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US FX Market Open – Friday June 16, 2017: Two-week low for Yen on BOJ status-quo

Posted by Marge Maresca on Jun 16, 2017 9:59:10 AM


Overnight Events

• EUR/USD +0.28%, USD/JPY +0.35%, GBP/USD +0.09%, EUR/GBP +0.16%
• DXY -0.08%, DAX +0.32%, FTSE +0.66%, Brent +0.79%, Gold +0.22%
• BOJ kept monetary policy steady, rules out early exit from stimulus
• China plans fresh incentives to support green financing
• ECB's Villeroy says bank capital talks must be wrapped up
• Russia's military says may have killed IS leader Baghdadi
• British PM faces mounting criticism over London tower block blaze
• EZ May Inflation final mm -0.1% vs prev 0.4%
• EZ May Inflation final yy 1.4% vs prev 1.4%
• Oil prices bounce but stuck near 2017 lows on supply overhang
• EUR/JPY back over 21-DMA at 124.17 for first time in near 2-weeks
• A thin daily Ichimoku cloud 111.82-112.21 may attract USD/JPY

Currency Summaries

• EUR/USD inches higher from in Europe, range 1.1139-84
• Rise of German yields outstrips UST yields:
• Narrowing rate differentials should underpin EUR/USD
• Impact more visible EUR/JPY which vaults 21-DMA:
• Near 4bln option expiries 1.1180-1.1200, A big magnet and anchor for spot

• Unsurprising dovish comments from BOJ's Gov but JPY dips anyway
• Weaker JPY without fresh news a hint JPY traders not short
• Stocks barely dented by another Fed hike, risk on favours lower JPY
• GBP/JPY climbs above daily cloud base & 55-DMA 141.82/142.07

• EUR/CHF supported ahead of rising cloud, spans 1.0813-1.0857
• Cross lifting again after Thurs drop to 1.0867 and bear close
• 1.0866-1.0881. Wed's high came close to 50% of May-Jun slide 1.0912
• USD/CHF adjustment lower from Thurs 2-1/2 week 0.9770 peak
• 0.9754-0.9729 in London trade. Demand expected to emerge on dips
• Bias stays with bulls. Scope to May 30 high at 0.9808 by 38.2% at 0.9800

• Relatively modest 35 pip range for cable thus far Friday, 1.2752-1.2787
• Offers expected near 1.2800 (55DMA). 1.2795 was Thursday's peak
• Thursday peak scaled after cent surge on 5-3 BoE MPC rate vote shock
• 1.2820 (Wednesday's high) & 1.2828 are resistance levels beyond figure
• Supports 1.2724 (pullback low from 1.2795) & 1.2691 (pre-MPC shock low)
• MPC paper on UK inflation co-authored by outgoing hawk Forbes due 1300GMT

• Large 1.3250 option expiry for NY cut is helping to anchor USD/CAD
• USD 709mn strike. 1.3240-1.3272 = Friday range-to-date
• 1.3222 support, pullback low from Wednesday's post-Fed hike high of 1.3271
• IMM data at 1930GMT for week thru Tuesday may show big fall in CAD shorts
• CAD shorts squeezed hard after Monday's hawkish steer from BoC's Wilkins
• IMM CAD shorts 120,993 in week to June 6, net CAD short near record high

• Monday's huge 0.7590 option expiry is helping to anchor AUD/USD
• AUD 2.2bln strike. 0.7577-0.7604 = Friday range-to-date
• 0.7636 (Wednesday's 9wk high) is key resistance level
• AUD/USD threatened 0.7636 Thursday after strong Australian jobs data
• 0.7568 (Thursday's low & post-Fed hike low) support under 0.7577

• NZD/USD extended north from 0.7185 to 0.7243 during European am
• 0.7185 = Thursday low vs 0.7320 Wednesday 4mth high pre-NZ GDP miss
• AUD/NZD eased to threaten 1.0500 during European am. 1.0538 = Asia top
• 1.0500 = former obstacle. 1.0507 = pullback low from 1.0550 Thursday high
• RBNZ is expected to keep OCR at 1.75% next week
• 14 of 20 economists polled by Reuters see OCR higher by Q3 2018


Can kicking on Greece not enough to satisfy ECB
Given the forthcoming German election in September, it was always a question of what kind of can kicking would happen on Greece as opposed to a comprehensive deal on debt relief. While there may be some relief that a deal has finally been struck to avert a summer of Greek angst, it is not enough to convince the ECB to start buying the country's debt. An ECB source said policymakers still "need to see more clarity on debt to include Greece in the PSPP". So the question of debt relief is once again kicked further down the road. This is a solution that has been favoured for the last few years but is unlikely to see a sustainable fall in Greek bond yields. The IMF still views the assumptions on Greek economic growth and ability to meet primary surplus targets as unrealistic but for now the can has been kicked beyond the German election and into 2018.

Chart - (Source:ThompsonReuters)

Favour a cable cloud fade
Decent recovery from June 9 1.2636 low with price underpinned by the 100DMA, today at 1.2630, but further gains seen limited. Initial resistance points at the daily cloud top, 1.2794, and 55DMA at 1.2801 and backed up by 10DMA at 1.2817 and June 14 top at 1.2820. A 50% Fibonacci retrace level off the June 9 1.2983-1.2636 drop also adds to the barriers at 1.2810. Resistance band argues the case for fading the cloud for a run to the 200DMA at 1.2564 just ahead of the cloud base at 1.2550. The June 9 slide still impacting daily momentum but slow Stochastics are confirming the price recovery. With this in mind would favour a tight stop and reverse at 1.2830. Chart: forex

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.  

• Vols in many of the G10 majors retested/extended long term lows after FOMC
• Some demand since, with low absolute levels proving attactive
• No significant spot moves to drive/maintain demand as yet however
• EUR/USD and AUD/USD vols by 2.5yr lows and USD/JPY 18mth lows
• CAD vols retracing recent gains. Buyers back end GBP vol/puts this week

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30 Housing Starts (May) (mkt 1.215 mn SAAR, prev 1.172 mn SAAR)
• 12:30 Building Permits (May) (mkt 1.250 mn SAAR, prev 1.228 mn SAAR)
• 14:00 U of Michigan Consumer Sentiment Index (prelim Jun) (mkt 97.1, prev 97.1)
• 14:00 U of Michigan Current Conditions Index (prelim Jun) (mkt 111.7, prev 111.7)
• 14:00 U of Michigan Expectations (prelim Jun) Index (mkt 87.5, prev 87.7)
• 14:00 Labor Market Conditions Index (May) (previous change +3.5)
• 14:00 Atlanta Fed Business Inflation Expectations (prev +2.0% y/y)
• 17:00 Baker-Hughes Weekly Oil Rig Count (prev 741, +8 w/w, +413 y/y)

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

• 15:45 FedTrade operation 30-year Ginnie Mae securities (max $950 mn)
• 16:45 FRB Dallas's Kaplan in moderated Q&A with audience and media; Dallas, TX


Topics: US FX Market Open


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