FX Market Update 8-8

Market Briefs

• EUR/USD +0.11%, USD/JPY -0.17%, GBP/USD -0.02%, EUR/GBP +0.14%
• DXY -0.1%, DAX +0.03%, FTSE -0.07%, Brent +0.52%, Gold +0.27%
• DE Jun Trade balance (EUR) SA, 21.2 bln vs f’cast 21.0 bln, prev 20.3 bln
• DE Jun Imports m/m SA, -4.5% vs f’cast 0.2%, prev 1.2% rvsd 1.3%
• DE Jun Imports m/m SA, -2.8% vs f’cast -0.30%, prev 1.4% rvsd 1.5%
• China July exports, imports weaker than expected, cloud global outlook
• BOJ should dial back stimulus even if inflation misses target – ex-dep gov Iwata
• No-confidence vote signals “High Noon” for South Africa’s Zuma
• Tillerson in Thailand presses for more action on North Korea
• Oil prices steady as Saudi cuts September supplies
• Gold rises as dollar eases, focus on U.S. inflation data

Looking Ahead – Economic Data (GMT)

• 10:00 US NFIB Small Business Optimism Index (Jul) (prev 103.6)
• 12:55 US Redbook Same-Store Sales Index (weekly) (prev +2.8% y/y)
• 14:00 US JOLTS job openings (Jun) (mkt 5.775 mn, prev 5.666 mn)

Looking Ahead – Events, Other Releases (GMT)

• 12:00 South Africa vote of no-confidence in Pres. Zuma
• 15:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $475 mn)

Currency Summaries

EUR/USD

• Another slow day with EUR/USD close to 1.1800
• European range 1.1802-18 after 1.1792-1.1824 in Asia
• Bond markets undermining EUR/USD:
• EUR 548mln 1.1800 vanilla option expiries today
• Weak mix for French & German trade as both imports/exports fall
• NFP impact on rates marginal:

USD/JPY

• USD/JPY very slightly lower 110.50-65 in Europe
• Continuing consolidation expected within NFP data range 109.85-111.05
• Today USD 490 mln option expiries at 111.00. No major US data
• Rates not providing expected NFP boost:
• USD 12 billion speculative longs continue to weigh on USD/JPY

EUR/CHF

• EUR/CHF met headwind just shy of 1.15 after extending north from 1.1461
• 1.1461 was pullback low from Monday’s 1.1502 high
• Resistance levels beyond 1.1500/02 include 1.1537 & 1.1561
• 1.1537 was last Friday’s 31-month high, 4.8% above prior week’s low
• Swiss July adjusted jobless rate 3.2%, as expected

GBP/USD

• Cable has traded a meagre 21 pip range thus far Tuesday, 1.3032-1.3053
• Peak of that range = pip shy of 21DMA. 1.3059 was Monday’s high
• Bids tipped towards 1.3000 (July 26 low). 1.3008 = 38.2% of 1.2589-1.3267
• 1.2589 = June low after UK election shock. 1.3267 = 11mth high Aug 3
• Aug 3 peak scaled before GBP tanked on dovish BoE hold
• Quarter-yard 1.3000 option expiry for 10am ET NY cut (1400GMT)

USD/CAD

• Spot elicited support pre-1.2650 in Asia after extending south from 1.2715
• 1.2654 = Asia low. 1.2657-1.2671 = European am range
• 1.2715 was Monday’s 24-day high (three cents above recent 25mth low)

AUD/USD

• Huge 0.7950 option expriy for the 10am ET NY cut, AUD 2.5bln strike
• Offers tipped pre-0.7950 (Monday’s high was 0.7949)
• RBA’s Kent due to speak Wednesday. RBA Governor Lowe speaks Friday

NZD/USD

• NZD continues to suffer on expectations of dovish RBNZ hold this week
• 0.7351-0.7369 = Tuesday range-to-date after Monday’s drop to 0.7348
• AUD/NZD up to 1.0779 in Asia, highest level since July 20
• NZD could rally if RBNZ message less dovish than expected Wednesday

