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US FX Market Open – Wednesday, November 23, 2016: ECB plans stir up rates market

Posted by Marge Maresca on Nov 23, 2016 7:34:22 AM

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Overnight Events

• USD/JPY -0.12%, EUR/USD +0.01%, GBP/USD -0.35%
• DXY +0.11%, DAX -0.5%, Brent +0.33%, Iron +8.9%, Gold +0.05%
• Bund 10-year yield jumps 6bps to 0.273
• ECB seeks to lend out more bonds to avert mkt freeze-Rtrs sources
• ECB considers reducing fail charges, accepts new types of collateral
• ECB considers extending duration of loans
• ECB decision on bond lending will depend on what other changes it makes
• ECB bond decision might not be finalized in December
• DE Nov Flash Mfg PMI 54.4 vs 55.0 prev, 54.8 exp
• DE Nov Flash Serv PMI 55.0 vs 54.2 prev, 54.0 exp
• EZ Nov Flash Mfg PMI 53.7 vs 53.5 prev, 53.3 exp
• EZ Nov Flash Serv PMI 54.1 vs 5.8 prev, 53.0 exp
• Public holiday in Japan - Labour Thanksgiving Day
• UK’s Hammond to tackle budget deficit and inject dynamism into econ

Currency Summaries

EUR/USD  
• ECB plan to avert bond freeze stirs up rates market
• Bund yield rise, narrowing 2 & 10 yr spreads to UST 3bp
• Lifts EUR/USD a little, 1.0605-31
• Japan holiday today, US Thanksgiving tomorrow
• A quiet period is expected, so attention turns to option expiries
• EUR 4bln of vanilla expiries 1.0600-50 today should anchor spot

USD/JPY  
• Limited trading has occurred in Asia due to Japanese holiday
• Range has been 110.86-111.17
• Profit taking was said to have pushed spot to its low
• Overall sentiment is for buys on dips, dips remain shallow
• Tech outlook bullish but weekly cloud supply @111.65
• Significant option barrier structures @115.00 but nothing much below
• Could see a return in volatility above 112.30 region

EUR/CHF
• Lift from 1.0687 trend low stalling in 1.0750s: Chart: http://reut.rs/2g2zcwl
• SNB efforts to underpin the cross just keeping price from falling too far/fast
• Further ECB dove plays likely to be matched by the SNB
• Bids touted in the 1.0700-10 area: Perceived heavier SNB interest there
• Need to keep an eye on USD/CHF: Longs a fraction of EUR/USD plays
• USD/CHF out performance risk: Chart: http://reut.rs/2fQqxiI

GBP/USD
• GBP/USD threatened 1.2366 following its early Europe break below 1.24
• Shorts were squeezed after 1.2366 vaulted Monday (before cable hit air pocket)
• Low key autumn statement from UK chancellor Hammond expected 7.30am ET+
• EUR/GBP extended north to 0.8592 on Reuters ECB bond freeze aversion piece
• 0.8582 was early Europe high, after short-covering. 0.8555 = ensuing pullback low

USD/CAD
• USD/CAD has traded a 30 pip range thus far Wednesday, 1.3425-1.3455
• 1.3378-1.3466 was Tuesday range (low before high)
• Large 1.3400 & 1.3500 option expiries for NY cut, $861mn & $921mn strikes
• Another large 1.3500 option expiry Friday, $847mn strike
• WTI oil $48.20/barrel vs 49.20/barrel high 24 hours ago

AUD/USD    
• AUD/USD met headwind pre-0.7450 after extending north early Europe
• Large 0.7450 option expiry Thursday, A$887mn strike
• Rise to threaten 0.7450 influenced by higher commodity prices
• Dalian iron ore futures closed up 9% Wednesday
• Quarter-yard 0.7425 option expiry today (closest-to-market strike)

NZD/USD
• NZD/USD retreated to 0.7050 after its early Europe failure pre-0.7085 (10DMA)
• 0.7086 was Tuesday high (0.7032 = subsequent pullback low)
• AUD/NZD extended north to 1.0537 (intra-week high) during the European am
• Stops above 1.0500 were tripped in Asia. Cross rose to 1.0420 from 1.0492 Wednesday

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)

• Profits being booked on shorter dated USD call contracts this week
• EUR/USD 1mth vol down 10.3 from 11.7 peak Fri (8.35 post election low)
• USD/JPY 1mth off 2.0 vols from Mon’s 14.0 peak (11.0 pre/post election)
• O/n cable vol trades 14.0/72 pips break even in to UK Autumn statement
• AUD/USD  vol setbacks slowing now – 1mth 10.8 from 12.25 Monday
• Could yet see better levels to re-establish USD calls as holidays impact vol

Looking Ahead - Economic Data (GMT) - (Source:ThompsonReuters)

• 12:00  MBA Weekly Mortgage Application Indices
• 12:30  Revised Building Permits Oct initial report 1.229 mln
• 13:30  Initial Claims Nov 19 prev 235k, lowest since 1973
• 13:30  Cont Clms Nov 12 prev 1.997 mln, low since Apr 2000
• 13:30  Durable Gds Orders Oct mkt +1.1% m/m, prev -0.3%
• 13:30  Durable Gds ex-Trans Oct mkt +0.3% m/m, prev +0.1%
• 13:30  Nondefense Capital Gds ex-Aircraft Oct mkt , prev -1.3%
• 14:00  FHFA House Price Index Sep prev +6.4% y/y
• 14:45  Markit Manufacturing PMI flash Nov prev 53.4
• 15:00  New Home Sales Oct mkt 594k, prev 593k
• 15:00  U of Michigan Cons Sent final Nov mkt 91.6, prev 91.6
• 15:00  Current Conditions(final Nov prev 105.9
• 15:00  Expectations final Nov prev 82.5
• 15:30  EIA Weekly Petroleum Status Report
•   n/a    Atlanta Fed GDPNow Q4 prev 3.6% q/q
•   n/a    Strike Report Nov

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

• 12:30 UK Chancellor Hammond to deliver 2016 Autumn Statement
• 14:00  FOMC Minutes (of the Nov 1-2 meeting)

 

Topics: US FX Market Open

 

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