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US FX Market Open –Tuesday August 29, 2017: EUR/USD breezes through 1.2000-50

Posted by Marge Maresca on Aug 29, 2017 10:22:29 AM


EUR/USD's fast rise is a bullish sign
The ease at which EUR/USD is rising is a strong sign of more gains to come. Traders have been hesitant to turn long EUR/USD and this has led to a sustainable rise. Bets on a EUR/USD rally via cash are a mere 9 billion euros compared to bets on a EUR/USD fall in late 2014 which swelled to a much larger size of around 25 billion. Economists and analysts have shared traders lack of belief in a big EUR/USD rise. Furthermore the rapid break of 1.2000 makes it quite clear that options traders are also ill-prepared for a rise to these levels. While FX traders are poorly positioned, the current weak spot for stocks is fuel for a higher EUR. The single currency has fared well during risk averse periods and is supported by a huge current account surplus which. This position is held by USTs in bond markets where demand is driving down yields and weighing the USD.

Overnight Events

• EUR/USD 0.53%, USD/JPY -0.6%, GBP/USD 0.28%, EUR/GBP 0.26%
• DXY -0.46%, DAX -1.71%, FTSE -1.27%, Brent -0.66%, Gold 0.77%
• DE Gfk Consumer Sentiment Sep 10.9 vs 10.8, 10.8 f'cast
• GB Nationwide house price mm Aug -0.1% vs 0.3%, r’vsd 0.2 %, 0.1% f'cast
• GB Nationwide house price yy Aug 2.1% vs 2.9%, 2.5% f'cast
• North Korea's "reckless" missile launch over Japan sharply escalates tension
• No EU-UK trade talks until divorce issues settled - EU's Juncker
• Oil prices gyrate as market grapples with U.S. hurricane damage
• Gold hits 9-1/2-month high as North Korea tensions escalate

Currency Summaries

• EUR/USD opened at 1.1974 so elevated vs prior rise
• Traded 1.1922-84 range Monday and 1.1774-1.1941 last Friday
• Quickly rose above 1.2000 to 1.2070 after Europe opened without any data
• A bad day for stocks (DAX -1.6%) likely supported EUR as a liquid asset
• German consumer confidence rises to 10.9 in September from 10.8
• Yields lower as investors seek safety in bonds, led by UST, weighs USDUSD/JPY

• Some USD/JPY players caught long remain hopeful of a recovery
• Risk aversion caused by NK missile shoot over Japan hurt USD/JPY
• Narrowing UST-JGB spreads depress USD/JPY
• Dived from 109.25 to 108.33, subsequent recovery capped by 109.00
• Heavy offers circa 109.00, bids likely ahead of 2017 108.13 low
• Quick rebound from 108.27 after previous 108.33 session low breached
• Market seems determined to put up a fight ahead of 108.00 barriers
• Break below 108.00 barriers will weaken spot further

• Big USD/CHF losses in London to 0.9428 from 0.9531. 0.9551 was Asia high
• CHF is gaining against the dollar as carry trades unwind
• 0.9428 is a new 2017 low, lowest since July 2015 (0.9260 low w/e Aug 28)
• Soggy USD/CHF not helped by slipping Fed hike hopes
• Technically oversold, could see corrections ahead of fresh leg lower
• EUR/CHF heavy in Europe, dragged lower by USD/CHF. Plays 1.1444-1.1375
• Now a double top on the charts at 1.1444/1.1445

• GBP continues to slide after more bad news
• UK's Nationwide reports further slowing in house prices
• House prices fell 0.1% in August with YY rate slowing to 2.1%
• GBP TWI 74.50, lowest since early Nov & compares to 73.70 Brexit low
• GBP/USD flatters to deceive as USD weakness outstrips that for GBP
• GBP/USD 1.2942-78, 21-DMA 1.2962. Aug 11/14 highs 1.3032/22

• CAD closed NY 1.2504, peaked 1.2536 early Asia but pressured since
• USD weakness early London most noticable against EUR spills over
• USD/CAD hits 1.2440 low before meeting minor demand
• Break of July/2yr low 1.2414 opens potential to May 2015 lows at 1.1920
• Dealers wary of 200 week MA 1.2432, close below Friday reinforces bear view

• AUD/JPY selling hit AUD/USD lower in Asia on NK missile test
• AUD/JPY 87.07-85.67, recoveries capped by 100HMA 86.47 since
• Break of 85.50 cloud base/11 Aug 85.40 low would target 22 June low 83.68
• AUD/USD 0.7969-0.7906, but recovers. Mon's 0.7973 peak caps
• Offers still seen pre 0.8000, above to target 27 July/2yr high at 0.8066
• Option market not concerned, vols well below last weeks highs as ranges hold

• AUD/NZD 1.0982-28, Mon's 1.0983/16 Mar 1.1020 highs cap cross
• NZD/JPY hit lows since early June on risk averse JPY demand - 79.25-78.29
• NZD/USD, 0.7264-0.7219 but decent bounce since amid broader USD sales
• NZD/USD stops tripped above 200HMA 0.7266 for 0.7281
• NZD still well within daily cloud, solid support 100/200DMA 0.7178/29
• 21 and 55 DMA's resistance at 0.7315/22 and risking cloud top just above

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.  

• EUR/USD profit taking on ITM EUR calls via 1.2000-50 RKI
• EUR vols higher with spot, 3mth risk reversals 7 year highs for EUR calls
• USD/JPY vols and JPY call bias lifted on 108.00 barriers fears
• AUD, NZD and CAD vols only marginally firmer as broader ranges hold
• Light demand for longer dated GBP related vol/GBP puts continues

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:55 Redbook Same-Store Sales Index (weekly) (prev +3.2% y/y)
• 13:00 S&P / Case-Shiller 20-City House Price Index (Jun) (mkt +5.7% y/y, prev +5.7% y/y)
• 14:00 Consumer Confidence Index (Aug) (mkt 120.3, prev 121.1)
• 14:30 Dallas Fed Texas Service-Sector Outlook Survey (Aug) (prev 10.5)
• 14:30 Dallas Fed Texas Service Revenues Index (Aug) (prev 15.7)

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

• 13:45 Fed Trade operation 30-year Fannie Mae / Freddie Mac (max $1.9 bn)
• 15:00 FRB Chicago's Evans (voter, dovish) opens Large-Bank Directors Conference; Chicago, IL

Topics: US FX Market Open


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