FX OPTION EXPIRIES

• EUR/USD 1.1800 (548M)
• USD/JPY 111.00 (490M)
• AUD/USD: 0.7950 (2.5BLN)
• GBP/USD: 1.3000 (245M)

COMMENT

Perhaps EUR/USD longs should book profits

It maybe prudent to use EUR/USD rallies to book a profit. The technical picture remains very bullish and political risks and some fundamentals support the pair. However, a core part of rationale thought to support a higher EUR/USD rate has been running in opposition to that move since July 21. UST/bund spreads have widened. In the not too distant past that would have fuelled short selling of EUR/USD, and it is certainly good cause to book a profit. The shift to wider UST/bund spreads has been led by very long-dated spreads and that is noteworthy because it was the 30 year spread that was first narrowed leading the turn for interest rates that undermined short EUR/USD positions earlier this year. Speculators are holding a big long EUR position and there is little time left now ahead of major CB events in September and Jackson Hole this month. There is never a bad time to take a profit. Chart UST/bund:

CHART

Oversold USD/SEK looks ripe for reversal

An oversold USD/SEK is ripe for a bullish reversal and a few technical pointers are coming together to support that view with the 30-week Bollinger leading the charge. USD/SEK has been below the Bollinger (8.15 Tuesday) for seven weeks and this is a strong indication of an oversold market. Last week’s price moves delivered a hammer candle and modest bullish confirmation so far this week. Weekly bearish momentum is fading and slow stochs have crossed to the topside. We would look to retracement levels off the mid-Dec 2016 9.4476 high and 8.0525 Aug 2017 low. The initial objective is the 23.6% Fibo at 8.3817 but would favour an eventual run to the 50% pullback level at 8.75. A rising 200-week moving average converging on the price could be a double-edged sword with a break to trigger a bearish resumption but provides a natural stop at 8.0062

Futuro del peso mexicano 8-8

 

  • USD/MXN opens NY 17.9120, dips slightly; o/n range muted 17.9455-17.8970
  • Broader mkt mixed DXY off 0.11% GBP lwr, EUR up a touch; BRL lower
  • Upcoming NAFTA negotiations (Aug 16) in focus, MXN trades defensively
  • USD/MXN res 17.9787 50-DMA, 17.9910 Mon high, 18.0855 Jul 10 high
  • Support 17.8970 Tues low, 17.8880 hrly cloud base, 17.8206 10-DMA

Futuro del peso mexicano 8-8

 

FX Market Update 7-8

Market Briefs

• EUR/USD +0.27%, USD/JPY +0.13%, GBP/USD +0.15%, EUR/GBP +0.14%
• DXY -0.16%, DAX -0.41%, FTSE +0.1%, Brent -1.43%, Gold -0.04%
• EZ Aug Sentix Index, 27.7 vs f’cast 27.8, prev 28.3
• GB Halifax House prices 3m/yy, 2.1% vs f’cast 2.0%, prev 2.6%
• DE Industrial output m/m, -1.1% vs f’cast 0.2%, prev 1.2%
• China July FX reserves unexpectedly hit 9-month high as dollar weakens
• British election failure shakes confidence in May’s Brexit strategy – ORB poll
• Sunday Telegraph said UK ready to pay 40 billion euros to leave EU
• Oil slides from 9-week highs as market looks to OPEC
• Gold hovers near lows, investors wary about U.S. rates

Looking Ahead – Economic Data (GMT)

• 14:00 US Labor Market Conditions Index (Jul) (prev +1.5)
• 14:00 US Employment Trends Index (Jul) (prev 133.1)
• 19:00 US Consumer Credit (Jun) (mkt +$15.54 bln, prev +$18.4 bln)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 Fed’s Bullard speaks on the U.S. economy and monetary policy; Nashville, TN
• 17:25 Fed’s Kashkari speaks in moderated audience Q&A session at Rotary Club event
• 18:30 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.65 bn)

