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US FX Market Open – Friday April 28, 2017: EUR rallies on EZ inflation beat

Posted by Marge Maresca on Apr 28, 2017 7:20:34 AM

eur12-316.png

Overnight Events

• EUR/USD +0.6%, USD/JPY +0.2%, GBP/USD +0.3%, EUR/GBP +0.3%
• DXY -0.3%, DAX +013%, FTSE -0.3%, Brent +0.5%, Iron ore +4.5%
• Euro, bond yields & stocks rise afyer EZ inflation beats f/c - Rtrs
• EZ Apr Inflation, flash 1.9% y/y vs prev 1.5%. 1.8% f/c
• EZ Mar Money-M3 annual growth 5.3% vs prev 4.7%. 4.7% f/c
• DE Mar Import prices -0.5% m/m, 6.1% y/y vs prev 0.7%/7.4%. -0.1%/6.5% f/c
• GB Apr Nationwide house prices -0.4% m/m, +2.6% y/y vs prev -0.3%/3.5%. 0.1%/3.3% f/c
• GB Mar Mortgage approvals 41.061k vs prev 42.247 rvsd
• GB Q1 GDP prelim +0.3% q/q, +2.1% y/y vs prev 0.7%/1.9%. 0.4%/2.2% f/c
• Swiss KOF indicator falls to 106.0 in April vs 107.8 f/c. Mar rvsd to 1.07.2
• Swiss National Bank could take negative rates deeper - Jordan - Rtrs
• Norway central bank survey shows output developing roughly as expected - Rtrs
• Norway shaves 2016 government deficit to 2.6 pct of oil fund - Rtrs
• Swedish cbank opposes plans for reduced FX-reserve - Rtrs

Currency Summaries

EUR/USD
• EUR/USD rallies to 1.0947 as focus immediately reverts to ECB policy shift
• EZ M3 jumps to 5.3%, highest since 2009: http://reut.rs/2oP7Exy
• Eurozone CPI 1.9% yy vs 1.8% f/c, core 1.25 from 1%
• Hedging of EUR 5bln 1.0900-50 vanilla options expiries providing drag
• Focus turns to Q1 US GDP data which is f/c a measly 1.2%
• Low f/c may risk a beat/USD rebound. 1.1000 now critical EUR/USD

USD/JPY
• USD/JPY has traded a range of 111.07-111.53 so far
• Decent Japan importer demand again @Tokyo fix, month-end & Gotobi Sunday
• UST-JGB yield spread 30/60-day correlation significant across the curve
• Bidding interest still on dips from importers, some option-related too
• Decent supply @111.82 - 50% retrace of 115.51 to 108.13 fall
• Weekly tenkan line currently also resides @111.82. 111.78 was Wed's high
• Close in relation to weekly cloud 111.39 top important for direction

EUR/CHF
• EUR/CHF lifts from Asia 1.08000 low to 1.0843 in Europe
• Cross was helped higher first by Jordan and then EUR after infl data
• Swiss KOF indicator falls to 106.0 pts in April vs f/c of 107.80
• Barometer holds above long term average despite the decline
• Jordan says can lower negative rates further/buy more ccy if needed
• Reiterates CHF is significantly overvalued. SNB is exp to remain vigilant
• USD/CHF a little lower, plays 0.9954 to 0.9895 in Europe
• Broken below the last three day's lows by 0.9920

GBP/USD
• GBP/USD scaled 7mth peak of 1.2957 during Europe am as more GBP shorts squeezed
• 1.2915 was low after UK Q1 GDP miss at 4.30am ET (1.2915 was Asia high)
• Offers expected near 1.3000 (mooted option barrier level)
• EUR/GBP rose to 0.8460 after higher than expected EZ inflation data at 5am ET
• Cross revisited 0.8412 (Asia low) before UK Q1 GDP miss. 0.8416 = Thursday’s low

