19 August 2016 at 11:35 GMT
Overnight, hawkish comments by the Fed’s John Williams, an influential albeit non-voting member, led to a reversal in the USD weakness seen over the week
In data, German PPI was slightly positive compared to expectations, noting positive revenue growth in line with overall developments
Elsewhere, the British Bankers Association put their hat into the Brexit arena favouring a Swiss-style approach to enable some sectors to continue to trade with Europe, voting against the Norwegian deal as both impossible and impractical
Oil is heading for one of its strongest weekly runs in months, but we believe it running out of stream
- Canadian CPI July (1230 GMT) – MoM 0.0% exp / 0.2% prior, YoY 1.4% exp / 1.5% prior.
- US Baker Hugh Rig Count August (1700 GMT) – last 481
EURUSD looks well supported at 1.13 level, there is plenty of order book available and the first attempt to reach to the level caused the pair to bounce back fairy quickly. The closest resistance is 1.1350 and we expect pair to remain between those levels today unless something unexpected happens. Day is lean news wise. Implied vol in options space continues to collapse. USDJPY appears to be stuck in the broader range around 100. John Hardy, our Head of FX strategy favours the upside through options here. The next step for bulls would be a test of the 101.25/50 resistance and then the Ichimoku cloud levels, while the bears need a swift and determined punch to new lows, with the latter likely to bring a chorus of official Japanese protests if it materialises. Next week’s Jackson Hole symposium is likely to set the mood for the long weeks running up the next FOMC (Sept 21) and Bank of Japan meetings. GBPUSD is drifting lower than 1.3150 as many traders decided to take their profits before the end of the week. Liquidity remains the same as the rest of the week. The key levels to watch are 1.31 and 1.32, the latter has accumulated plenty of orders and might be difficult to breach from first attempt.
FX Options volatilities
Overall very calm market today where the focus is still on Fed chief Janet Yellen's speech next week.
We saw good interest to buy downside AUDUSD 1w-2m this morning and now we start seeing some selling interest for atm to upside strikes.
USDJPY not much to report besides market is very bid for low delta upside for 29-30 August – we guess the market is short spot and need some protection for the upside. Same story around BoJ so the market is bidding heavily for low delta usd calls September 23 and few days ahead.
Overall markets are slightly bid for 1m-3m usd majors especially for less liquid currency pairs.
Market trying to be prepared for eventual higher volatility in the autumn.
Bunds future continues their slow climb higher all though with little market moving events to report. US rate hike odds dropping back below 50% for a December move seems the most obvious explanation behind the move in government markets.
As for credit, however, trading is a bit softer in today’s session – in line with the general negative risk sentiment across Europe – following an otherwise strong tightening move this week.
Stocks in Europe fell on Friday with auto makers putting pressure on European indices. BMW and Daimler weighed on the Dax 30 which fell 0.7% to 10,530. Peugeot’s decline contributed to a 0.55% fall in CAC 40 to 4,412.
The main story today was BMW. The stock fell 2.8% as Goldman Sachs downgraded its rating to neutral from buy as part of the bank’s review of the auto industry. Overall, the industry faces major challenges, in part as the US demand cycle is at its peak and the European cycle is nearing it, said Goldman analyst Stefan Burgstaller in a note. Among other issues, the industry is facing risks from the shift to electric vehicles. Fiat shares fell 2.7%, Daimler gave up 1.5% and Peugeot moved lower by 0.9%.
Elsewhere in Europe, IBEX 35 fell 1% to 8,461.50 and FTSE 100 was down 0.2% at 6,857.98. Italian’s MIB lost 2% to 16,342.96, with shares of Banca Monte dei Paschi di Siena off 2.2%. The embattled lender’s Chief Executive Fabrizio Viola and former chairman, Alessandro Profumo, are under investigation by prosecutors in Milan for allegations of false accounting and market manipulation stemming from past derivatives transaction, according to The Wall Street Journal, citing two people familiar with the matter.
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.
Oil is heading for a strong weekly close despite the dollar's revival. Pic: iStock
— Edited by Clare MacCarthy