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US FX Market Open – Monday June 19, 2017: Oil prices slip as U.S. rigs rise, demand growth falters

Posted by Marge Maresca on Jun 19, 2017 7:28:58 AM


Overnight Events

• EUR/USD flat, USD/JPY +0.11%, GBP/USD +0.13%, EUR/GBP flat
• DXY -0.02%, DAX +0.82%, FTSE +0.55%, Brent +0.36%, Gold -0.16%
• Van rams worshippers leaving London mosque, injuring 10
• Britain seeks "special" EU ties as Brexit talks start
• Real victory will be in 5 years, says Macron camp after election win
• UK households turn gloomier as inflation bites -survey
• May trade deficit Y203.4 bln, Y76.0 bln surplus eyed
• Exports +14.9% y/y, imports +17.8%, +16.1% and +14.8% eyed
• Exports best since ’15, to US +11.6%, China +23.9%, Asia +16.8%
• May crude oil imports -13.5% y/y, LNG +13.0%, thermal coal -10.8%
• China's month-on-month home price growth remains robust in May
• Oil prices slip as U.S. rigs rise, demand growth falters

Currency Summaries

• EUR/USD-Slow trade pivoting on 1.1200. EUR 650mln expiries 1.1200
• European range 1.1183-07. Asia 1.1183-15
• Slightly more bullish picture than end last week when NA 1.1157-02
• Two consecutive sessions closing below 21-DMA a warning for EUR bulls
• EUR longs have risen even further:
• However, recent i/rates moves support EUR/USD:

• USD/JPY may find it harder to make further near-term gains
• Spot by kijun line which has slipped to 111.33
• Decent offers remain at 111.50, recall 111.42 was high Fri
• Range has been 110.80-111.21
• 798M worth of NY cut strikes which are likely to anchor spot
• 30/60D correlation between USD/JPY & UST/JGB spread curve significant

• Cross a little softer at the start of a new week. 1.0908-1.0874 Europe
• Bids are tipped at 1.0870. Sppted above the rising cloud, 1.0816-1.0857
• Swiss domestic sight deposits rise w/e Jun 12. Total also up
• EUR/CHF firmer last wk. Data suggests SNB may have had some influence
• USD/CHF lower. Fri closed bearishly after fail to match Thurs 0.9770 peak
• Spot now close to 38.2% Fibo at 0.9710. 0.9713 is the current low
• 0.9710 = 38.2% of June's 0.9614-0.9770 rise. 21-day MA below at 0.9706

• Cable met headwind pre-1.2820 after extending north from 1.2749 (Asia low)
• 1.2820 = June 14 high (1.2828 = rally high from 1.2705 June 8 exit poll low)
• Sunday Times piece on TFS/BoE rate hike risk = source of support for GBP
• Newspaper said TFS end could pave way for BoE hike "as soon as August"
• Brexit negotiations underway (Monday). Hammond/Carney speeches Tuesday
• Talk that a German name has gone short GBP/USD, stop 1.2970, target 1.25

• USD/CAD rose to 1.3252 early Europe high before WTI rallied to 45
• 1.3211-26 was Asia range. WTI sub-45 since breaking below level June 14
• IMM CAD shorts reduced by 5,617 contracts to 115,376 in week thru June 13
• Net CAD short position 88,595 vs 99,109 record high last month
• USD/CAD fell sharply after hawkish steer from BoC's Wilkins June 12
• Canadian bank tips 25bp BoC hike in Q4 + two more BoC hikes in H1 2018

• Option-related bids around 0.7590 helped base AUD/USD drop from 0.7616
• Huge 0.7590 option expiry for NY cut, AUD 2.2bln strike
• 0.7616 was rally high from 0.7608 early Europe low. 0.7615-29 = Asia range
• More bids tipped at 0.7580 & 0.7570. Offers touted at 0.7630

• NZD elicited fresh support pre-0.7250 after falling from 0.7298 (Asia high)
• 0.7252 = European am low. 0.7253 was Asia low (before rise to 0.7298)
• US name said sell NZD/USD as its trade of the week, stop 0.7330, target 0.71
• RBNZ is expected to keep its OCR at 1.75% this week


EUR/USD in 1.10-15 range ahead Sept CB meetings
Further consolidation may see EUR/USD hold close to 1.11-14 with a move beyond 1.10-15 unlikely ahead of meetings in September. A growing net long position means the risks within any range are tilted down. Since May 30, EUR/USD has traded 1.1110-1.1296. Most of the EUR 2 billion added to the net spec long position since end-May are making little, if any, money. The net position is near EUR 10 billion. Traders who saw quick profits in March/mid-May may get bored of current directionless churning within 1.11-1.13 which may prompt profit-taking. Option vols are sinking and sales of euro to fund carry trades are inevitable. Bullish techs are cooling after two consecutive closes below the 21-DMA but dips remain shallow so encouraging longs to hold. More ranges close to 1.11-13 are likely. Any break up will be constrained by the already large long position and big optionality at 1.14 and 1.15. Moves under 1.10, the upper-end of Feb/April range look unlikely.

Chart - (Source:ThompsonReuters)

USD/CAD recovery capped
USD/CAD risks an eventual drop below 1.3165 which would pave the way to the psychological 1.3000 level. The market staged a recovery from last Wednesday's 1.3165 low, but this was capped at 1.3308 on Thursday, a few ticks shy of 1.3313, 23.6% retrace of the 1.3793 to 1.3165 (May to June) fall. The 10- and 30-DMAs are bearishly aligned, reinforcing the overall offered bias. Fourteen-day momentum remains negative, which is another sign that the risk remains skewed to the downside. Ordinarily, with the market trading close to the 30-day lower Bolli band currently at 1.3208 would signal an overbought situation, but this is mitigated to some extent as the Bolli band is pointing south. A break above 1.3313 will unmask the 200-DMA, which is currently at 1.3340. A close above the 200-DMA would signal a more significant recovery is underway. Chart:

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.  

• EUR/USD: 1.1150 (491M), 1.1160 (633M), 1.1200 (640M), 1.1250 (1.65B)
• EUR/USD: 1.1310 (521M). AUD/USD: 0.7590 (2.1B)/ USD/CAD: 1.3215 (275M)
• USD/JPY: 110.00 (860M), 110.40 (450M), 111.00 (798M), 111.15/20 (815M)

Economic Data (GMT)

• No major releases scheduled

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

• 12:30 FRB New York's Dudley speaks at business roundtable meeting; Plattsburg, NY
• 18:30 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.35 bn)
• 23:00 FRB Chicago's Evans before Money Marketeers of NYU; New York, NY


Topics: US FX Market Open


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