Currency Summaries

EUR/USD

• Slow session sees EUR/USD gravitate towards larger option expiries
• EUR 895 million vanilla expiries at 1.1800 today
• Asia trade bullish pattern 1.1771-1.1814, mostly over NA close @ 1.1774
• German industrial output down 1.1% in June vs 0.2% f/c, ignored
• Europe range 1.1778-1.1814. No U.S. data of note today

USD/JPY

• USD/JPY 110.65-85 in Asia and 110.65-87 in Europe
• Resistance at Friday’s post NFP best @ 111.05
• Support at last week’s twin lows @ 109.85
• Higher U.S rate outlook underpinning USD/JPY
• Large & mainly losing bullish bets weigh:

• USD 1.3bln 110.80 option expiries have anchored spot today

EUR/CHF

• EUR/CHF met headwind circa 1.1500 after rallying from 1.1458
• 1.1458 = early Europe low (1.1455 = July 31 high). 1.15 = former resistance
• Swiss annualized CPI inflation +0.3% in July, as expected
• SNB held CHF 714.33bln in fx reserves end July vs 693.682bln end June
• CHF value of SNB’s EUR fx reserves boosted by recent EUR/CHF surge
• Cross scaled 31mth peak of 1.1537 Friday (4.8% above prior week’s low)

GBP/USD

• Cable traded a meagre 21 pip range thru European am, 1.3038-1.3059
• Loss consolidation from recent 10mth high of 1.3267 = big-picture story
• Recent losses courtesy of dovish BoE hold Thursday & NFP beat Friday
• 1.3024 (Friday’s low) & 1.3000 (July 26 low) are support levels
• Fresh EUR/GBP bids expected around 0.9000 (former resistance level)

USD/CAD

• USD/CAD rose to a 20-day high of 1.2682 during the European am
• Ascent influenced by lower oil prices: WTI below 49 bucks/barrel
• 1.2631 was Asia low. 1.2667 was Friday’s high

AUD/USD

• AUD/USD dropped to threaten 0.7900 during the European am
• Losses influenced by NZD/USD fall on expectations of dovish RBNZ hold
• 0.7892 (Friday’s low after NFP beat) is AUD/USD support level below figure
• Dalian iron ore closed up 3% Monday having been up 7.3% at one stage

NZD/USD

• NZD/USD fell to an 18-day low of 0.7357 during the European am
• Expectations of dovish RBNZ hold this week helping weigh on NZD
• RBNZ survey showed fall in NZ inflation expectations (published 0300GMT)
• RBNZ OCR announcement & MPS Wednesday 2100GMT (9am local time)

FX OPTION EXPIRIES

• EUR/USD 1.1800 (895M)
• USD/JPY 110.80 (1.29BLN)
• GBP/USD 1.3075 (397M), 1.3000 (427M)
• EUR/SEK 9.63 (299M)
• EUR/NOK 9.40 (366M)

COMMENT

Losing spec bets are key to a lower USD/JPY

Speculative positions will continue to weigh heavily on USD/JPY and could see it fall back through the psychologically sensitive 110.00 level. Speculators have been bullish and long USD/JPY all year, taking on larger positions from the end of June. Unfortunately for them, USD/JPY peaked in early July and has headed lower since but they have clung to bad positions and half of those long, around 6 billion dollars, are losing money. A sector that is usually keen to make a quick buck is now likely trying to limit those losses. This should restrict the size of bounces and lead to further downside pressure under 110 and potentially key 2017 lows. Corps and option players who would have initially seen value buying around 110.00 have seen those orders filled and will doubtless look for better value before buying again. This should result in gradually descending USD/JPY ranges and eventually pressure on major 2017 lows, 109.12/108.81 in June and 108.13 April.

