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US FX Market Open –Tuesday, July 6, 2016: CABLE DROPS UNDER 1.2800: BREXIT PAIN

Posted by Marge Maresca on Jul 6, 2016 7:50:02 AM

 

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Overnight Events

• Cable hits 1.2798 low in Asia, 1.2997 recovery high in Europe
• GBP/USD -0.6%, USD/JPY -1.3%, EUR/USD -0.15%
• DXY -0.04%, DAX -1.85%, Brent -0.6%, Iron -1.83%
• DE May Ind Orders 0.0% vs -2.0% prev, 1.0% exp
• Riksbank unch rates but lowers rate path-SEK mixed/choppy
• German 10-year Bund yield below 0.20% for first time
• Japan MOF official closely watching market moves
• Japan Post CEO - Eyeing acquisitions at home - Nikkei
• BoJ-inspired ETFs for big spending firms struggle to get investors-Rtrs
• China postal bank moves toward $8 bln IPO – Nikkei
• Japan Cab spokesman – No comment on FX, long-term rate levels

Currency Summaries

EUR/USD  
• EUR/USD holding near lows thanks to fear of Brexit contagion
• Stable today during GBP/USD rebound, weighed by EUR/GBP profit-taking
• Search for safety fuels more UST buying driving down US yields
• Over time narrowing UST/bund spreads may boost EUR/USD
• German industrial orders disappoint 0.0% mm in May f/c 1%
• Europe 1.1044-79 after 1.1035-75 Asia and 1.1062-1.1167 in NA

USD/JPY
• Risk aversion in Asia saw a collapse to 100.25
• 100.40 has been the subsequent low in Europe
• Drop was from 101.75, weighed on by Nikkei 225 which closed down 1.85%
• Stops tripped on way down breaking 101.40 and 101.00
• Bids likely at 100.00, stops clustered below
• EUR/JPY range 110.87-112.63

EUR/CHF
• Reasonable size rebound out of a 1.0795 low and SNB the likely driver
• Suggestion of a 1.08 line in the sand but likely just market chart
• Fresh run on Sterling and risk off sentiment forcing SNB's hand
• Still see SNB acting through the legs to dodge thin cross liquidity
• Rebound to 1.0840 and bid just holding: Above hourly cloud/200HMA
• High 1.08s viable but expect knock backs: Chart: http://reut.rs/29hv2RH

GBP/USD   
• GBP/USD met headwind pre-1.30 after pushing recovery envelope from 1.2798
• 1.2798 = 31yr low in Asia. 1.30 was Tues low. £1.3bn 1.30 expiries Weds/Thurs
• 1.5022 was cable high less than a fortnight ago--before Brexit referendum result
• EUR/GBP based at 0.8516 after retreating from 0.8629 (35mth high in Asia)

USD/CAD
• USD/CAD elicited support at 1.2965 after retreating from 1.3048 (Asia high)
• 1.2965 = 38.2% of 1.2832 (Monday’s low) to 1.3048

AUD/USD     
• AUD/USD offers may emerge near 0.75 if the pair extends north from 0.7408
• Half-yard 0.75 option expiry for NY cut. 0.7408 = Asia low amid risk aversion
• 0.7408 approximates to 55DMA. 0.7410 was Monday low after Oz election

NZD/USD
• NZD/USD plumbed a July low of 0.7080 in July amid risk aversion
• 0.7128 = ensuing rally high. 0.7156 was early Asia high
• RBNZ deputy governor Spender due to speak on Thursday at 0530GMT
• Spencer to speak about macro-prudential policy & housing market risk

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)

• Vols paid in Asia with risk aversion back at the fore
• USD/JPY wary of intervention – caps demand for JPY calls
• GBP vols bid. Size buyer 3mth Cable risk rev 2.5 GBP puts
• Buyers of post BoE MPC dates (14 July)
• EUR/USD vols off early highs as spot losses falter
• Buyers of AUD vols on dips. 1mth now off its Asian peak

Looking Ahead - Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30 CA May Trade Bal. Mkt –CAD2.7 bln, -2.94 bln prev
• 12:30 International Trade May mkt -$40.0 bln, prev -$37.4 bln
• 12:55 Redbook Same-Store Sales Index prev +0.5% y/y
• 13:45 Markit Services PMI final June flash 51.3
• 13:45 Markit Composite PMI final June flash 51.2
• 14:00 ISM Non-Mfg PMI Jun mkt 53.3, prev 52.9

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

• 12:00 FRB NY's Dudley economic development council event; Vestal, NY
• 13:00 Fed Gov Tarullo intersection of regulation/monetary policy; Washington
• 13:45 FedTrade operation 30-year Ginnie Mae max $1.325 bln
• 15:45 FedTrade operation 15-yr F.Mae/ Fr.Mac max $675 mln
• 18:00 FOMC Minutes from June 14-15 meeting

 

Topics: US FX Market Open

 

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