays on Monday. One effect of this low volume, however, may be sharper spikes on even fairly marginal events. That certainly appears to be a risk as we head into Federal Reserve chair Janet Yellen's speech later this evening.
Yellen's speech is merely a ceremonial affair, but direction, starved traders will be poring over her words in their quest to flush any lingering hawks of doves out of the bushes. If the consensus on this speech moves in the same direction as the US GDP print, the dollar could see some swings.
Crude oil's latest rally north of the $50/barrel mark saw some energy-sector gains, but the move was largely pallid and lacked conviction. In Saxo Bank head of commodity strategy Ole Hansen's view, a retracement remains likely.
- US revised Q1 GDP Annualised (1230 GMT)
- US revised Personal Consumption 1Q (1230 GMT)
- US revised Core PCE 1Q (1230 GMT)
- US University of Michigan Confidence (1400 GMT)
- US Fed’s Yellen to Speak (1715 GMT)
EURUSD: This pair was weaker following a French Consumer Confidence print that was actually higher than expected and in the upper range of readings since 2007. The 10-day moving average, which has been a cap since May 12, is dropping down to the 1.1214 area today. EURUSD is captured between that and the 100-day moving average at 1.1168 today. The next trigger could be US GDP and Personal Consumption at 1230 GMT. Above the 1.1214 area, there is the next interesting level at 1.1250, which could be a target should the 10-day break. On the downside we are still looking at 1.1100 as important tech support around the 200-day moving average. USDJPY: The daily range is getting smaller and is still contained now at the 55-day moving average cap (now at the 110.03 area). Again, releases from the US could, if better than expected, start a new attack higher. Still, the impression is that the G7 meeting needs to be out of way for a trigger higher. So far, this is the first month since November where USDJPY looks supported without the bigger downside swings. 109.40 is Fibo level from the rally starting May 3, then 108.65 is the next Fibo level, coinciding with the 21-day moving average.
GBP: Sterling is taking a breather and weakening against USD and EUR. As John Hardy writes this morning, "recent enthusiasm for sterling was overwrought". First support area in GBPUSD looks like 1.4600 and EURGBP resistance lies at 0.7650. USDCAD: The support we mentioned yesterday at 1.2910 was tested and held yesterday (Fibo level and a potential line in sand to break rally starting in May). USDCAD is taking a breather higher and crossing the 10-day moving average at the 1.3033 area and highs of May 18 at the 1.3036 area.
FX Options volatilities
Today is another selling day, particularly on the front-end; only one-month is still in demand, while other tenors are sold.
This is driven by extremely low levels of historical volatility combined with a market holiday Monday for the US and UK. A lot of participants have chosen to take today off, it would seem.
This general circumstance looks to set to continue until late next week: USDJPY and EURUSD vol down 0.15, AUDUSD and NZDUSD down 0.2, GBP vol down 0.1-0.2.
Bunds finally seem to have broken the 164 handle, taking the yield on the 10-year German government bond down to 0.13%. Improved sentiment seems to be the most reasonable explanation along with positioning ahead of the commencement of the European Central Bank’s extended bond buying starting in June.
This has corporate bonds celebrating as well, with the iTraxx XOVER getting close to attempting another break of the 300 bps index level. Liquidity and activity could be fading into the afternoon session into a long weekend with most focus on the GDP number, while the (Fed chair Janet) Yellen event later isn’t expected to produce any news on monetary policy (but is still worth keeping an eye on).
European stocks are mixed on Friday. Germany’s Dax 30 lost 0.1% at 10,258.75, and France’s CAC 40 was up 0.1% to 4,515.00. The UK’s FTSE 100 was off 0.1% at 6,260.75.
Indices are facing trouble to find a direction as investors are waiting for a speech by Janet Yellen that could indicate whether an interest rate rise is imminent. Traders will watch for any hints she may offer about a possible rate increase at the Fed’s meetings in June or July. Her appearance is scheduled for 0115 EST, or 1915 CET.
Energy shares pushed higher this week as oil prices recaptured $50/barrel, although prices dipped below that key threshold Friday. For the movers, Philips Lighting shares jumped 8% in their trading debut. The IPO on the Euronext Amsterdam follows the sale of Royal Philips NV’s 25% stake in its 125-year-old lighting division.
Banco Popular SA was at the bottom of the Stoxx 600 for a second straight day. The Spanish lender’s shares plunged 26% Thursday as the company said it’s launching a €2.5 billion share sale. Adidas AG shares were off 0.6% after the German sportswear maker sold Mitchell & Ness, a US sportswear company.
Please note that trading volumes may be affected by the late May bank holiday in the UK and the Memorial Day holiday in the US on Monday.
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.
Fed chair Yellen's speech is not a policy event, but markets will still be looking for any signs of hawkishness, however slight. Photo: iStock
— Edited by Michael McKenna and Clare MacCarthy