CHART

Charts point to potential USD/ZAR reversal

A Doji candle Friday and potential hanging man candle Monday suggest USD/ZAR could head lower–a brave call given the close proximity of the 200-DMA support line. A cloud twist on the horizon at 13.1375 value Aug 14 adds to the bearish argument. Fibo retrace levels off the 12.86 July 27 low and 13.4875 Aug 4 high present bear targets with 13.1738 50% pullback point just ahead of the daily cloud top at 13.1375. The 200-DMA at 13.3595 Monday presents the main hurdle to a price reversal and a bounce off the line could trigger a run back to the 30-DMA upper Bollinger line, currently at 13.5620. The weekly chart shows price stalling ahead of the 13.5181 55-WMA and 13.6250 high from mid-July. Those looking for a deeper pullback can target the base of the weekly range at 12.86

Futuro del peso mexicano 7-8

  • USD/MXN up since Jul 19 despite good Mexican data & ratings news
  • USD/MXN shorts little changed despite rise:
  • This week Banxico rate decision (f/c unch) follows CPI (f/c higher)
  • Softer commodities and then strong US jobs adding to bullish risks
  • 21-DMA @ 17.7370 supports. Resistance @ 18.00 & 55-DMA 18.0420
  • Above 18.05 likely peso longs run for cover, target Jul high 18.4065
 Futuro del peso mexicano 7-8

FX Market Update 4-8

Market Briefs

• EUR/USD +0.08%, USD/JPY +0.02%, GBP/USD +0.14%, EUR/GBP -0.04%
• DXY -0.12%, DAX +0.15%, FTSE +0.02%, Brent -0.75%, Gold +0.11%
• DE Jun Industrial orders m/m, 1.0% vs f’cast 0.5%, prev 1.0% rvsd 1.1%
• BoE’s Broadbent: UK “a little bit” better placed to cope with higher interest rates-BBC
• Broadbent: Brexit-related sterling fall is reason for higher rates of uk inflation
• Japan’s GDP seen expanding for 6th straight quarter on domestic demand
• Nothing cold about sub-zero rates, IMF researchers find
• Oil prices fall as OPEC oil exports rise
• Gold steady near 7-week highs ahead of U.S. jobs data

Looking Ahead – Economic Data (GMT)

• 12:30 CA Employment change (Jul) (mkt +10.0k, prev 45.3k)
• 12:30 CA Unemployment rate (Jul) (mkt +6.5%, prev 6.5%)
• 12:30 CA Trade balance C$ (Jun) ( mkt -1.35 bln, prev -1.09 bln)
• 12:30 US Nonfarm Payrolls (Jul) (mkt +183k, prev +222k)
• 12:30 US Private Nonfarm Payrolls (Jul) (mkt +180k, prev +187k)
• 12:30 US Manufacturing Payrolls (Jul) (mkt +4k, prev +1k)
• 12:30 US Unemployment Rate (Jul) (mkt 4.3%, prev 4.4%)
• 12:30 US Average Hourly Earnings (Jul) (mkt +0.3% m/m, prev +0.2% m/m)
• 12:30 US Workweek Hours (Jul) (mkt 34.5, prev 34.5)
• 12:30 US International Trade (Jun) (mkt -$45.0 bn, prev -$46.5 bn)
• 14:00 CA Ivey PMI (Jul) (prev 63.9)
• 14:00 CA Ivey PMI SA (Jul) (prev 61.6)
• 17:00 Baker-Hughes Oil Rig Count (weekly) (prev 766, +2 w/w, +392 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.375 bn)

Currency Summaries

EUR/USD

• Tight 1.1868-89 range so far Fri as markets await NFP – Reuters poll 183k
• US yields weak, DXY consolidates just above Wed’s 92.548 l/term low
• Thur 1.1830 setback low supports, Bids ahead of Wed/Tues 1.1794/86 lows
• Initial resistance Wed’s 1.1910 30mth high, Little thereafter til 1.20 barrier
• 1.20 could trigger demand toward 50% of 2014-17 slide at 1.2167
• Decent gains for NFP risk premium this week – O/n vol is 8.5/73 pips
• Buyers O/n vol and downside likely hedging cash longs against strong NFP
• 920mln 1.1850 largest expiry today, more surround

