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US FX Market Open – Wednesday, February 22, 2017: Sterling weak on cross action and data

Posted by Marge Maresca on Feb 22, 2017 7:23:28 AM


Overnight Events

• EUR/USD -0.4%, USD/JPY -0.6%, GBP/USD -0.2%, DXY +0.3%,       
• DAX +0.1%, CAC +0.1%, Brent -0.6%, Gold +0.1%, Copper -1.2%
• Euro hit by nerves over French election - Rtrs
• Sterling slips on weak UK business investment data - Rtrs
• EUR/GBP techs-Closed under 200-DMA first time since Dec 2015
• Goldman says global crude stocks likely to keep falling - Rtrs
• EZ Jan Inflation final -0.8% m/m, 1.8% y/y vs prev 0.5%/1.8%. -0.8%/1.8% f/c
• GB Q4 GDP 2nd release +0.7% q/q. +2.0% y/y vs prev 0.6%/2.2%. 0.6%/2.2% f/c
• GB Q4 Business invest prelim -1.0% q/q, -0.9% y/y vs prev 0.4%/-2.2%
• DE Feb IFO expectations 104.0 vs prev 103.2. 103.0 f/c
• CH Feb Investor sentiment 19.4 vs prev 18.5

Currency Summaries

• EUR/USD in slow-paced move down from 1.0545 to 1.0495 in Europe
• Softer EUR likely opposed by SNB as largely born out of risk aversion
• French election risk leads yields wider vs Germany:
• Sharper US/Bund divergence also apparent:
• 1.0455 76.4% 1.0340-1.0829 rise. 1.0454 Jan 11 low (Trump 1st presser)
• Initial resistance @ daily cloud base 1.0558 then 200-HMA 1.0602

• USD/JPY in a vice grip due to long gamma and thick cloud
• Market not short gamma between 111.50-115.00, very long around 113.00 handle
• Daily cloud, which spans 109.93-115.53, making it tough to forge breakout
• Intra-day USD/JPY has fallen from 113.73 to 112.96, focus on 112.85 pivot
• EUR/JPY has a big fall, down from 119.88 to 118.60 breaking the 118.93 cloud base
• UK data weakens GBP/JPY which started the session promisingly at 141.70
• GBP/JPY now below 141.00 and slipping

• USD/CHF of its best but bias remains for further gains
• 1.0094 to 1.0135 in London. 1.0079 was Asia low
• 1.0146 Ichi cloud top, 1.0154 61.8% Fibo  Jan drop next resist
• EUR/CHF dside stays under threat, tight 1.0634-46 play
• SNB defence is likely keeping EUR/CHF off the Brext 1.0623 low

• GBP/USD fell to 1.2438 after 4.30am ET disclosure that UK biz investment -1% in Q4
• 1.2438 = intra-day low. 1.2460 was pre-UK data low. 1.2509 was Asia high
• EUR/GBP was helped off 0.8403 (early Europe 2mth low) by profit-taking on shorts
• 0.8403 = 1.19 GBP/EUR. 0.8451 threatened after IFO beat/negative UK biz investment
• 0.8451 was Jan 3 low. 0.8472 (200DMA) is now resistance (cross slid thru 200DMA Tues)

• USD/CAD extended north from 1.3109 to a 2wk peak of 1.3177 during the European am
• 1.3109 was Asia low. Offers expected near 1.3200 (Feb 8 high)
• Canada Dec retail sales data due 8.30am ET, flat number f/c

• AUD/USD scaled an intra-week peak of 0.7710 during the European am
• Ascent to 0.7710 influenced by Australia’s record A$11bln bond issue
• 0.7667-0.7698 was Asia range. 0.7650 was Tuesday’s low

• NZD/USD tested both sides of its 0.7155-0.7176 Asia range during the European am
• AUD/NZD retreated to 1.0710 after scaling a fresh 4mth peak of 1.0748 early Europe


Swiss central bank may now be dominating FX markets
Swiss currency intervention looks to be influencing FX markets on a much wider scale. EUR/CHF volumes collapsed after the 1.2000 floor was abandoned, so it's highly unlikely the SNB can find sufficient liquidity to intervene in the cross alone. If so, the has to intervene via the legs (buy EUR/USD and USD/CHF) in order to find sufficient volumes. That's one reason EUR/USD has been sticky during bouts of risk aversion. It's also why there is a strong bid for JPY, as while it's perhaps less of a save haven, there is no to battle against. Rebalancing of SNB reserves may be contributing to other FX moves. It may be no coincidence that GBP, JPY and AUD have outperformed this year, as all have been purchases during rebalancing. The largest rebalancing currency is USD, so SNB is underpinning and capping EUR/USD. When FX volumes were higher, these flows were less noticeable. In today's lower volume markets, they are starting to dominate.

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)

• EU political risk main vol driver this week as EUR suffers/risk covered
• French election coverage at the fore – 3mth vols/EUR puts up sharply
• 2mth vs 3mth vol spreads record wides in EUR/USD and crosses
• 3mth EUR/USD risk reversals match pre Brexit highs at 3.05 EUR puts
• USD/JPY starting to feel the heat – some demand for vols/JPY calls now
• EUR/USD barriers from 1.0300-1.0000 and USD/JPY from 111.50-110.00

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:00  MBA Weekly Mortgage Application Indices
• 13:55  Redbook Same-Store Sales Index (weekly) prev +0.9% y/y
• 15:00  Existing Home Sales (Jan) mkt 5.55 mn SAAR, prev 5.49 mn SAAR

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

• 14:45  FedTrade operation 15-yr Fannie Mae/Freddie Mac (max $600 mn)
• 16:45  FedTrade operation 30-yr Ginnie Mae (max $1.150 bn)
• 18:00  Fed Governor Powell discusses the economic outlook & monetary policy; NY
• 19:00  FOMC Minutes (from the Jan 31-Feb 1 meeting)
• 23:30  FRB Dallas's Kaplan voter, centrist on issues facing global economy; Dallas, TX


Topics: US FX Market Open


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