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US FX Market Open – Wednesday, March 15, 2017: USD marginally softer ahead of FOMC

Posted by Marge Maresca on Mar 15, 2017 8:21:22 AM


Overnight Events

• EUR/USD +0.2%, USD/JPY -0.1%, GBP/USD +0.4%, DXY +0.2%
• DAX +0.05%, CAC +0.05%, Brent +1.5%, Gold +0.4%, Copper +1.0%
• GBP softer on the back of the lower than expected UK earnings growth numbers
• Dollar subdued as market awaits Fed rate message
• EU's Tusk warns "no deal" Brexit would hit Britain hardest - Rtrs
• UK has not assessed economic impact of leaving EU without deal - minister - Rtrs
• ECB Praet: Inflation outlook does not warrant current policy reassessment
• EZ Q4 Employment 0.3% q/q, 1.1% y/y vs prev 0.2%/1.2%
• GB Feb Claimant count -11.3k vs prev -41.4k rvsd. -5.0k f/c
• GB Jan ILO Unemployment rate 4.7% vs prev 4.8%. 4.8% f/c. Lowest since 2005
• GB Avg wkly earings (ex bonuses) +2.3% y/y in 3mths to Jan vs prev 2.6%. 2.5% f/c
• CH Feb Producer/Import price -0.2% m/m, 1.3% y/y vs prev 0.4%/0.8%      

Currency Summaries

• EUR/USD quiet ahead today's FOMC decision (92% prob 25bp hike)
• Asia 1.0603-30. Europe up to 1.0639 before 1.0619 retreat
• Buying led by surprise GBP spike ahead Europe
• USD sales thought possible influence by timed order at Asia's close
• EUR 3.2bln vanilla expiries 1.0570-1.0650 help contain spot

• Offers around 114.80 and above, larger offers between 115.30-50
• Contained by thickening cloud, tight 114.58-114.88 range so far
• Bids in size circa 114.50, recall 114.48 has been the lowest seen this week
• Long gamma pocket between 113.50-115.50 also contains
• BoJ 2-day policy board meeting ending on Thursday seen as a non event

• EUR/CHF lower to 1.0710 but bk up to 1.0720, tight ranges in play
• Speculation re SNB buying persists but over 1.0% drop fm Mon 1.0825 peak
• Back below 100-DMA at 1.0722, MA now resist. Closed under tenkan/kijun
• USD/CHF sideways awaiting FOMC. 1.0101/1.0075 inside Mon's 1.0117-1.0061
• SNB expected to keep interest rate & FX policy unchanged at Thurs meeting

• GBP/USD jumped thru 1.2200 to a 9-day high of 1.2258 shortly after 2am ET
• Move occurred 24 hours after GBP tanked & 48 hours after prior GBP jump
• 1.2179 = cable low since UK earnings miss at 5.30am ET. 1.2213 was pre-data low
• EUR/GBP plumbed a 6-day low of 0.8667 as GBP jumped shortly after 2am ET
• 0.8721 = high after UK earnings miss. 0.8723 was Tuesday’s low

• USD/CAD Fresh offers are tipped near 1.35 (1.3496 was Tuesday’s high)
• Large 1.3500 expiry Friday, $845mn strike. Bids tipped at 1.3440 (Tuesday’s low)

• AUD/USD offers are tipped pre-0.76. Large 0.7600 expiry Thursday, A$1.4bln strike
• 0.7592 = Monday high. 0.7588 = Wednesday high after Dalian iron ore closed up 5.5%
• Australian Feb jobs data due 8.30pm ET, 16k rise in employment expected

• NZD/USD met early Europe headwind pre-0.6950 (Monday’s high)
• NZ Q4 GDP data due 5.45pm ET, growth of 0.7% expected
• AUD/NZD is consolidating recent gains below 1.0950


High yield FX to attract after a modest USD dip
The most probable scenario after today's U.S. rate decision is a short-lived dollar drop and a boost for risk appetite. Traders are long dollars into the event but not overly so. A little profit-taking is inevitable but will be limited by the low number dollar longs held. Bigger moves will be influenced by the Fed's outlook and its influence on risk appetite. Currently buoyant stock and commodities markets and lows vols in FX suggest higher yield FX will rally further with duration dictated by the waiting period for the next Fed decision after today. So dollar losses are likely to be more pronounced versus higher yielding FX. At minimum, the betting for the next "live" Fed meeting will be its next quarterly one in June, sufficiently long to bolster carry trades. Should the Fed's statement extend the expected wait to September then the carry theme will be further boosted as it takes in the traditionally quieter European summer.

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.  

• Next day vol buoyed in to FED, also gets BoJ, Dutch election , MPC
• EUR/USD break even is 70 pips, USD/JPY 100 pips, GBP/USD 100 pips
• AUD/USD is 52 pips. Further out and vols are heavy,  but underpinned
• Most implieds above realised vols – leaves room to fall further post FED
• French election risk premiums losing ground of late but still elevated

Economic Data (GMT) - (Source:ThompsonReuters)

• 11:00  MBA Weekly Mortgage Application Indices
• 12:30  CPI (Feb) (Feb) mkt +0.2% m/m, +2.2% y/y; prev +0.6% m/m, +2.5% y/y
• 12:30  CPI ex-Food/Energy (Feb) mkt +0.1% m/m, +2.7% y/y; prev +0.3% m/m, +2.3% y/y
• 12:30  Retail Sales (Feb) mkt +0.1% m/m, prev +0.4% m/m
• 12:30  Retail Sales ex-Autos (Feb) mkt +0.2% m/m, prev +0.8% m/m
• 12:30  Control Retail Sales (Feb) mkt +0.3% m/m, prev +0.4% m/m
• 12:30  Empire State Manufacturing Survey (Mar) mkt 15.0, prev 18.7
• 14:00  Business Inventories (Jan) mkt +0.2% m/m, prev +0.4% m/m
• 14:00  NAHB Housing Market Index (Mar) mkt 65, prev 65
• 14:30  EIA Weekly Petroleum Status Report
• 20:00  Treasury International Capital Statistics (Jan)

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

• 13:00  FOMC resumes two-day meeting
• 18:00  FOMC Statement and Projections Materials
• 18:30  Fed Chair Yellen Press Conference
•  n/a    Suspension of debt limit expires

Topics: US FX Market Open


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