USD/JPY

• Daily range just 1.0985-110.18 so far today. 1bln 109.50 option expiry
• USD/JPY support at 55WMA 109.72, not closed below since November
• Little on daily charts until 15/14 June lows 109.28/108.81, 17 Apr 108.13
• Thin 1.1140-56 daily cloud may start to attract, especially if strong NFP
• Thur/Wed hi’s 110.82/98 initial resistance. 1bln 110.95-1.1100 expiries
• Option vols waning and JPY call risk rev bias off highs now 0.85 from 1.1
• O/n vol looks expensive at 8.5/67 pips break even given 33pip daily range

EUR/CHF

• EUR/CHF pivoted 1.1500 thru European am as it consolidates recent gains
• 1.1524 was 31-month high Wednesday (1.1461 = subsequent low)
• 1.1524 = 4.6% above last week’s 1.1009 low (pre-Jordan’s 1.10 view)
• 1.18 & 1.20 among bull targets if the force remains with euro
• Swiss July inflation data due Monday, Swiss jobs data due Tuesday

GBP/USD

• 30DMA marks base of cable’s Friday range-to-date, 1.3130-1.3164
• 30DMA also propped cable after Thursday fall on dovish BoE hold
• 1.3113 = Thursday low. US July jobs report due 1230GMT, NFP f/c 183k
• Offers ahead of 0.9050 have capped EUR/GBP since dovish BoE hold
• 0.9050 = Oct 31 high. Cross revisited Thursday’s 0.9048 high in Asia
• 0.9000 is now a support point (former resistance level)

USD/CAD

• Meagre 19 pip range for USD/CAD during European am, 1.2559-1.2578
• Canada/US jobs reports 1230GMT will expand range. Canada jobs f/c +10k
• Canada jobs beat + NFP/AHE misses could deflate USD/CAD to/thru 1.2500
• Large 1.2500, 1.2550 & 1.2600 option expiries for 10am ET NY cut
• 1.2500 strike = USD 1.1bln. 1.2550 = USD 681mn. 1.2600 = USD 460mn

AUD/USD

• AUD/USD ticked up to 0.7980 European am high after upbeat RBA SoMP
• Offers are tipped ahead of 0.8000 (0.7993 was Wednesday’s high)
• Expected Friday White House announcement on China IP/trade postponed
• US/China trade friction was flagged as factor in AUD drop to 0.7914 Thursday

NZD/USD

• NZD/USD held below 0.7450 through the European am
• 0.7450 was Asia high. 0.7451 was Thursday’s high
• US jobs report due 1230GMT, NFP f/c 183k, AHE f/c +0.3%
• RBNZ is expected to keep OCR at 1.75% next week

FX OPTIONS

• Short dated EUR vols peak in to NFP, O/n USD calls to hedge long cash
• USD/JPY shorter dated vols and JPY calls off highs as downside holds
• GBP/USD vols on the back foot after UK MPC – huge 1.3200-25 expiry
• AUD vols have peaked as spot recovers. CAD vols hold cycle highs pre jobs
• No setbacks for EUR/CHF vols as yet, 4% spot rise still being absorbed

CHART

Charts begin to show recovery for USD/JPY

• Charts begin to show recovery for USD/JPY
• Slow stochs lift fm OS levels. Sppted ahead of lower 30-day Bolli at 109.79
• And also the 55-WMA at 109.72. 109.85 is today’s low
• Thin daily cloud, spanning 111.40/56 today, could attract spot higher
• And also the cloud twist by 111.60 on Monday
• 112.20 is the long target, by Kijun, 200-DMA & July 26 high. Stop at 109.30

