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US FX Market Open – Thursday, February 23, 2017: Tight FX looking for next trigger

Posted by Marge Maresca on Feb 23, 2017 7:27:26 AM

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Overnight Events

• EUR/USD -0.1%, USD/JPY -0.1%, GBP/USD flat, DXY +0.2%,       
• DAX -0.1%, CAC +0.2%, Brent +1.3%, Gold +0.1%, Copper -1.0%
• Eyes still on French politics as poll shows Le Pen gains - Rtrs
• Oil prices rise after report shows drop in U.S. stocks - Rtrs
• GB CBI Feb retail sales balance +9 vs prev -8. 0 f/c
• DE Q4 GDP detailed 0.4% q/q, 1.2% y/y vs prev 0.4%/1.2%. 0.4%/1.6% f/c
• DE GfK Consumer sentiment 10.0 vs prev 10.2. 10.1 f/c
• CH Q4 Industrial Orders -3.3% vs prev 6.2% rvsd
• Mnuchin says dollar strength reflects confidence in U.S economy -WSJ - Rtrs
• Le Pen increases first round lead in French election - poll - Rtrs
• Net migration to Britain falls to lowest in more than 2 yrs - Rtrs
• Bundesbank braces for QE losses after lowest profit in decade - Rtrs
• Weidmann: ECB should discuss whether should continue to signal poss of more expansion policy
• Negative rates help Swiss swing to 2016 budget surplus - Rtrs
• Australia Q4 new CAPEX -2.1% q/q, -1.0% f/c. Aussie slips

Currency Summaries

EUR/USD
• EUR/USD 1.0538-66 in Europe after 1.0538-72 in Asia
• Subdued session bereft any major news or data
• EUR 750mln vanilla expiries may influence in light quiet session
• Resistance @ 100-HMA 1.0577 & 200-HMA 1.0595
• Support @ yesterday's 1.0494 low & 1.0455 76.4% 1.0340-1.0829 rise

USD/JPY
• USD/JPY 113.10-113.33 in Europe after 113.08-46 Asia
• 112.90-113.73 yesterday during risk-on/off reaction to French election news
• US/Japan yields strongly underpin USD/JPY: http://reut.rs/2mf2TgV
• Option market seen long gamma so hedging helping to contain USD/JPY
• Few expiries of note today, just USD 1.5bln 113.50-114.50

USD/CHF
• USD/CHF off its best but the bias remains for further gains
• Spot slipped back 1.0115 to 1.0095 in Europe. 1.0141 was Wed's peak
• Tech levels weigh incl Ichi cloud top & 30-DMA upper Bolli at 1.0146/1.0133
• EUR/CHF on the backfoot as well after short lived Wed rebound
• Plays 1.0671-1.0649 from Wed 1.0676 high

GBP/USD
• GBP/USD met headwind at 1.2482 after rallying off 1.2428 (early Europe low)
• 1.2482 was Monday’s high: 1.2482+ stops tripped in Asia Wednesday
• 1.2481 was NY high Wednesday. 1.2402-1.2509 = intra-week range-to-date
• EUR/GBP fell nearly half-a-penny after revisiting 0.8492 late Asia
• 0.8492 was Wednesday’s high after EUR short-covering on Bayrou/Macron news

USD/CAD
• USD/CAD elicited support at 1.3132 after falling from 1.3169
• 1.3132 = 76.4% of Wednesday’s rise from 1.3109 to 1.3210
• Canada Jan inflation data due Friday, BoC seen on hold next week (Mar 1)

AUD/USD
• AUD/USD met headwind at 0.7705 after rising from 0.7665 (Asia low)
• 0.7665 was plumbed on weak Australian Q4 Capex data
• Longs quick to sell above 0.77 recently: 0.7710/14 = Wednesday highs
• Large 0.7675 option expiry for NY cut, A$681mn strike
• RBA’s Lowe to address Australian House of Representatives economics ctte Friday

NZD/USD
• NZD/USD traded a quarter-cent range thru European am, 0.7190-0.7215
• 0.7174-0.7216 was Asia range. 0.7216 = high water-mark since 0.7130 (recent 1mth low)

Comment

Aachoo...Spain catches the risk-off flu
One of the interesting aspects of the Eurozone bond markets has been the remarkable stability of Spanish bonds. However, this seems to be now changing as 2y ES spread starts to widen and more importantly become more correlated with 2y FR and 2y IT spreads to Germany and divorce itself from trading closely with the other semi-core markets. This divorce really started on Friday when the safe haven bid really started especially for shorter dated bunds -- 2y Schatz yields started to fall sharply from this day.

Much of the 2y ES spread widening has been a result of 2y Schatz yield falling to record lows as 2y ES yield has been steady. However, we have seen other semi-core markets such as 2y AT and 2y FI follow the move lower on Schatz yields. This divorce of ES front-end is important and suggests that a further escalation in the pricing of political and redenomination risk on Eurozone bonds (FR and IT in particular) will see ES play catch-up. For a chart of the 2y EZ spreads see http://tmsnrt.rs/2lO3sAH.

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)

• EUR/USD vols off Wednesdays highs as spot recovers/holds mid 1.05’s
• Similar price action in EUR/Cross vols, but event risk underpins
• 1wk gets Trump address, 2wk ECB, 1mth FED, BoJ, UK MPC, Dutch elections
• 2mth now rolls over 1st round French elections, 3mth 2nd round since 8 Feb
• 20+bln 1.05-1.06 EUR/USD expiries next 2 weeks help contain pre FED
• Buyers upside USD/JPY apparent – 1mth 116 paid 11.5 on 500 (43 pips)  

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30  Initial Jobless Claims (Feb 18 week) mkt 241k, prev 239k
• 12:30  -- Continued Claims (Feb 11 week) mkt 2.068 mn, prev 2.076 mn
• 12:30  Chicago Fed National Activity Index (Jan) prev 0.14
• 14:00  FHFA House Price Index (Dec) prev +0.5% m/m, +6.1% y/y
• 15:00  EIA Weekly Petroleum Status Report
• 15:00  KC Fed Manufacturing (Feb) prev 9

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

• 13:35  FRB Atlanta's Lockhart on "Looking Back at 10 years at the Atlanta Fed"; Huntsville, AL
• 16:45  FedTrade operation 30-yr Fannie Mae / Freddie Mac (max $1.475 bn)
• 17:30  Fed Term Deposit Facility test operation closes (7-day FRN, IOER+0.01%)
• 18:00  FRB Dallas's Kaplan participates in moderated Q&A session; Fort Worth, TX

 

Topics: US FX Market Open

 

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