Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 23 May 2016 at 11:26 GMT

Mid-session Europe: Weak PMIs expose Eurozone fragility

Saxo Markets


Foreign exchange

It's PMI day in Europe and we've seen French manufacturing PMI contract further with a reading that was a  worse-than-expected 48.3 versus the anticipated 49. The services PMI on the other hand was better than expected at 51.8 vs 50.6 expected. 
Germany's PMIs were better than expected across the board, however the overall Eurozone reading came in slightly below expectations, yet still in expansion mode. 


  • US Preliminary Markit Manufacturing PMI (1345) Expected at 51, Prior 50.8
  • Eurozone May Consumer Confidence (1400) Expected -9 Prior -9.3


  • US Fed’s Bullard (FOMC voter) to Speak (1015)
  • US Fed’s Williams (non-Voter) to Speak (1200)
  • US Fed’s Harker (non-Voter) to Speak (2230)
  • Australia RBA’s Stevens to Speak (0305)

Forex developments

EURUSD has been moving in a tight range for 3 days now, we need to see it break out of 1.1250
(around today’s highs) and 1.1155 (100-day moving average). On the downside there are more decent technical levels than the upside which includes 200-day at 1.1100. First interesting tech resistance post 1.1250 is 1.1295 (55-day moving average).

USDJPY: It's interesting to see how the rate has again as of end of last week failed to close above the 55-day moving average at 110.28 today. We need probably this signal for USDJPY to take a charge higher. 109.50 has been a decent support and there is also a Fibo level slightly below it at 109.40 area from the rally May 3. So we watch for a close above 110.28 or below the 109.40 area for direction. Below 109.40 area next Fibo 108.65 area.

GBP: it looks like the 1.4500 area is the magnet ahead of Brexit vote unless polls start being very one sided.

USDCAD is finding resistance at the point we have been noting lately 1.3150/60. If we close today above this it would give another boost for the pair and open the way for the1.3215/20 area (around highs of April 5 and March 23). Tech supports remain around 1.3015 and then the 55-day moving average at the 1.2956 area.

FX Options volatilities

Vols offered in majors, front end as well as vega. 1 week EURUSD given at 6.75 offered on. GBP stuff is very dependent on polls coming out, and goes 50 pips fast, when something points at a bigger chance for Brexit, vols and RR reacting fast too.

Fixed income

European government bonds maintain the stronger start to the week, although bunds gave up on the earlier break of 164 to trade at 163,80 level currently. Similar picture is seen in early treasuries trading ahead a an active week in terms of Fed speakers and June data points to follow. 

In the corporate bond space the focus is on Bayer perpetual bonds following the Monsanto news. Bonds are generally off by 2-3 points with the 2022 call and 2.375% coupon bond the main underperformer, currently trading at a 92 level equal to 3.8% yield.





European stocks slipped this morning, as investors began the week cautious about prospects that US interest rates could soon be raised. In Frankfurt, Germany’s DAX 30 fell 0.8% to 9,839.37, and France’s CAC 40 dropped 0.41% to 4,336.18. U.K’s FTSE 100 lost 0.4% to 6,133.17. US futures pointed to a fall of around 0.3 percent at the open on Wall Street.
Purchasing managers index data showed that Eurozone business growth slipped in May to a 16-month low, the latest evidence to suggest a strong acceleration in growth in the first three months of the year was only temporary. Markit's flash Composite Purchasing Managers' Index, one of the first growth indicators in a month, edged down to 52.9 from April's 53.0, essentially stable but still the lowest since the start of 2015. Germany's private sector growth accelerated in May to the highest level so far this year, but activity elsewhere failed to keep pace.
On the corporate side, Bayer AG dropped 3.2% after the drug and chemicals maker said it made an all-cash offer to buy Monsanto Co. for $62 billion, or $122 a share. The bid values Monsanto at 37% over the company’s May 9 closing share price, the day before it made a written proposal to the U.S. company, said Bayer. 

Fiat Chrysler Automobiles NV were down 5% after a report by German newspaper Bild that German regulators suspect the auto maker of using illegal software to cheat on emissions tests. Fiat last week declined to meet with regulators to discuss the issue. Royal Mail PLC rose 3.6% after an ratings upgrade for the delivery company to sector perform from underperform at RBC. 

Tobacco shares, meanwhile, were largely unscathed after French insurer AXA said it’ll stop investing in the industry, citing economic costs. Shares of British American Tobacco PLC slipped 0.1%, while Imperial Brands PLC was fractionally higher.

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.

Asia:      Morning Report APAC: Key global summits to impact oil, FX and bonds

Europe: Morning Markets: June rate-hike fear cows sentiment

Bayer  Bayer's offer to buy Monsanto is the biggest ever all-cash takeover proposal. Pic:

— Edited by Clare MacCarthy and Clemens Bomsdorf

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


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