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US FX Market Open – Monday, February 27, 2017: Cautious markets ahead of Trump Tuesday

Posted by Marge Maresca on Feb 27, 2017 7:23:28 AM


Overnight Events

• EUR/USD +0.2%, USD/JPY +0.25%, GBP/USD -0.4%, EUR/GBP +0.5%       
• DAX, +0.03%, FTSE +0.1%, CAC -0.1%, Brent +1.0%, Gold -0.03%
• GBP pressured by possibility of Scottish vote, GBP/USD 12-day low
• EZ Jan M3 annual growth 4.9% vs prev 5.0%. 4.8% f/c
• EZ Feb Economic sentiment 108.0 vs prev 107.9. 108 f/c
• EZ Feb Industrial sentiment 1.3 vs prev 0.8. 1.2 f/c
• EZ Feb Business climate 0.82 vs prev 0.76 rvsd. 0.79 f/c
• EZ Feb Consumer confid final -6.2 vs prev -4.8 rvsd. -6.2 f/c
• EZ Feb Consumer infl expec 14.5 vs prev 14.5
• SNB domestic deposits rise to CHF 470.161bln w/e Feb 24 fm prev 467.99
• Swiss non-farm payrolls rise 0.3 pct in Q4
• LSE, Deutsche Boerse deal in jeopardy as EU set to block - Rtrs
• Buoyed centrist alliance, Macron seen beating Le Pen in French runoff - Rtrs

Currency Summaries

• EUR/USD better bid in Europe Monday but range below Friday's 1.0618 peak
• Europe today 1.0564-1.0591 after Asia 1.0552-82
• Bar consumer confidence EZ sentiment data improving
• Lower French bond yields lead EZ bonds, heat out last week's risk aversion
• Traders cautious ahead Trump speech Tuesday and risk month-end distortion

• USD/JPY dropped to 111.92 in Asia, session high has been 112.39
• Good sized bids between 111.80-90 stemmed losses
• Stops are said to be clustered below 111.80 & 111.50 option barriers
• Supply clustered around 112.50 level, this should stem recovery moves
• GBP/JPY collapsed from 139.95 to 139.05

• EUR/CHF better bid Monday, probing above Friday's 1.0660 peak
• Europe 1.0648-1.0662 building on the Asia bounce from 1.0640
• Sight data indicates the SNB continues to defend the 1.0623 Brexit June low
• USD/CHF off its best. Asia 1.0090 high, Europe 1.0083 to 1.0060
• Range play a theme in cautious market ahead of Trump speech Tuesday

• GBP/USD fell to 1.2384 amid focus on the Scottish question, re: indyref2
• Times says PM May preparing for indyref2 demand to coincide with A50 trigger
• 1.2384 = 12-day low during European am. 1.2392 was Asia low on Times piece
• Scottish indyref2 referendum will only be binding if May gives green light
• EUR/GBP rose to 0.8535 early Europe as Times piece garnered attention

• USD/CAD is trading within strike of 1.3120/25 option expiries for the NY cut
• $420mn strikes. 1.3122 = Asia top, 1.3095 = ensuing pullback low. 1.3123 = 30DMA
• BoC meets Wednesday, unchanged interest rate verdict expected

• AUD/USD met fresh headwind above 0.7700 in Asia after rising from 0.7662
• 0.7670 = Ldn am low. US name said buy AUD/USD at 0.7670 as its trade of the week
• Stop-loss 0.7590, target 0.7825. AUD/USD was last at 0.7825 in Apr 2016

• NZD/USD has traded a 20 pip range since 0300GMT, 0.7190-0.7210
• Trump to address Congress Tuesday, Yellen to speak Friday


ECB – A reminder of Draghi’s inflation script
The data focus this week is on inflation and started with the release from Spain this morning and will culminate in the Eurozone release on Thursday. From a level of 1.8% in January the February flash reading for the Eurozone is likely to come in at 2.0% according to Reuters survey. This potential for further upside was illustrated today with the release of Spanish data which came in at 3% y/y for the first time since end-2012. France and Italy will release inflation data on Tuesday while Germany is on Wednesday to be followed by Eurozone flash inflation data on Thursday. While the headline inflation rate is expected at 2.0% the key focus will be on what the core inflation rate is doing. The headline rate is being impacted by base effects, higher food/energy prices and a weaker euro but the core rate of inflation is likely to remain stubbornly low. An increase to 1.0% on the core rate is likely but this should not be expected to impact the ECB’s script on policy. Draghi has laid out a definition of what is needed on inflation to justify the start of tapering highlighted the need to watch inflation over the medium term, that any rise should be durable, self-sustainable, and for the whole of Eurozone.

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)

• Focus on Trump speech Tuesday and Yellen Friday – underpins related gamma
• Low realised/range bound spot caps most vol curves for now
• 2mth-3mth EUR vol/puts propped by French election, EUR/JPY stands out
• 3mth EUR/JPY risk reversals highest downside bias in years (5.0 EUR puts)
• Cable spot setback lends support to front end vols. AUD/USD vol 2yr lows

Economic Data (GMT) - (Source:ThompsonReuters)

• 13:30  Revised Building Permits (Jan) prev 1.285 mn SAAR
• 13:30  Durable Goods Orders (Jan) mkt +1.9% m/m, prev -0.5% m/m
• 13:30  Durable Goods Orders Ex-Trans (Jan) mkt +0.5% m/m, prev +0.5% m/m
• 13:30  Core Capital Goods Orders (Jan) mkt +0.4% m/m, prev +0.7% m/m
• 15:00  Pending Home Sales Index (Jan) prev 109.0, +1.6% m/m
• 15:30  Dallas Fed Texas Manufacturing Outlook Survey (Feb) prev 22.1

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

• 16:00  FRB Dallas' Kaplan participates in moderated discussion; Norman, OK
• 16:45  FedTrade operation 30-yr Fannie Mae/Freddie Mac (max $2.425 bn)
• 20:00  New York Fed publishes tentative outright Agency MBS operation schedule


Topics: US FX Market Open


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