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US FX Market Open – Wednesday May 31, 2017: GBP fell on prospect of hung parliament

Posted by Marge Maresca on May 31, 2017 7:37:39 AM



Overnight Events

• EUR/USD +0.07%, USD/JPY -0.06%, GBP/USD -0.3%, AUD/USD -0.13%
• DXY +0.01%, DAX +0.11%, FTSE +0.19%, Gold +0.13%
• EZ May inflation estimated at 1.4 pct y/y vs 1.9 pct in April
• EZ April unemployment falls to 9.3 pct vs 9.4 pct in March
• May could lose majority in UK parliament -YouGov study in The Times
• UK April mortgage approvals 64,645 vs March 66,043, lowest since Sept
• UK April net consumer credit +1.525 bln stg vs march +1.613 bln
• DE retail sales -0.2 pct m/m, -0.9 pct y/y in April
• DE seasonally adjusted ILO employment +31,000 in April vs +41,000 in March
• Greece needs debt relief deal in June, ECB's Coeure says
• China May official services pmi rises to 54.5 vs 54.0 in April
• CN May official manufacturing PMI at 51.2 (Rtrs poll 51, prev month 51.2)
• OPEC, non-OPEC committed to cutting inventories to 5-yr average-Falih
• JP Apr industrial output +4.0% m/m, +4.3% eyed, May -2.5% eyed, June +1.8%
• JP Output touch below forecast but at 6-year high, exports solid
• Indonesia prices Y100 bln 3-tranche samurais via Mizuho, Nikko, Nomura - IFR

• EUR/USD quiet just 1.1170-96 in Europe
• Month-end EUR/GBP buying helps to underpin EUR/USD
• Stronger CNY likely weighs EUR:
• Hedging of EUR 2.6bln expiries 1.1150-1.1200 contain moves
• EZ flash inflation 1.4% yy in May, sub 1.5% f/c & vs 1.9% Apr

• Huge supply above continues to weigh on USD/JPY
• USD/JPY weak shorts were shaken out on break above 111.00 in Asia
• Japanese importers were on the bid due to month-end demand
• Market rose from 110.76 to 111.23 ahead of the susbsequent relapse
• Bears need to register a daily close below 110.52 level (Full Story)
• Large amount of strikes @110.00 (1B). 111.35-45 (560M), 111.50-55 (455M)

• GBP suffering on UK hung parliament fears: cable down to 1.2770
• Hung parliament fears derive from YouGov election projection
• YouGov model suggested Tories could lose Commons majority June 8
• Paddy Power-5/1 hung parliament after June 8 vs 7/1 last week
• 1.2770 = lowest level for cable since Apr 21 (1.2757 was Apr 21 low)
• EUR/GBP up to threaten 0.8750 (recent 10wk high) on hung parliament fears

• USD/CAD traded narrow 23 pip range during European am, 1.3438-1.3461
• 1.3430 was Monday's low. 1.3445-1.3471 was Asia range
• Offers expected near 1.35 if USD/CAD rallies: 1.3506 was Tuesday's high
• Large 1.3500 option expiry for month-end NY cut, USD 487mn strike
• Canada Mar/Q1 GDP data due 1230GMT. Mar f/c +0.2%, Q1 f/c +3.9% yy

• Large 0.7450/55 month-end option expiries are helping to anchor AUD/USD
• Cumulative size of the strikes is AUD 755mn. 0.7445 = European am low
• Dalian iron ore closed down 6% Wednesday, AUD-negative
• RBA is expected to keep cash rate at 1.5% next week (Tuesday June 6)

• Half-yard 0.7100 expiry for NY cut is helping to anchor NZD/USD
• 0.7083-0.7118 = Wednesday range-to-date. 0.7118 = 12wk high
• 0.7118 was notched in Asia after NZ business confidence rise


Intervening Swiss central bank may give way to good news
Now may be the time to buy long-dated, deep out the money (cheap) EUR puts in EUR/CHF as good news may prompt the Swiss central bank to ease its FX intervention. Since the end of 2014 the SNB has been an ever present EUR/CHF buyer as it battled bad news. Switzerland's FX reserve has risen almost CHF 250 billion. The SNB has effectively barred the use of the franc as a safer asset, crushed speculation and volatility with EUR/CHF rarely outside 1.05-1.10. But now, Swiss inflation is back in the black, stronger growth is expected in Q1, while FX policy has boosted the nation's trade and current account surpluses. Investors are the most upbeat since January 2014. Stronger euro zone growth has the ECB pondering withdrawing some stimulus which is sure to influence the SNB. The Swiss surely does not wish to spend around 8 billion francs every month, especially if the CHF rises on positives.

Chart - (Source:ThompsonReuters)

EUR/USD bulls eye leg above 2017 peak
EUR/USD bulls look poised for gains above 2017's 1.1268 peak hit on May 23, as the market finds its feet after recent sustained corrective moves. Gains could extend to the June 24 (2016) 1.1429 high if the 1.1268 high is taken out convincingly. Tenkan and kijun lines remain positively aligned, reinforcing the current bullish structure. The long tail on Tuesday's candlestick line highlights the rejection of the downside. On Tuesday, the cross found support at 1.1110, ahead of 1.1104 - 38.2% retrace of the 1.0839 to 1.1268 up-leg - so continued demand is likely in the lower 1.1100s. A break and daily close below the 1.1104 Fibonacci level, however, would shift the overall bias back to the downside and strengthen the 1.1268 high as a significant top. Chart:

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.  

• EUR/USD: 1.1050 (1.4B), 1.1100 (685M), 1.1145-50 (1.3B), 1.1200 (1.3B)
• EUR/USD: 1.1250 (2.8B). USD/CHF: 0.9700 (281M). GBP/USD: 1.2700 (265M)
• AUD/USD: 0.7400 (690M), 0.7450-55 (755M), 0.7470 (551M)
• NZD/USD: 0.7000 (710M), 0.7050 (797M), 0.7100 (543M)
• USD/CAD: 1.3340 (275M), 1.3500 (487M), 1.3725 (500M)
• USD/JPY: 110.00 (1B), 111.35-45 (560M), 111.50-55 (455M)

Economic Data (GMT) - (Source:ThompsonReuters)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:55 Redbook Same-Store Sales Index (prev (+2.0% y/y)
• 13:45 Chicago PMI (May) (mkt 57.5, prev 58.3)
• 14:00 Pending Home Sales Index (Apr) (mkt 111.8, +0.4% m/m; prev 111.4, -0.8% m/m)
• 14:30 Dallas Fed Texas Services Sector Outlook Survey (May) (prev 9.0)
• 14:30 -- Dallas Fed Service Revenues Index (May) (prev 12.1)

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

• 12:00 FRB Dallas's Kaplan participates in moderated Q&A session; New York, NY
• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.2 bn)
• 18:00 Beige Book
• 23:30 Fed’s Williams addresses Bank of Korea International Conference 2017; Seoul


Topics: US FX Market Open


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