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US FX Market Open – Friday, October 7, 2016: Sterling on express elevator to basement

Posted by Marge Maresca on Oct 7, 2016 7:44:19 AM

 

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Overnight Events

• GBP/USD -2.6%, EUR/USD -0.25%, USD/JPY -0.13%
• DXY +0.12%, FTSE +0.9%, Brent +0.3%, DAX -0.02%
• GBP/USD fell around 9% from 1.2610 to a revised low of 1.1491
• Big cable option structures cleared away by the fall
• -Recovery equally as swift to 1.2484 before consolidation wound licking
• Much debate on cause but stops would have figured heavily
• EUR/GBP climbed to 0.9403 from 0.8839
• HSBC f/cast GBP fall to parity vsw EUR by end -2017: Matches UBS
• BoE says looking into cause of sharp fall of Sterling overnight Rtrs
• UK Hse prices +5.8% 3-mths to Sept, RTrs Poll 5.8%
• Blair hints at return to frontline politics to save Brexit Britain
• Deutsche Bk shares up 2.1% at 12.29
• BoJ Gov Kuroda calls for quick solution to EZ banking woes
• ECB ChiefEcon Praet – ECB committed to keeping policy ultra-easy – Rtrs
• France Pres Hollande – EU must be tough after UK opts for hard Brexit – FT
• IMF – US rate hike could disrupt Asian capital flows

Currency Summaries

EUR/USD 
• EUR/USD slow going ahead today's NFP release
• EUR/GBP demand seen mainly behind EUR/USD lift today
• Europe 1.1105 to 1.1142 after Asia 1.1110-1.1152
• Vols slightly higher as a consequence of GBP dump
• Still O/N ATM straddle only priced @ 72 pips for today
• Close below 200-DMA 1.1167 weighs. Focuses Aug's 1.1046 low

USD/JPY
• USD/JPY stuck in 103.54-104.03 range with Japanese exporters on top
• While bias remains on upside, in a holding pattern ahead of US NFPs
• Stops are clustered above 104.20
• Technical outlook is for 104.46/105.62 Fibo levels initially
• 104.46/105.62 - 61.8%/76.4% of 107.49 to 99.55 (July-Aug) fall
• Importer/investor still in dip-buy mode
• Cloud supports between 102.39-103.25, this will likely limit downside

EUR/CHF
• EUR/CHF relative stability despite Sterling chaos
• Cross plays a marginally bearish 1.0911-1.0934 range
• GBP/CHF hit an indicated 1.1792 low from 1.2349 Thurs low
• USD/CHF new recent 0.9831 high before relaxing to 0.9815
• Technically spot now clear above 200DMA at 0.9796
• Swiss reserve data highlights on-going SNB CHF action
• Chart: 1) http://reut.rs/2dxsWjQ   2) http://reut.rs/2dxtmXe

GBP/USD
• GBP/USD met fresh headwind pre-1.25 in early Ldn trade
• 1.2478 = Ldn am high, 1.2484 = high in Asia after flash crash drop to 1.1491
• 1.1491 = 31yr low. GBP sold afresh ahead of NY open, to 1.2227 low
• EUR/GBP rose two pence after threatening 0.8900 early Europe
• 0.9403 was 7yr high in Asia as GBP tanked. 0.8850 was Thursday high

USD/CAD

• USD/CAD has risen to threaten 1.33 pre-US/Canada jobs data
• 1.3297 = 7mth high. 1.3246 was Asia high. Canada employment f/c +10k

AUD/USD  
• AUD/USD respected its 0.7561-0.7590 range thru the European am
• 0.7595 & 0.7600 option expiries for NY cut, cumulative A$670mn strikes

NZD/USD
• NZD/USD revisited 0.7125 during the European am
• 0.7125 = 2mth low in Asia. 0.7169 was Asia high

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)

• Vols higher across the board – especially gamma/short dates
• O/n premiums increase, not so much NFP risk but broader uncertainty
• GBP vols and skew big gains after massive GBP hit in Asia, swings since
• 1mth vol 10.2 to 14.5, 12.4 setback then 13.25
• EUR/GBP vols also sharply higher – slightly lagging Cable curve however
• 1mth Cable risk reversals now double the 0.8 GBP put premium seen of late

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

• 12:30  CA Sept Jobless rate mkt 7.0%, 7.0% prev
• 12:30  CA Sept Participation rate 65.50% prev
• 12:30  Nonfarm Payrolls Sep mkt +176k, prev +151k
• 12:30  Private Nonfarm Payrolls Sep mkt +168k, prev +126k
• 12:30  Manufacturing Payrolls Sep mkt -1k, prev -14k
• 12:30  Unemployment Rate Sep mkt 4.9%, prev 4.9%
• 12:30  Avg Hrly Earnings Sep mkt +0.2% m/m, prev +0.1%
• 12:30  Workweek Hours Sep mkt 34.4, prev 34.3
• 14:00  Wholesale Inventories Aug mkt 0.0% m/m, prev 0.0%
• 14:00  Whoelsale Sales Aug prev -0.4% m/m
• 17:00  Baker-Hughes Oil Rig Count
• 19:00  Consumer Credit Aug prev $17.11 bln
• 20:00  Treasury STRIPS

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

• 14:30  Fed Vice Chair Fischer speech at IIF annual meeting; Washington, DC
• 15:45  FedTrade operation 15-yr Fannie Mae/Freddie Mac max $600 mln
• 16:30  FRB Cleveland's Mester  Shadow FOMC fall meet; New York, NY
• 19:00  FRB Kansas City's George  U.S. econ o/l at IIFl meet; Washington, DC
• 20:00  Fed Gov Brainard  block chain at IIF  meet; Washington, DC

 

Topics: US FX Market Open

 

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