Article / 27 September 2016 at 11:20 GMT

Mid-session Europe: Volatility possible on new US polls

Saxo Markets


Foreign exchange

European indices traded higher this morning before being pared back as the market perceived that Hilary Clinton had trumped Donald Trump in their first televised debate. But the mood is jittery in FX markets and volatility could well sweep back in when the first post-debate opinion polls are released.

Elsewhere, Iran is reportedly not ready to commit to an output freeze at current levels. Oil prices fell to session lows in Europe.

Watchlist (GMT)

  • US S&P/Case-Schiller House Price Index (1300)
  • US Sept Preliminary Markit Services PMI (51.2 exp.) (1345)
  • US Sept Consumer Confidence (98.8 exp.) (1400)
  • US Sept Richmond Fed Manufacturing Index (-2 exp.)(1400)
  • Weekly API Oil Inventories (2030)  

Forex developments

Increased tension is seen in G10 currencies after the first US presidential debate took place on Monday. Post-debate polls are expected within 24 hours and these have the potential to bring more volatility to FX markets.

North-American currencies are traded sharpest with USDCAD balancing in the wide range between 1.316–1.328, however currently returning to the daily averages around 1.3210-20. MXN has seen a strong rally in the first hours of trading, having USDMXN drop to below 19.44 (which was more than -2% at the moment), now bounced to 19.60, making it -1,5% during the day.
USD index is less volatile, locked between 95.14-34, which is well-followed by EURUSD, traded in the narrow range of 1.1236-60.

USDJPY’s descending triangle looks to be nearing the end of the formation with the price sliding closer to the 99.6-100 support line. The current rate is 100.4, which in fact is a decent intraday pullback from 101 level, witnessed following the comments from Japan’s PM Shinzo Abe.
Cable is traded well below the key level of 1.30 in the GBPUSD cross after a failed attempt to break through, and is currently losing -0.25% during the day, finding support at 1.2940. 

FX Options volatilities
The US election debate provided some volatility in especially USDMXN, where o/n vol was also marked up at 35 vols before the debate. Odds for Trump and USDMXN are very correlated. Fwd vol in o/n USDMXN covering 8.-9nov is trading somewhere around 90 vols. That’s around same vol levels we saw in GBP over the UK referendum for comparison. 

Reactions in other currency pairs from the presidential debate have been somewhat muted. Front-end EURUSD vols remain very depressed with spot in tight ranges. The Italian referendum has now been set for December 4, which could put the Italian membership of the EU at risk. So one should see 5.dec expiry get marked higher today in EUR pairs. 

Fixed income
Yields continue drifting lower in sync with the selloff in risk sentiment. The German 10-year yield is now at the lowest level in two months and could soon be challenging the all-time low at -0,19%. In credit markets, the turmoil around Deutsche Bank is now impacting other German issuers, as this week Lufthansa and today Norddeutsche Landesbank had to pull planned issues. XOVER spreads widen 10 bps as a result so far, but compared to other periods of stress this year plenty of downside remains.





European indices traded higher this morning before being pared back as the market perceived that Clinton had trumped Donald in the first televised debate.
Oil and gas shares took the shine off the rally as Iran stated that it was not willing to freeze its crude oil output at current levels. Majors BP and RDS both fell around 1%.
Analyst upgrades lifted Carnival, the world’s largest cruise operator 3% and Orange, the French Telco by 2.5%.

A downgrade however from buy to hold from Canaccord Genuity had specialist travel and insurance company SAGA lose 4%.
Financial stocks were mixed but pressure remains on Deutsche Bank as it falls a further 3% following on from comments in a publication which stated that Merkel had ruled out state assistance.
In the UK, plumbing firm Wolseley fell 4% as the company expects to close 80 branches and lose up to 800 jobs after missing full year targets in difficult trading conditions.
US equity index futures cling onto minor gains at this stage and companies reporting today include Nike, Cintas Corp and IHS Markit.

Join our Weekly OptionsLab on Wednesday  to find out more on covered call strategy.

Read more

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.

US:        US Market Wrap: No debate about it – USD drops

Asia:      Morning Report APAC:  Stocks bounce back, USD up as debate continues


The Saudis are pushing for a deal but Iran refuses to cap output. Photo: iStock

— Edited by Clare MacCarthy

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


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