Futuro del peso mexicano 4-8

Fitch lifts Mexico’s LT Fgn & local IDRS to stable from negative

* Mex econ shows resilience to lwr oil price, risk of US protectionist policies

* Says eventual NAFTA deal unlikely to undermine Mexico’s access to US mkt

* Mex election uncertainty in 2018 could inhibit investment & growth in ’18

* Fitch Rating headlines

futuro del peso mexicano 4-8

FX Market Update 3-8

Market Briefs

• EUR/USD -0.08%, USD/JPY -0.13%, GBP/USD +0.11%, EUR/GBP -0.18%
• DXY +0.09%, DAX -0.39%, FTSE +0.06%, Brent +0.42%, Gold -0.23%
• ECB says wages, consumer goods holding back inflation: bulletin
• EZ Jul Markit Comp final PMI, 55.7 vs f’cast 55.8, prev 55.8
• EZ Jun Retail sales y/y, 3.1% vs f’cast 2.6%, prev 2.6% rvsd 2.4%
• GB Jul Markit/CIPS serv PMI, 53.8 vs f’cast 53.6, prev 53.4
• DE Jul Markit Comp final PMI, 54.7 vs f’cast 55.1, prev 55.1
• China welcomes U.S. seeking dialogue with North Korea
• In rare bipartisan display, U.S. Democrats back Trump on China trade probe
• China eyes widening yuan band amid reform pressures – sources
• China to report strong July economic data; trade numbers could fuel friction with US
• Japan hopes to hold economic talks with US in October – finmin
• MoF flow data wk-ended July 29 – Japanese again good buyers of for-bonds
• Net Y1.067 trln bought, Y137.4 bln stocks bought too, Y30.7 bln bills sold
• Foreign investors mixed on Japanese assets
• Japan July PMI services 52.0, comp 51.8, June 53.3, 52.9, new orders eased
• Oil up on tighter U.S. market, but OPEC supplies weigh
• Gold prices fall as investors turn to risk assets

Looking Ahead – Economic Data (GMT)

• N/A US Chain Store Sales (Jul)
• 11:30 US Challenger Job Cuts (Jul) (prev 31,105)
• 12:30 US Initial Jobless Claims (w/e Jul 29) (mkt 240k, prev 244k)
• 12:30 US Continued Claims (w/e Jul 22) (mkt 1.955 mn, prev 1.964 mn)
• 13:45 US Markit Services PMI (final Jul) (flash 53.2)
• 14:00 US ISM Non-mfg Index (Jul) (mkt 57.0, prev 57.4)
• 14:00 US Factory Orders (Jun) (mkt +2.9% m/m, prev -0.8% m/m)
• 14:00 US Factory Orders ex-Trans (Jul) (prev +0.2% m/m)

Looking Ahead – Events, Other Releases (GMT)

• 11:00 BoE MPC meeting
• 11.30 BoE Gov Carney press conf
• 15:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $475 mn)

Currency Summaries

EUR/USD

• EUR/USD setback from Wed’s 2.5yr high 1.1910 based 1.1830 early London
• Better than f/cast EZ retail sales for June underpins since, 1.1841-51 after
• US Jobless claims, Factory orders, ISM non manf PMI stand out data later
• Bids touted in to 1.1800. Support Wed/Tues lows 1.1794/86. Tenkan 1.1764
• Little resistance until huge 1.20 barriers, then 1.2167, 50% of 2014-2017 fall
• Option vols at cycle highs, O/n vol pricing 75 pips break even over NFP Fri

USD/JPY

• Range has been 110.56-82 so far. Bids said to be in size sub 110.50
• Trading circa the 110.66 pivot point this session
• More bids likely closer to 110, recall Tue’s 109.92 low on 110 barrier brk
• Larger NY Cut Expiries: 110.00-10 (1B) & 111.75-80 (936M)
• Upside risk grows due to “cloud twist” circa 111.37-39 Thu

