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US FX Market Open – Wednesday, October 19, 2016: Yen blips on BoJ "forego" headline

Posted by Marge Maresca on Oct 19, 2016 7:24:24 AM




Overnight Events

• BoJ expected to forego addl easing at Nov meeting- Kyodo
• USD/JPY -0.5%, EUR/USD +0.15%, GBP/USD +0.1%
• DXY -0.18%, DAX -0.3%, Brent +1.5%, Iron +0.1%
• UK Aug ILO Jobless rate 4.9% vs 4.9% prev, 4.9% exp
• UK Aug Avg earnings 3m y/y 2.3% vs rvsd 2.4% prev, 2.3% exp
• UK Aug Claimant count -7k vs rvsd 7.1k prev, 3.0k exp
• German officials said to have been told to shun U.K contracts Bbg
• Four in ten households expect U.K rates to rise within next 12-mths
• USD/CNY at 6-year highs still, last close 6.7418, PBOC fix today 6.7326
• China Q3 GDP +1.8% q/q, +6.7% y/y, as eyed, Q2 revsd +1.9% vs pre +1.8%
• China Sept ind output +6.1% y/y, retail sales +10.7%, +6.4%/+10.6% eyed
• Japan investors in dilemma over US bonds as hedging costs bite – Rtrs
• Bookmakers pay out £800k+ on Hillary Clinton winning US election – Telegraph
• Goldman profits soar almost 60% on bond trading comeback – Financial Times
• NZ Fonterra GDT price index +1.4%, volumes down, supply tighter

Currency Summaries

• EUR/USD creeps up a little but still largely below 1.1000
• Europe 1.0974-1.1005 after 1.0973-1.1000 in Asia
• US rates continue to ease but so too bund yields
• Slight narrowing in UST/Bund spreads may underpin EUR/USD
• ECB tomorrow. Larger expiries today 1.1025
• USD/JPY trades lower to 103.25 on chat BOJ to hold in Nov, down from 103.95 high
• Official says prevalent BOJ view is price trend is upward
• Muted reaction to earlier 103.50 brk suggests not as many stops as first thought
• UST/JGB spreads have all flipped lower in last few days
• Bears have the upper hand however, but face plenty of obstacles
• Mkt is long gamma all the way down to 102.20, this should slow the decline
• Daily cloud spans from 102.35-103.52, another limiting factor
• Note there is 1.1B worth of 103.00 option strikes set to expire at NY cut
• Recall there was talk of a build up of bids circa 103.00 on Tues

• EUR/CHF soft bias but not going anywhere in a quiet session
• Risk markets mixed but on balance steady
• Cross plays 1.0862-1.0882 and looks to respect recent extremes
• USD/CHF also heavy but contained within Tues parameters
• Spot range 0.9875-0.9904
• Chart:

• GBP/USD rose to a high of 1.2334 after decent UK jobs/earnings data at 4.30am ET
• 1.2271 = subsequent low. 1.2257 was early Ldn low (1.2256 = NY low Tuesday)
• EUR/GBP up to 0.8957 on Bbg tip that Germany said to shut door to back channels with UK on Brexit
   0.8918 was intra-day low after decent UK jobs/earnings data. 0.8915 = Tuesday low

• USD/CAD fell half-a-cent from its 1.3129 European am high as oil prices rose
• WTI $51/barrel at 6.20am ET. BoC rate verdict/MPR 10am ET, Poloz briefing 11.15am ET+
• 1.3048/51 (Sept 29 low/Tues low), 1.3030 (Sept 23 low) & 1.3000 are support levels

• AUD/USD has traded a 33 pip range over the past 32 hours, 0.7658-0.7691
• Stops tipped above 0.7705/10 (0.7711 = Sept 29 high)
• Mooted stops at risk if Australian Sept jobs data strong. Employment f/c +15k
• Australian jobless rate f/c 5.7%. Data due 8.30pm ET

• NZD/USD elicited support just shy of 0.7190 after retreating from 0.7235
• 0.7235 = Asia 15-day high. 0.7190 = pullback low from Tuesday’s 0.7218 high

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)

• Vols heavy across the board, Event risk the only real prop
• O/n EUR/USD vol  15.5/70 pips break even over ECB
• USD/JPY 1mth is 2.0 vols below 7 Oct 12.5 peak as ranges hold
• GBP vols falling, gamma slower to ease since flash crash
• Talk of mild demand for GBP calls to cover cash shorts
• AUD vols by 2 year lows. Post RBNZ d/side NZD favored

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

• 12:30  Housing Starts Sep mkt 1.175 mln, prev 1.142 mln
• 12:30  Building Permits Sep mkt 1.165 mln, prev 1.152 mln
• 14:00  Atlanta Fed Business Inflation Expectations Oct
• 14:30  EIA Weekly Petroleum Status Report

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

• 12:45  FRB San Fran's Williams diversity in financial services;  NJ
• 14:00 BoC rate decision: No change expected
• 15:45  FedTrade operation 30-year Ginnie Mae max $1.375 bln
• 17:00  FRB Dallas's Kaplan 2017 in moderated Q&A; Fort Worth, TX
• 18:00  Beige Book
• 23:15  FRB New York's Dudley on the economic history of New York


Topics: US FX Market Open


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