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US FX Market Open – Thursday, April 20, 2017: Euro rises to its best in 3-weeks

Posted by Marge Maresca on Apr 20, 2017 7:40:52 AM


Overnight Events

• EUR/USD +0.5%, USD/JPY +0.15%, GBP/USD +0.5%, EUR/JPY +0.7%
• DXY -0.35%, DAX +0.2%, FTSE -0.1, Copper +1.75%, Gold flat
• EUR/USd rises to its highest since end of March at 1.0778
• Dollar index falls to 3-week low of 99.393
• Gold steadies, supported by weaker dollar, geopolitical concerns - Rtrs
• German Mar PPI 0.0% m/m, 3.1% y/y vs prev 0.2%/3.1%. 0.1%/3.2% f/c
• May to make election pledge to end EU free movement of people into UK - Daily Mail
• Undoing bank regulation is risk to stability, U.S. stance key - Bank of France - Rtrs
• Japan govt raises business sentiment assessment, first time in 4 months - Rtrs
• POLL-Euro zone growth steady but modest - if political status quo remains - Rtrs

Currency Summaries

• EUR finds buyers as bonds erase French election risk
• 10 year French/German yield spread traded 65bp, tightest in 2 weeks
• EUR/USD trades best since end March at 1.0778
• EUR/JPY, sensitive to risk on/off up 2.3% in last 3 days
• Option traders play it safe, cost to hedge EUR downside hugely expensive
• US LEI, Philly & claims due. Strong data recently ignored, soft pounced upon

• USD/JPY range has been 108.73-109.09
• Consolidation persists as market takes pause after recent collapse
• Large amount of expiries around 108.50-65 & 109.00
• Recall market hit new 2017 low @108.13 Mon, leaving 108.00 barriers intact
• Tech outlook negative, watch for eventual 107.86 Fibo break
• Bouts risk aversion should continue to weigh on spot
• Decent supply remains above 109.00, 109.22 was Tue's high

• EUR/CHF dragged higher by EUR/USD, above 1.0700 for 1st time since Apr 4
• Plays 1,0690-1.0716. Brief stall by 100-day MA early Europe short lived
• Rise above the fig unlikely to be sustained given French election event risk
• Above the 100-day MA & Kijun resists, now supports at 1.0706 & 1.0711
• USD/CHF 0.9972-0.9941 Europe. 0.9986 Asia high. Below 200-day MA at 0.9950
• Close below 200-day MA will increase downside sentiment

• GBP/USD rose to an intra-day high of 1.2844 during the European am
• Cable elicited fresh support circa 1.2775 in Asia: 1.2774 = session low
• 1.2770 was Wednesday’s low. 1.2775 = Dec high
• EUR/GBP rose to a European am high of 0.8395 as EUR racked up gains
• 0.8403 (Feb low/1.19 GBPEUR) is a resistance level

• USD/CAD met fresh headwind pre-1.35 after rising from 1.3462 during European am
• 1.3500 option expiries in pipeline, including $1.1bln strike Tuesday (Apr 25)
• 1.3490 was Wednesday’s 5wk high after CAD hurt by oil fall. 1.3496 = Mar 14 high
• Canada Mar inflation data due Friday, annualized CPI f/c +1.8% vs +2.0% in Feb

• AUD/USD was helped to an early Europe intra-day high of 0.7533 by iron ore gains
• Dalian iron ore closed up 3.1% Thursday. Ldn copper +1.6% at 6.20am ET
• AUD/NZD was helped off 1.0643 (Asia 7wk low) by profit-taking on shorts
• 1.0725 = European am high (1.0830 was Tuesday’s high, before iron ore tumbled)

• NZD/USD fell to 0.7007 after its early Europe failure to break 0.7053
• 0.7053 = Wednesday high. 0.7052 = early Europe top as NZ Q1 CPI data digested
• NZ CPI higher than expected, but RBNZ is not expected to rush to hike
• NZD/USD was trading near 0.7000 when CPI data released at 6.45pm ET


Brexit - Conservatives enjoy a 24% lead
In the first poll since PM May called the June 8 election the Conservative Party are enjoying a 24% lead. The poll from YouGov, taken between April 18-19, shows voting intentions for the Conservative Party at 48% (4 points gain from a poll on April 12-13) with Labour second at 24% (a one point gain from previous poll). The polls show that strong support for the Conservative Party has been maintained and suggests that the majority in the House of Commons could extend to beyond 100 from the current 17. This would be a very strong showing allow PM May to deliver on controlling immigration and not being under the jurisdiction of the ECJ while at the same time aiming for a longer transitional period. Unlike the EU referendum vote last year there are very little signs of tension in the FX options market on GBP/USD where 2m vols and risk/reversals are only modestly higher/wider.

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.  

• 1 week expiry now gets BoJ/ECB to add to French risk premium
• Some EUR short covering this morning lifting short dated vols
• Buyers EUR/USD 2-4mth 110-112.50 strikes, also 1mth 1.00 in size
• USD/JPY vols ease as large 109.00 expiries contain, 108 barriers intact
• EUR/JPY vol setbacks attract renewed demand. AUD vols stay weak  

Economic Data (GMT) - (Source:ThompsonReuters)

• 13:30  Initial Jobless Claims (Apr 15 week) mkt 242k, prev 234k
• 13:30  Continued Claims (Apr 8 week) mkt 2.020 mn, prev 2.028 mn
• 13:30  Philadelphia Fed Manufacturing Index (Apr) mkt 25.0, prev 32.8
• 15:00  Leading Indicators (Mar) mkt +0.2% m/m, prev +0.6% m/m

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

• 15:30  BoE Governor Carney due to speak at IIF event in Washington
• 16:45  FedTrade operation 30-yr Fannie Mae/Freddie Mac (max $1.450 bn)

Topics: US FX Market Open


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