EUR/CHF

• EUR/CHF elicited support pre-1.1455 after extending south from 1.1524
• 1.1455 was Monday’s high. 1.1524 = 31mth high Wednesday
• More short positions were squeezed en route to 1.1524
• 1.1524 = 4.68% above last week’s 1.1009 low (before Jordan’s 1.10 view)
• Recent cross surge influenced by German/euro zone economic data beats
• Euro zone June retail sales +0.5% vs +0.1% f/c

GBP/USD

• Cable ascended thru 1.3250 after modest UK service PMI beat
• 53.8 vs 53.6 f/c. 1.3267 = 11mth high after stops above 1.3250 tripped
• EUR/GBP dropped to threaten 0.8922 on modest UK service PMI beat
• 0.8922 = intra-week low. Key resistance 0.90 (option barrier level)
• BoE MPA, MPC minutes & QIR 1100GMT, Carney 1130GMT-1230GMT
• Relatively dovish BoE message could inflate EUR/GBP thru 0.90

USD/CAD

• More shorts squeezed during USD/CAD rise to 1.2618 European am high
• 1.2618 = 2wk peak (1.2452 = Tuesday’s low; 1.2414 = recent 25mth low)
• Canada July jobs data due Friday, alongside July’s US employment report

AUD/USD

• AUD/USD consolidated losses below 0.7941 through the European am
• 0.7941 was Wednesday’s low. 0.7914 = eight-day low in Asia
• US/China trade friction flagged as factor in AUD/USD losses
• Democrats back Trump on China trade probe (Wednesday)

NZD/USD

• NZD/USD revisited 0.7393 in early European trade. 0.7393 = 2wk low in Asia
• 0.7400 option expiry for NY cut, NZD 118mn strike (closest-to-market)
• Next week’s key NZ event risk is RBNZ meeting (Aug 10 local time)

FX OPTIONS

• GBP O/n vols well bid in to BoE MPC and inflation – Cable is 87 pips
• EUR/GBP o/n 55 pips but excludes NFP. EUR/USD o/n vol 15.0/75 pips
• Plenty of US data today, NFP Fri. EUR vols cycle highs, 1.20 barriers eyed
• USD/JPY vols rich vs realised as spot holds mid 110’s
• Commod related vols all higher, AUD, NZD and ACD vols cycle highs

COMMENT

EUR/USD 1.20 knockout could extend the rally

Plenty of talk about large 1.2000 barriers in EUR/USD of late, but a lot of these are RKO triggers attached to EUR call vanilla options in the 1.1600-1.1700 area. If market makers have exposure to these options, then a 1.20 break would leave them net short of gamma with the need to cover. This would trigger a renewed bout of EUR demand as well as another boost for shorter-dated implied vols. It could even be fears of a near-term 1.20 breach that are giving EUR/USD implied vols another lift to cycle highs in London this morning. While there has been talk of profit taking offers above 1.2000, it would seem prudent to gauge the demand for EUR if and when 1.20 breaks, to try and maximise profits on cash longs. If market makers are driven to cover, then there’s no reason why the key 1.2167 – 50% Fibo of 1.3995-1.0340 drop, could not be achieved soon after.

CHART

No respite for USD index, sub-90.00 beckons

The dollar index remains under pressure and looks set for an eventual drop below 90.00. Fourteen-week momentum remains negative as has been the case since March, reinforcing the underlying negative bias and the persistent headwinds facing the dollar. Dollar bears are bracing for a battle circa the 200-WMA at 92.313 and then 91.931, the 38.2% retrace of the 72.696 to 103.82 (2011 to 2017) rise. A close below these levels on a weekly basis would pave the way to 88.258, the 50% retrace of the same 72.696 to 103.82 rise. Widening 30-week lower and upper Bolli bands are indicative of the continued increase in statistical volatility, as the lower band is pointing south, reinforcing the underlying negative skew. Only a sustained recovery above last week’s 94.285 peak will reverse the trend.