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US FX Market Open – Friday May 12, 2017: EUR/USD steady: opt vols at 2.5-yr low

Posted by Marge Maresca on May 12, 2017 7:13:46 AM

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Overnight Events

• EUR/USD +0.1%, USD/JPY -0.2%, GBP/USD -0.2%, EUR/GBP +0.3%
• DXY flat, DAX +0.1%, FTSE +0.2%, Gold +0.3%, Brent -0.2%
• Dollar heads for strongest week this year on Fed hike bets - Rtrs
• EZ Mar Ind production -0.1% m/m, 1.9% y/y vs prev -0.1%/+1.4% rvsd. 0.3%/2.3% f/c
• DE AprCPI final 0.0% m/m, 2.0% y/y vs prev 0.0%/2.0%. 0.0%/2.0% f/c
• DE Q1 GDP flash SA 0.6% q/q vs prev 0.4%. 0.6% f/c
• Germany says will tell U.S. at G7 that the world needs its leadership - Rtrs
• IMF, euro zone say need more time to reach Greek debt relief deal - Lagarde - Rtrs
• NTERVIEW-Risks to euro zone economy still not balanced -ECB's Lane - Rtrs
• Austrian Foreign Minister Kurz calls for snap election - Rtrs
• BOJ's Kuroda: protectionism is no solution for fixing global inequality - Rtrs
• BOJ board member Harada: QQE producing "excellent results" - Rtrs
• Riksbank's Jansson-still worried about fast and big strengthening in SEK

Currency Summaries

EUR/USD
• EUR 1.1024-1.0839 this week but only 1.0898-39 last 3 days
• One-month EUR/USD vol close to 2017 low: http://reut.rs/2r8DHea
• VIX bounces but close long-term lows: http://reut.rs/2pEJYwv
• Stocks at record highs are around the globe: http://reut.rs/2r8ZfYq
• Unwind EUR shorts over & EUR/USD at upper-end 2017 range 1.1020-1.0340
• EUR is a prudent choice for anyone looking to fund a carry trade

USD/JPY
• USD/JPY range has been 113.55-113.95
• Offers are in place above 114.00, some are option-related
• Option mkt seeing buyers of very short dated USD/JPY d-side
• Found support @113.45 when market dropped on Thu on long liquidation
• Market was bid in early Asia on Tokyo fix demand, i-day outlook now mixed
• There are a decent amount of bids said to be circa 113.50

EUR/CHF
• EUR/CHF contained in hourly cloud, 1.0941/58. 100-HMA at 1.0933
• 1.0954-44 range. Pullbk to 1.0931 Thurs on haven flows but limited
• Key downside sppt - 1.0906 is 38.2% Fibo of May's 1.0793/1.0977 rise
• Cross struggled by post Brexit hurdles by 1.10. 1.1010 Brexit wk high
• USD/CHF off its best, 1.0100 peak Thurs. Tight 1.0085-1.0077 Europe

GBP/USD
• Cable elicited fresh support circa 1.2850 after falling from 1.2889
• 1.2889 = early Ldn high. Bids around 1.2850 based Thursday losses
• Asia high was 1.2900, former support level (1.2903 = Tuesday low)
• Cable slid thru 1.29 Thursday after only one MPC vote for rate hike
• EUR/GBP up to 0.8458 during European am after +0.6% German Q1 GDP
• Double UK Q1 GDP: NIESR estimates UK GDP +0.2% 3mths to end-Apr

USD/CAD
• Mooted bids at 1.3680 lending support to USD/CAD: 1.3686 = early Ldn low
• 1.3680 was Thursday's Ldn am low, revisited during North American session
• More bids tipped at 1.3650 (1.3648 was Wednesday's low)
• 1.3700 option expiry for NY cut (closest-to-market), USD 405mn strike
• USD/CAD has respected 1.3643-1.3793 May 5 range thru week-to-date

AUD/USD     
• 0.7400 option expiry for NY cut exerting magnetism over AUD/USD
• AUD 363mn strike. 0.7405 = 4-day high after 0.7372 early Europe low
• 0.7425 resistance (Monday's high). US CPI/retail sales data 1230GMT

NZD/USD
• NZD/USD eyeing 0.6860 after vaulting 0.6848 (Asian session high)
• 0.6860 was Thursday's NY session high. 0.6864 = Ldn am high Thursday
• Bids tipped at 0.6820 (0.6818 = Thurs low) & 0.6800, stops mooted sub-0.68

Comment

Set trade parameters wide for USD/ZAR longs
The broad EM FX rally is providing short-term relief for the rand as underlying negatives remain. Playing USD/ZAR from the long side is the favoured trade while the potential for further political uncertainty hangs over the rand. Though some way off, the ruling ANC chooses a successor to beleagured President Zuma in December and a smooth transition is unlikely given rifts within the party over Zuma's sacking of popular finmin Gordhan. The rand is also ultra-sensitive to fragile commodity markets which are being held to ransom by Chinese data. Growth concerns are a further weight on the rand and associated rating agency scrutiny adds to the negative backdrop. USD/ZAR is currently supported by the 100-DMA at 13.3265 and capped by the 200-DMA at 13.6215. Favour a long play at market 13.4250, for a run through the May 5 13.7125 high targeting 14.00. Stop placement below the 55-DMA, currently 13.2290.

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.  

• Little to inspire G10 vol longs yet - many curve near long term lows
• Even 1mth EUR/USD of 0.75 this week, despite June ECB capture
• Cable 1mth vol targets 2015 lows at 6.3. EUR/GBP vols lows since 2014
• USD/JPY price action suggests market short downside gamma
• AUD/USD vols and AUD put risk rev bias back near recent/2.5 year lows

Economic Data (GMT) - (Source:ThompsonReuters)

• 13:30  CPI (Apr) mkt +0.2% m/m, +2.3% y/y; prev -0.3% m/m, +2.4% y/y
• 13:30  -- CPI Core (Apr) mkt +0.2% m/m, +2.0% y/y; prev -0.1% m/m, +2.0% y/y
• 13:30  Retail Sales (Apr) mkt +0.6% m/m, prev -0.2% m/m
• 13:30  -- Retail Sales ex-Autos (Apr) mkt +0.5% m/m, prev flat m/m
• 13:30  -- Retail Sales Control (Apr) mkt +0.4% m/m, prev +0.5% m/m
• 15:00  Business Inventories (Mar) mkt +0.1% m/m, prev +0.3% m/m
• 15:00  Michigan Sentiment (prelim May) mkt 97.0, prev 97.0
• 18:00  Baker-Hughes Rig Count (weekly)

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

• 14:00  FRB Chicago's Evans on the economy; Dublin, Ireland
• 16:45  FedTrade operation 30-year Fannie Mae/Freddie Mac (max $1.625 bn)
• 17:30  FRB Philadelphia's Harker on the economic outlook

 

Topics: US FX Market Open

 

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