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US FX Market Open – Wednesday, May 25, 2016: DOLLAR RECOVERS FROM EARLY LOSSES

Posted by Marge Maresca on May 25, 2016 8:00:48 AM




Overnight Events

• USD/JPY +0.13%, EUR/USD flat, GBP/USD -0.10%, EUR/CHF -0.16%
• DXY -0.1%, DAX +1.48%, Brent +1.05%. Iron -2.15%, Gold -0.5%
• USD/CAD Tight range trade continues ahead of BoC rate decision
• US Tsy Sheets – Eyes China CNY reform progress ahead of Jun dialogue – MNI
• UK Institute of Fiscal studies –Brexit could add two-years to austerity
• NZ April trade surplus NZ$292 mln, NZ$60 mln eyed
• Singapore bourse in exclusive talks to buy London’s Baltic Exchange-Rtrs

Currency Summaries

• Another very quiet day with EUR/USD 1.1138-56
• IFO beats @ 107.7 in May (106.8f/c) but no reaction
• 1 wk EUR/USD vol @ 2016 lows. 3-mth vol at 14 mth low (1.5 over realised)
• Usually sensitive 200-DMA 1.1102
• US trade data today. Durables of greater interest tomorrow
• US rates edging higher daily:   

• Extended Asia peak 110.19 to 110.28 early London, setback limited to 110.11
• Dealers cite steady demand on dips, buy stops touted 110.50-55
• Break of Fri's 110.59 recovery peak targets 109.74-111.44 cloud top
• Close above 110.40 (76.4% 111.90-105.55) reinforces bullish view
• Support Asia low 109.87, Hrly cloud top 109.86, 10dma 109.57, Mon low 109.12
• EUR/JPY tight 122.55-.89 range, Weaker EUR/USD and firmer USD/JPY contain

• EUR/CHF third day of losses and lows of 1.1047 from 1.1068 high
• Risk/EM market jitters vs stock gains and firmer CHF
• Cross now pointing to the 1.1015 low from May 13
• USD/CHF also lower but within Tues 0.9894-0.9937 range
• Chart 1)  2)

• GBP/USD rose by more than half-a-cent to test 1.4663 during the European am
• Ascent influenced by Paddy Power shortening Bremain vote odds to 1/7
• 1/7 lowest Bremain quote since referendum date unveiled. 1.4663 = May 19 high
• EUR/GBP fell to a fresh 16wk low of 0.7601 during the European am

• USD/CAD dropped to threaten 1.3086 early Europe as WTI oil rose to $49.45/barrel
• Failure to break below 1.3086 spurred some shorts to cover, to 1.3131
• BoC is expected to keep its Target for the Overnight Rate at 0.5% at 10am ET
• Accompanying statement likely to be more downbeat than April

• AUD/USD Talk option-related selling helped cap early Europe gains at 0.7220
• Big 0.7210 option expiry Thursday, A$1bn strike. 0.7200 expiry today, A$292mn strike
• Short-covering fuelled rise to 0.7220, from 0.7145 (Thursday’s 12wk low)

• NZD/USD respected its 0.6734-0.6764 Asia range thru the European am
• Good size 0.6730 option expiry today, just under half-yard strike
• NZ budget and Fonterra 2016/2017 opening milk price forecast in pipeline

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)

• EUR/USD vols weighed by low realised, tho weaker spot/event risk props
• USD/JPY vols a touch weaker as spot pushes against d/side risk reversal bias
• Post Brexit GBP vols hit hard of late – 2mth 3.5 vols below last week’s peak
• 1mth expiry gets Brexit result tomorrow – should add 300pts to 1mth Cable
• AUD/USD 1mth by recent 12.0 base as spot slide falters, supply from barriers

Economic Data(Source:Bloomberg)



Topics: Currency Ranges, Economic Data, US FX Market Open, option expiries


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