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US FX Market Open – Tuesday, April 26, 2016: SHORT DOLLAR PLAYS AHEAD OF FOMC

Posted by Marge Maresca on Apr 26, 2016 7:18:29 AM

 

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Overnight Events

• EUR/USD +0.1%, USD/JPY -0.3%, GBP/USD +0.5%, AUD/USD +0.3%
• DAX +0.05%, Brent +0.80%, Gold +0.01%, DXY -0.2%
• DE Soc-Dem Parl deputy group leader wants urgent talks with Draghi-Rtrs
• Spain’s socialists ready to explore last min govt coalition with other leftists
• Turkey Cb gov-Monetary policy to be tied to infl. outlook in future Rtrs
• Brexit debate is too black and white –Former BoE Gov King- Globe & Mail
• Japan GPIF Pres Takahashi – Will embrace currency hedging – Nikkei
• GPIF won't change its basic asset allocation - Rtrs
• Reuters poll, news – RBNZ to keep OCR unchanged Thursday, cut by June
• Dalian iron ore comes off 20-month high as exchange imposes curbs – Rtrs
• Work resumes at many quake-hit areas in Kyushu, Japan – Nikkei
• Japan firms delay fiscal ’16 forecasts to factor in quakes – Nikkei
• Time ticking for choice on Australia central bank chief - Rtrs

Currency Summaries

EUR/USD  
• EUR/USD up a little 1.1256-1.1300
• Seem traders led by a pre-FOMC will to get shorter the dollar
• GBP/USD short squeeze also plays into hands of dollar bears
• Italy trade surplus up but bad mix, exports & imports fall  
• Overall EUR/USD on very familiar turf, option vols sinking
• Environment suits EUR for funding and search higher yield
• Low vols a counter traders dream. Could be 1.10-1.15 for a long time  

USD/JPY
• USD/JPY offered, trading in tandem with weaker Nikkei (closed down 0.49%)
• Range has been 110.67-111.30
• Maybe weighed down by Nikkei story that Japanese exporters are buying forwards
• Spot 48/72H log correlation with Nikkei futures currently @+0.81/+0.74
• 890M worth of 111.15 NY cut expiries, 991M @110.00
• EUR/JPY sees 124.70-125.38

EUR/CHF
• Daily cloud top @ 1.1005 holding back the EUR tide but break seen n-t
• Cross plays 1.0985-1.1000 range: Spot  0.9734-0.9767
• Close above the cloud to bring key resistance area 1.1060-1.1200 into play
• Higher global ylds support but recent cross lag points to possible catch-up
• SNB looks to be conducting a smoothing/holding operation: Not aggressive intvn
• Chart: 1) http://reut.rs/1T1ub1L 2) http://tmsnrt.rs/1T1vL3D
 
GBP/USD   
• GBP/USD tripped stops above 1.4520 during European am, en route to 1.4579
• 1.4579 = highest level for cable since Feb 5 (1.4576 was Feb 10 top)
• Sterling shorts squeezed by momentum for anti-Brexit campaign
• Obama banged anti-Brexit drum loudly during recent 3-day visit to UK
• William Hill lengthened Brexit odds to 3-1 Monday, from 7/4 Apr 19
• EUR/GBP fell to 0.7744 during the European am, lowest level since Mar 14

USD/CAD
• USD/CAD elicited support pre-1.2622 (Friday’s low) after falling from 1.2685
• 1.2685 = early Europe high, courtesy of softer commodity prices
• Poloz slated to speak in NY at 8.40am ET & 9.50am ET

AUD/USD   
• AUD/USD elicited fresh support just under 0.77 in early European trade
• 0.7697 = early Europe low, to follow recent 0.7693, 0.7690 & 0.7695 lows
• Offers around 0.7750 curtailed AUD/USD climb from 0.7697
• Early Europe low plumbed after Dalian iron ore futures fell by 6% limit

NZD/USD
• NZD/USD threatened 0.69 during European am after firming from 0.6866
• 0.6866 = early Europe low. 0.6889 was Asia high
• NZIER recommends unchanged RBNZ this week (OCR verdict Wednesday 5pm ET)

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)

• 2mth expiry captures Brexit. Gamma propped by FOMC, BoJ, RBNZ
• Overall activity limited in options today as events awaited
• Post Brexit vols hit hard this week since Obama/lengthened Brexit odds
• 3mth Cable off over 2.0, 1yr 1.0. EUR/USD vols also suffer – 3mth down 0.5
• USD/JPY Thurs vol 30.0/195 pips over BoJ. 1mth recovers 12.0 vs 10.6 last week
• NZD/USD RBNZ Thursday - 28.0 vol/115 pips. 1wk AUD gets RBA – 14.0/140 pips

Economic Data(Source:Bloomberg)

Apr26data.png

 

Topics: US FX Market Open

 

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