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US FX Market Open – Monday, March 6, 2017: EUR/CHF likely EUR driver in Europe

Posted by Marge Maresca on Mar 6, 2017 7:33:16 AM


Overnight Events

• EUR/USD -0.3%, USD/JPY -0.3%, GBP/USD -0.3%, DXY +0.05%         
• DAX -0.5%, CAC -0.5%, FTSE -0.4%, Brent -0.5%, Gold -0.2%, Copper -0.9%
• EUR/CHF rises to 1.0722, its highest since Jan 26
• EUR dips after Juppe says won't be election candidate
• Politics 'tightening grip' on financial market behaviour - BIS - Rtrs
• EZ Mar SENTIX Index 20.7 VS prev 17.4. 18.5 f/c
• SNB domestic deposits rise to 471.479bln w/e Mar 3 fm prev 470.161bln
• SNB earned CHF 1.5 bln from negative rates in 2016 - Rtrs
• Greece turning a page, poised to show strong growth-PM - Rtrs
• Iron ore prices 'could drop 30pc' - Sydney Morning Herald
• North Korea fires four ballistic missiles into sea, angering Japan and South - Rtrs

Currency Summaries

• EUR/USD spikes to 1.0640 early in European session
• Likely SNB influenced as rally coincided with EUR/CHF jump
• As soon as stops through 1.0630-40 are filled, pair comes lower
• French election risk then weighs. Juppe won't be an election candidate
• EUR 3.4bln vanilla option expiries may anchor/attract today

• Risk off environment pushed USD/JPY from 114.13 to 113.56
• Nikkei futures 48/72H log correlation with USD/JPY +0.57/+0.59
• Market found support just below 113.58 fibo level
• 113.58 - 38.2% retrace of the 111.69 to 114.75 rise
• Said to be support ahead of 113.50, some of which are option related
• NY Cut Expiries: 114.00 (2.3B), 115.00 (2.6B)

• Decent buying of EUR/CHF since Fri, rally extends to new 1.0722 high
• Cross supported by SNB. Sight depo data highlights C/B action
• Lower after EUR/USD dipped on news Juppe won't be a election candidate
• USD/CHF sidelined in Europe, chop below 1.0100. 1.0098/73 range

• GBP/USD fell to 1.2249 after threatening 1.23 in early Ldn trade
• 1.2300 was Asia high & pre-weekend rally high from Friday’s 1.2215 low
• EUR/GBP scaled a 7wk peak of 0.8669 during the European am
• Looming Article 50 trigger is helping weigh on GBP
• French name went long on Friday, targeting 0.92

• USD/CAD based a pip shy of 1.3372 after retreating from 1.3414 (early Ldn high)
• 1.3372 was pre-weekend pullback low from 1.3437 (Friday’s 2mth high)
• Quarter-yard 1.3400 option expiry for NY cut

• AUD/USD threatened 0.7610 after vaulting 0.7600 during European am
• 0.7610 bids were digested before sub-0.76 stops were tripped Mar 2
• 0.7543 was 5wk low Friday. RBA seen on hold at 10.30pm ET
• AUD/NZD scaled 10mth peak of 1.0817 in Asia after tripping stops above 1.08

• NZD/USD met fresh headwind pre-0.7050 after firming from 0.7008 (Asia low)
• 0.7048 was pre-weekend rally high from 0.7003 (Friday’s 7wk low)
• Break below 0.70 could open door to 0.6962 (Jan 11 low)


One way or another, being short EUR should pay off. Contrary to expectations, EUR/USD has again based around 1.05. There is no apparent reason for the pair's resilience though CFTC data reveals specs have been covering shorts for almost two weeks. Should the obvious long dollar trade not immediately pay off on the strong U.S. economy, higher U.S. rate combination, then it is likely an environment will evolve that still favours EUR shorts. The alternative is likely to be centred on a wait and see approach to Fed policy with the stronger U.S. economy underpinning stocks and risk appetite. Given its ultra cheap funding, this should weigh heavily on the euro. The paring of EUR/USD shorts is currently pushing euro to more favourable levels to enter EUR-funded carry trades. Quieter markets that suit carry trades are already apparent with one-month EUR/USD vol now close to the low of the last two years.

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.  

• Vols hit hard even before Yellen Friday and remain heavy
• Recent USD gains failing to take spot markets out of recent ranges
• EUR/USD 1mth new low since Nov, USD/JPY 1mth since US election
• GBP/USD 1mth matches Septembers post Brexit low since Jan 2015
• Even French election (3mth vol and EUR puts) much lower
• N/term focus now on ECB and NFP, but risk premiums are tame  

Economic Data (GMT) - (Source:ThompsonReuters)

• 15:00  Factory Orders (Jan) mkt +1.2% m/m, prev +1.3% m/m
• 15:00  Factory Orders ex-Trans (Jan) prev +2.1% m/m
• 20:00  Treasury STRIPS

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

• 16:45  FedTrade operation 15-yr Fannie Mae/Freddie Mac (max $450 mn)
• 19:30  FedTrade operation 30-yr Fannie Mae/Freddie Mac (max $1.90 bn)
• 20:00  FRB Minneapolis' Kashkari spks on "A View fm the FRB Minneapolis"; Washington, DC


Topics: US FX Market Open


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