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US FX Market Open – Monday, January 16, 2017: Sterling again hits the Brexit rocks

Posted by Marge Maresca on Jan 16, 2017 7:32:45 AM


Currency Summaries

• GBP/USD -0.9%, USD/JPY -0.3%, EUR/USD -0.5%
• DXY +0.26%, DAX -0.55%, Brent +0.15%, Iron +7.2%, Gold +0.45%
• Sunday Times said UK ministers expect UK Supreme Court ruling on Article 50 Jan 23
• Spokeswoman for British PM May says talk of hard Brexit is speculation Rtrs
• Swiss sight deposits mixed: Domestic bks fall, total rise in latest week
• UK set to choose sharp break from European Open – Sunday/New York Times
• UK’s May to urge national unity amid reports of “hard Brexit” – Rtrs
• UK likely to leave single market unless May performs a volte face –M.Wolf FT
• Trump says Brexit to be a great thing, wants quick trade deal with UK – Rtrs
• BOJ offers brighter view on regional Japan economies - Rtrs
• Baker McKenzie - UK M&A to drop sharply in ’17 as invs await Brexit clarity – Rtrs
• CFTC IMM CTA – Specs cut USD longs latest wk, EUR shorts 65.8k smallest since Jun
• China CASS Xiao - Should stop intervening in FX and let CNY float – China SJ
• S.Korea Vice FinMin Choi – Watching FX volatility closely – Rtrs
• ESM Regling – Brexit bigger problem for UK than rest of Europe – Rtrs
• SNB ViceChair Zurbruegg – Negative rates key for monetary policy
• Zurbruegg neg rates will help  head off excessive CHF appreciation - NZZ am Sonntag

Currency Summaries

• EUR/USD led lower by GBP/USD. Hard Brexit risk both sides
• EUR/USD 1.0580 low just shy Jan 12 low @ 1.0572
• 200-HMA also 1.0573:
• 55-DMA defining resistance, no close over:
• 21-DMA key downside @ 1.0500. Jan 11 low 1.0454. Jan 3 low 1.0340
• US holiday. Few expiries of note. EUR 433lln @ 1.0575

• Hard Brexit" fears leads to GBP/JPY sell off from 137.50
• Weak GBP/JPY has put pressure on a vulnerable USD/JPY
• Recent double top in USD/JPY above 118s continues to weigh
• Nikkei futures trades in line with USD/JPY. 48/72H correlation +0.73/+0.74
• USD/JPY range has been 113.61-114.80
• Has traded circa 114.00, but only 575M 114.00 NY Cut Expiries
• Note there are 3.6B 115.00 strikes set to expire at NY cut which could draw
• EUR/JPY range has been 120.77-121.65 so far

• Spot posted a bullish signal, candle hammer, Frid and hits 1.0134 high today
• Traction soon lost and softer bias taking hold: Chart:
• USD/CHF plays 1.0094-1.0134 and cross 1.0710-1.0738
• EUR/CHF trying to maintain bull bias but again advantage small and fading
• Swiss sight deposits mixed: Domestic fall, total rise
• Cross rose 0.2% last wk but struggles to hold a bid: Chart:
• SNB's vice pres says negative rates key for monetary policy

• GBP/USD dropped to threaten 1.1981 again in early Ldn trade
• 1.1981 = 61.8% of 1.1491-1.2775. 1.1983/87 = Asia/early Ldn lows
• Recovery rally topped out at 1.2085 (early Asia low)., 1.2175 = NY close Friday
• Gap/subsequent drop thru 1.20 courtesy of “hard Brexit” speculation
• Speculation in UK Sunday newspapers ahead of May’s Brexit speech Tuesday
• Corporate buying of GBP flagged as factor in EUR/GBP fall from 0.8853-0.8768
• 0.8853 = early Ldn 2mth high. 0.8850 = Asia high/1.13 GBP/EUR. 0.8767 = Friday high

• USD/CAD elicited support circa 1.3100 in Asia: 1.3102 = 200DMA
• 1.3126-1.3154 was European am range. BoC seen on hold Wednesday
• Quarterly BoE MPR and subsequent Poloz press conference in focus

• AUD/USD held below 0.7500 (100DMA/200DMA) through the European am
• 0.7458 = European am low. 0.7459 was Friday’s low
• Cumulative yard of 0.7470/75 option expiries for NY cut

• NZD/USD met fresh headwind just shy of 0.7150 in Asia, 0.7149 = session high
• 0.7142/44 = Thursday/Friday double-day high. 0.7146 = 100DMA
• 0.7077 = European am low. 0.7072 was Friday’s low (after 0.7142)

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)

• GBP gamma at the fore as GBP suffers in to PM May speech Tues
• Tues’ Cable vol 30.0/150 pips, 1wk 18.0/246 pips, 1mth 13.3 vs 11.0 Thur’
• EUR/GBP O/n vol 27.0/100 pips, 1wk 16.5/160 pips. 1mth 12.2 vs 9.8 Thur’
• EUR/USD 1wk vol 11.0/128 pips over ECB. 1mth off lows on weaker spot
• USD/JPY spot volatility and d/side fears keep vols near cycle highs

Looking Ahead: Economic Data

• US Holiday, no US or Candian data scheduled

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

• 18:30 UK: BoE Governor Carney due to speak at London School of Economics


Topics: US FX Market Open


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