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US FX Market Open – Wednesday, April 5, 2017: Czech central bank exits FX floor

Posted by Marge Maresca on Apr 6, 2017 7:42:06 AM


Overnight Events

• EUR/USD +0.05%, EUR/JPY +0.1%, GBP/USD flat, AUD/USD -0.2%
• DAX -0.5%, FTSE -0.5%, Brent +0.1%, Gold -0.1%, Copper +0.1%
• Czech says ends crown exchange cap, ready to intervene if necessary
• EUR/USD hits 3-wk low at 1.0629 after Draghi, recovers to 1.0670
• ECB's Draghi sees no need to deviate from stated policy path - Rtrs
• DE Feb Industrial Orders 3.4% m/m vs prev -6.8% rvsd. 4.0% f/c
• CH Mar CPI 0.2% m/m, 0.6% y/y vs prev 0.5%/0.6%. 0.5% y/y f/c
• UK PM May says govt will act where consumer markets not working - Rtrs
• ECB keeps emergency funding cap for Greek banks unchanged at 46.6 bln euros - Rtrs
• ECB's top economist upholds policy plan against rate speculation - Rtrs
• EU's Dombrovskis says banks' loan problems not sign of new crisis - Rtrs
• Bundesbank: Legitimate to discuss route to end of ECB stimulus - Rtrs

Currency Summaries

• EUR/USD opens 1.0663 trades 1.0684 then 1.0629 on Draghi
• ECB chief says reassessment of policy is not required
• No evidence of significant change to inflation outlook
• Sell-off fairly surprising so close NFPs & nothing new ECB
• EUR 2.4bln vanilla expiries between 1.0630-1.0705
• Anchoring effect of options evident in return to opening level

• 110.90 pivot point supply weighs in the near-term
• Recovery from 110.29 Asia low sees 110.84 in London
• Japan's “Whale” GPIF lurks with bids ahead of 110 barriers
• Calm ahead of US NFPs on Fri, consolidation ahead of 110 tough barriers
• Bulls recover but overall heavy after failure above 111 on Wed

• EUR/CHF little lower after infl data & EUR/USD Draghi sell-of
• Plays 1.0719-1.0699. CPI rises 0.6 pct y/y in March, beat 0.5% f/c
• Inflation rise should allow SNB room to ease up on intervention
• Tech sppt 55-DMA @ 1.0690 & cloud base @ 1.0674. 1.0669 Tues low
• USD/CHF consolidates Wed gains to 1.0080. Rise falters 1.0067 Thurs
• Easier ahead of NY, 1.0056 pullback low. 1.0030 eary Europe base

• GBP/USD elicited support pre-1.2450 after easing from 1.2494 (early Europe high)
• 1.2450 was low following FOMC minutes Wednesday. 1.2501 = Asia high
• EUR/GBP fell to 0.8512 during the European am on dovish Draghi comments
• 0.8557 = subsequent rally high. 0.8588/90 resistance (Tuesday/Wednesday highs)

• USD/CAD extended north to threaten 1.3455 during the European am
• 1.3455 was Tuesday’s 3wk high, before CAD rallied on higher oil prices
• WTI $51.20/barrel at 6.10am ET after threatening $52/barrel Wednesday

• AUD/USD revisited 0.7533 early Europe before rising to 0.7563
• 0.7533 was 4wk low in Asia as AUD/JPY selling impacted
• 0.7577 = Asia high. 0.7550, 0.7570 & 0.76 option expiries for NY cut

• NZD/USD topped out at 0.6987 in Asia after extending north from 0.6940
• 0.6940 was Wednesday’s 3wk low. 0.6966-0.6981 = European am range


Now's the time for US NFPs to boost USD
If NFP data can boost the dollar then this month's release is most likely to do so. Interest rate markets are the least hawkish about the likelihood of Fed hiking than they have been all year. The yield on 10-year U.S. Treasuries is 2.33%, matching the level ahead of January's NFP release and much lower than 2.48% and 2.61% seen before data in February and March. Futures pricing for coming hikes does not match the expectations of the bulk of FOMC voters. It's pricing 20bps less tightening for the next 12 months than was trading ahead of the first three NFP releases this year. After another big ADP result expectations for tightening should have risen. That they have fallen is likely due to interest in what the U.S. administration can or cannot do, and not the data that has fueled the two recent rate hikes. A higher USD may be in the pipeline.
Fed funds

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.  

• Mild risk aversion returns since FED mins to help support vols
• 1mth expiry now 8 May – gets 2nd round of French elections
• 1mth vols and EUR puts/JPY calls open much higher
• EUR/USD 1mth vol 8.8 to 11.4, 1mth risk rev 1.5 to 3.3 EUR puts
• EUR/JPY 1mth vol 11.6 to 15.2, 1mth risk rev 2.6 to 5.0 EUR puts

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30  Challenger Layoff Announcements (Mar) prev 36,957
• 13:30  Initial Jobless Claims (Apr 1 week) mkt 250k, prev 258k
• 13:30  Continued Claims (Mar 25 week) mkt 2.040 mn, prev 2.052 mn
• n/a    Monthly Chain-Store Sales (Mar)
• 20:00  Treasury STRIPS

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

• 14:30  FRB San Fran's Williams debates monetary policy framework adjustments amid low r-star; Germany
• 16:45  FedTrade 30-yr Ginnie Mae securities (max $850 mn)


Topics: US FX Market Open


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