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US FX Market Open – Monday, June 27, 2016: BREXIT CONTAGION FEARS IN THE MIX

Posted by Marge Maresca on Jun 27, 2016 7:53:29 AM

fears.png

Overnight Events

• GBP/USD -3.3%, USD/JPY -0.4%, EUR/USD -0.7%
• DXY +0.13%, DAX -1.5%, Brent +0.08%, Iron +6.0%
• DE Merkel-must act to prevent other countries fleeing EU
• UK Dep. Labour leader, Tom Watson tells Jeremy Corbyn to resign
• Corbyn witnessed weekend shadow cabinet resignations-3-more today
• Osborne-UK public finances would suffer as a result of the vote to leave the EU
• Osborne-New fiscal measures would not be proposed until a new PM in place
• SNB sight deposits sharply higher latest week
• EZ May M3 4.9% vs 4.6% prev, 4.8% exp
• EZ May Loads To Non-Financials 1.4% vs 1.2% prev, 1.2% exp
• Japan PM Abe – Instructed FinMin Aso to take necessary FX steps
• Japan govt mulls boosting stimulus package to over 10 tln yen - Rtrs
• BoJ DepGov Nakaso – No problems so far in market liquidity
• MoF Asakawa – Market trying to find new equilibria – Rtrs
• Ex-BoJ Momma – BoJ can stand pat if Brexit turmoil temporary – Rtrs
• Japan LDP Inada – Bold new steps to stem JPY rise needed – NHK, Nikkei
• IMF Lagarde – Mkt vastly underestimated Brexit vote but no panic –Rtrs
• BIS - Urgent need for global policy action, cites “risky trinity” Rtrs
• BIS- central  banks to smooth Brexit-related turmoil – Rtrs
• Germany CDU Krichbaum – Scotland welcome to join EU – Wa-Sonntag

Currency Summaries

EUR/USD   
• GBP feels the pain of Brexit but EUR/GBP takes all the strain today
• EUR/USD a fairly quiet 1.1015-1.1084 in Europe compared cable -3%
• Close below 200-DMA bearish: http://reut.rs/28X2BIw
• Weaker CNY underpinning EUR: http://reut.rs/28X1Mzc
• Risk Brexit contagion adds to bearish techs for likely fall towards 1.08
• Strong real money buying has underpinned EUR/USD since Friday

USD/JPY
• USD/JPY rose to 101.47 to 102.50 on intervention fears in Asia
• Risk aversion linked to Brexit fallout pushes post lower again in London
• Spot offers in decent size @102.70
• USD/JPY & EUR/JPY trade in tandem. 48/72H log correlations +0.97/+0.96
• EUR/JPY has has been a wide 111.66-113.24

EUR/CHF
• Risk off CHF demand on UK uncertainty: Chart: http://reut.rs/28X1f0n
• SNB sight deposit data confirms Friday's intervention
• Data does not include full extent of Friday's SNB action
• EUR/CHF hit 1.0623 low Friday: Level not seen since Aug 2015
• SNB clearly active and can expect more support/smoothing this week
• Weekly cloud top 1.0785 initial res. and early 1.0715 early low the supp.

GBP/USD   
• GBP/USD has fallen to a fresh 31yr low of 1.3208 amid huge uncertainty
• Uncertainty fuelled by Britain’s vote to leave the EU
• Bear targets include 1.30, 1.25, 1.20 & 1.10 (1.05 was 1985 low)
• EUR/GBP rose by over a penny to a 27mth high of 0.8343
• Bull targets include 0.85, 0.90, 0.95 & 1.00 (0.9805 = euro lifetime high, 2008)

USD/CAD
• USD/CAD eased to a European am low of 1.2995
• There is a 1.3000 option expiry for the NY cut ($214mn strike)

AUD/USD    
• AUD/USD elicited support circa 0.7425 after retreating from 0.7451
• 0.7451 = European am high. 0.7425 option expiry for NY cut, A$561mn strike
• 0.7460 was early Asia high. 0.7385 = Asia low

NZD/USD
• NZD/USD met headwind at 0.71 during the European am
• 0.7045 was Asia low. 0.7040 & 0.71 expiries for NY cut, NZ$252mn & NZ$180mn strikes

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)

• Brexit outcome saw vols spike across the board then ease pre weekend
• Uncertainty keeps a bid under vol curves going forward
• Liquidity still a concern, bid/ask spreads wide, volumes light
• GBP/USD 1mth 12.5-37.0-22.0 Friday and EUR/GBP 1mth 13.0-21.0-19.0
• EUR/USD 1mth 9.2-23.0-13.5 Friday, demand from 12.25 today
• USD/JPY downside fears keep 1mth risk rev’ near 6yr high for JPY calls  

Economic Data(Source:Bloomberg)

june27data-1.png

Topics: US FX Market Open

 

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