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US FX Market Open – Friday, October 21, 2016: ECB FALLOUT SENDS EUR/USD SUB-1.09

Posted by Marge Maresca on Oct 21, 2016 8:03:44 AM

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Overnight Events

• EUR/USD -0.4%, GBP/USD -0.20%, USD/JPY -0.13%
• DXY +0.25%, DAX +0.05%, Brent +0.35%, Iron +0.57%
• UK Sept PSNB GBP 10.118 bln m/m vs 10.327 bln prev, 8.2 bln exp
• UK Sept PSNCR GBP 13.285 bln m/m vs 729 mln prev
• CB officials looking into factors behind Oct 7 Stg crash: Will rpt to BIS
• BoJ Gov Kuroda – Clarifies policy on yield curve targeting Rtrs
• Kuroda – Will continue to implement extremely accommodative policy
• Kuroda – Many CBs think infl. target should be maintained at 2.0%
• German Finance Ministry – Economy solid despite global weakness
• M&G to re-open property portfolio Nov 4
• Portugal govt bond ylds just abv 6-wk lows ahead of key rating reviews
• ECB l/t infl. survey sees 1.8% by 2021, unchanged from last survey

Currency Summaries

EUR/USD   
• EUR/USD sets new 7-month low at 1.0878
• Softer EUR evident since ECB curbed taper talk yesterday
• EUR index sheds near 2% in 10 days: http://reut.rs/2eoWtcs
• Weaker EUR/USD timed with CNY's SDR inclusion: http://reut.rs/2ep1q5h
• EUR rotates towards EUR 2.6 bln vanilla option expiries 1.0900-25
• EUR sellers look to pick tops @ 1.0950, site of prior big option exotics

USD/JPY  
• USD/JPY bulls remain on a strong footing
• Range today has been 103.67-104.20
• As expected USD/JPY remains supported by 102.22-103.52 cloud
• Long gamma down to 102.20, bears will find it tough to make much headway
• Japanese and model names have been buying spot
• Huge bids ahead of 103.00 this week seems to have won out
• Offers said to be circa 104.40/50, note 104.40 has been the peak this week
• If stops above 104.50 are triggered, will put focus on 105.00 option barrier

EUR/CHF
• EUR/CHF new s/t trend low of 1.0824 but bids found
• Rebound to 1.0840 then consolidation
• USD/CHF breaches key 0.9955 level but backs off from 0.9959
• Technically a close above 0.9955 to open up a run to parity
• EUR weakness a Frid theme following on from Thurs post ECB drop
• Chart: 1) http://reut.rs/2edYYS8  2) http://reut.rs/2edNnCz

GBP/USD  
• GBP/USD eased to 1.2222 on bigger than expected UK public finance deficit in Sept
• 1.2256 was early Ldn high. Large 1.2245 option expiry for NY cut, GBP 643mn strike
• EUR/GBP slid through 0.8900 to 0.8888 ahead of the disappointing UK data
• 0.8888 = lowest level since GBP flash crashed Oct 7. 0.8914 = ensuing high

USD/CAD  
• USD/CAD 1.3226-1.3257 was European am range. 1.3257 = 8-day high
• 1.3257 = 2.5 cents above Wednesday low before Poloz said BoC mulled rate cut
• Offers tipped above 1.3300 (1.3307 = Oct 13 high, 1.3315 = 7mth high Oct 7)
• Canada Sept inflation/Aug retail sales data 8.30am ET. Core CPI f/c 1.8% y/y
• Softer than expected core CPI = boost for doves advocating BoC rate cut Dec 7

AUD/USD      
• AUD/USD met early Europe headwind circa 0.7650 after firming from 0.7618
• 0.7618 = 4-day low in Asia. 0.7617 = 10DMA. Bids tipped near 0.7600
• AUD/NZD pushed its recovery envelope from 1.0592 to 1.0662 during European am
• 1.0592 = 10-day low Thursday. Large 1.0650/80 option expiries early next week

NZD/USD
• NZD/USD revisited 0.7161 (Asia low) during the European am as AUD/NZD firmed
• 0.7150 = 50% retracement of recent rise from 0.7035 (Oct 13 low) to 0.7265

Today’s events

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.  

Option Expirations(Source:ThompsonReuters)

• 2.7bln 1.0900-25 EUR/USD expiries help contain spot/cap vol
• EUR/USD long downside exotics and gamma, certainly to large 1.08 barriers
• Rest of G10 vols heavy as spot ranges hold – AUD curve long term lows
• Cable 1mth vol down almost 2.0, EUR/GBP 1.5 this week as GBP settles
• USD/JPY 1mth vol 3.0 lower in 2 weeks – new lows since August  

Looking Ahead - Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30 CA Sept CPI mkt 1.5% y/y, 1.1% prev
• 12:30 CA Sept BoC Core CPI mkt 1.8% y/y, 1.8% prev
• 12:30 CA Aug R.Sales mkt 0.3% m/m, -0.1% prev
• 14:00 EZ Oct Flash Consumer Confidence mkt -8.00, -8.20 prev
• 14:30 US ECRI weekly y/y 8.8% prev
• 17:00 Baker Hughes Oil Rig Count

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

• 14:00 Fed Gov Tarullo "Pedagogy and Scholarship in a Post-Crisis World"
• 15:45 FedTrade operation 30-year Ginnie Mae max $1.375 bln
• 18:30 FRB San Fran's Williams keynote address to FHLB conference; San Fran

 

Topics: US FX Market Open

 

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