15 August 2016 at 11:22 GMT
A quiet late-summer day in the markets as investors weigh how far the JPY can climb before it begins to harm risk sentiment, and how low sterling can go before the heavily short market is squeezed.
In stocks, Volkswagen shares are on the mend to the tune of 1.3% after German regulators approved a solution for the carmaker's diesel engines while Sweden's H&M gained 2.6% on a strong, 10% July sales boost.
Crude oil prices hit a three-week high earlier as the verbal intervention/short-covering rally continues.
- US Aug. Empire Manufacturing (1230 GMT)
- US Aug. NAHB Housing Market Index (1400 GMT)
- New Zealand RBNZ Governor Wheeler to Speak (2030 GMT)
- Australia RBA Meeting Minutes (0130 GMT)
USD giving back its gains on the day so far...
EURUSD has been mostly trading above its main tech support area of 1.1150 which has been the magnet lately (around the 55-day moving average) following US Retail Sales that were weaker than expected. A reversal of Friday’s attempted rally looks to us as a bearish setup, but lacks a trigger so far. We remain watching tech resistance of note at 1.1230, which should preferably hold to avoid higher moves in the pair. In USDJPY Japan's Q2 reading was below expectations but USDJPY continues to find decent support down at the 100.65/70 area. The markets remain complacent, so you would think USDJPY would at least rally a bit, but still looks heavy on the day and risks going to 100 if the 100.65 area is taken out. With this complacency, the question is how much lower than 100 it would go without upsetting risk sentiment. In GBP we like sterling weaker, but the risk reward looks less and less rewarding as the market is very short and we take note of the possible risk of sharp short covering, especially following UK releases tomorrow and Wednesday’s unemployment releases. Commodity currencies: AUDUSD remains interesting in terms of yield differential and risk-on mode, has held so far above the 38% Fibo level at 0.7627 (from rally starting 27th July), has really struggled to close day above 0.77 lately, which is first decent tech resistance then.
FX Options volatilities
Little activity in the interbank market this morning.
EURUSD: overnight one week is offered while the two-week area is slightly bid.
USDJPY: no real activity but overall some demand for month-end strikes; the 24 Jan 110 strike traded 250m in the market which also keeps market small bid in the medium term.
GBP: market is bidding one-month as it covers the September Bank of England meeting but it is very difficult to get decent bids in one-week and less.
The overall market is starting to show bids for two-month and out as they do not want to go into September short vega.
European stocks advanced Monday. France’s CAC 40 rose 0.5% to 4,523.59 and the FTSE 100 tacked on 0.3% to 6,936.18. The DAX 30 picked up 0.7% to 10,791.57 with shares of carmaker Volkswagen AG and apparel retailer H&M AB helping to buoy the regional benchmark toward its highest level in more than two months.
In Frankfurt, market heavyweight Volkswagen rose 1.3% after the automaker said KBA, Germany’s federal motor transport authority, approved technical remedies for 460,000 vehicles with diesel engines.
In Stockholm, H&M shares pushed up 2.6% after the Swedish apparel retailer said sales in July rose 10%, compared with a year ago.
Amongst movers elsewhere in Europe, UCB SA surged 8% after the Belgian biotech firm said a Delaware court confirmed the validity of the company’s US patent for Vimpat. The drug is used to treat partial-onset seizures in patients with epilepsy.
William Hill PLC fell 2.6% after the bookmaker rejected a higher takeover bid from Rank Group PLC and 888 Holdings PLC. Bovis Group PLC posted a 15% rise in first-half pretax profit, raised its dividend payment, and said underlying market fundamentals for UK housing market remain positive. But shares were down 2.3%.
Overall, oil and gas, healthcare and financial shares traded higher. But telecom, technology and industrial stocks slipped.
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Slow train coming: A weak US retail print is helping to send USDJPY lower, but how far can the pair tumble without changing the market's risk profile? Photo: iStock
— Edited by Michael McKenna