USD/CAD
• USD/CAD met headwind just shy of 1.3670 after catching early Europe bid
• 1.3670 was Thursday’s 14mth low. 1.3633 = low since 1.3670 threatened
• 1.3612 = pullback low from 1.3670. Canada GDP data 8.30am ET, Feb GDP f/c flat

AUD/USD
• AUD/USD notched an intra-day peak of 0.7485 during the European am
• Rise influenced by Dalian iron ore closing up 4.5% Friday. 0.7462-0.7479 = Asia range
• 0.7492 (last week’s low/Thursday’s low) is a resistance level

NZD/USD
• NZD/USD eased to an intra-day low of 0.6862 during the European am
• 0.6871-0.6890 was Asia range. AUD/NZD rose to threaten 1.09 during European am
• 1.0900 = Apr 5 high. 1.0965 (Mar 31 high) & 1.1000/20 resistance beyond figure

Comment

EUR/USD Options coverage thinner above 1.10
DTCC charts show a pick up in demand for EUR/USD options above 1.1000 this week http://reut.rs/2pst0or. The market has been EUR bearish for a long time and existing topside coverage, whilst not non-existent, is certainly a lot thinner than many dealers seem comfortable with - chart shows current topside positioning via options http://reut.rs/2oP7DcU. Barriers reside at 1.1000, thus any break will see the usual associated short gamma covering to help extend gains above. A 1.10 break should also see more short positions pared and turn near dated risk reversals for EUR calls, fuelling demand for implied vols. Shorter-dated vols are under pressure since France's first round election and ECB and offer potential value for those looking for a 1.10 break as they begin to find a floor. One-week atm straddle at 8.0 has a breakeven of 96 pips, or half that for a EUR call. One-week 1.10 costs 25 pips while 1-month 1.10 costs 83 pips (spot reference 1.0935).

Today’s events

Option Expirations (Source:ThompsonReuters)

An expiring FX option heading into the New York Cut, if close enough to the strike price, can act as a magnet for selling/buying.  If the option is large, it can generate enough trading to move the market.  

• Relative calm in to plethora of holidays – EU/UK and Japan  Golden week
• EUR/USD vols find floor as 1.1000 back in focus, but 5bln 1.0900-50 expiries contain
• Cable vols lows since late 2015, 1.30 barrier breach should bring back buyers
• 1mth USD/JPY vol back at Mon’s 8.5 post French vote low, JPY calls offered
• AUD vols back near 2 year lows, but CAD vols hold firmer levels with spot for now

Economic Data (GMT) - (Source:ThompsonReuters)

• 13:30 Real GDP (Q1) mkt +1.1% q/q AR, prev +2.1% q/q AR
• 13:30 Real Final Sales (Q1) mkt +1.3% q/q AR, prev +1.1% q/q AR
• 13:30 Core PCE Deflator (Q1) mkt +2.0% q/q AR, prev +1.3% q/q AR
• 13:30 Employment Cost Index (Q1) mkt +0.6% q/q AR, prev +0.5% q/q AR
• 13:30 Wages (Q1) prev +0.5% q/q AR
• 13:30 Benefits (Q1) prev +0.4% q/q AR
• 13:30 Strike Report (Apr) (prev none
• 14:45 Chicago PMI (Apr) mkt 56.5, prev 57.7
• 15:00 U of Michigan Consumer Sentiment Index (fApr) mkt 98.0, prev 98.0
• 15:00 U of Michigan Current Conditions Index (fApr) mkt 115.0, prev 115.2
• 15:00 U of Michigan Expectations Index (fApr) mkt 87.0, prev 86.9

Events, Other Releases (GMT) - (Source:ThompsonReuters)

• 16:45  FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.6 bn)
• 18:15  Fed Governor Brainard on FinTech; Washington, DC
• 19:30  FRB Philadelphia's Harker on "How STEM Can Get You Anywhere"; Washington, DC

 

Topics: US FX Market Open

 

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