WWM - Analytics


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    US Market Open – February 4, 2016

    Overnight events

    • EUR/USD new 1.1184 high after 1.1069 early Europe pullback
    • USD/JPY 117.34-118.24 and 117.50 into New York
    • GBP/USD 1.4563-1.4665 bid holding into New York
    • SSEC closed up 1.55%, Nikkei down 0.85%, DAX currently up 0.6%
    • Brent flat to tiny down in Europe, US Crude up 0.5%
    • Draghi risk of acting too late outweigh risks of acting too early
    • GBP could fall as much as 15-20% if Britain votes to leave EU-G.Sachs
    • BoJ: Negative interest rate’s scope seen capped at Y30 trln – Nikkei
    • At least 25% chance of near-term SAR deval-Soc Gen
    • RBNZ  McDermott price stability remains focus,  happy to see lower NZD

    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 1mth vol 10.25 vs 8.5. 1mth RR 6yr high 0.8 EUR calls, highlights short topside
    • USD/JPY spot and vols fully retraced post BoJ moves. RR curve higher for JPY calls
    • Cable vols firm amid spot moves and EU ref’ concerns. 1mth vol high since May
    • USD/CNH vols off their record highs as profits booked in to China hols
    • USD/CAD vols retrace post BoC losses to 4yr highs as spot extends setback

    EUR/USD-Potential for messy rise to 2015 highs
    EUR/USD may face a messy rise up towards 1.15 and the 1.1715 Aug high short-term. The quick move above 1.11 has taken spot up into a zone that many market players have not positioned for, based on DTCC-reported options data. The lack of sizable strikes above 1.11 and further up, along with the sudden rise in EUR/USD 1-mth risk reversals to 2009 highs favouring calls suggests that the market is now suddenly trying to build up option plays for such a rebound. This is creating a short gamma market where the buying of calls and similar positions leaves dealers needed to buy/sell spot into any rise/fall, adding to market volatility. Thus conditions are ripe for a quick move higher, especially given the still-large EUR spec short position: of the USD 24 bln spec long in USD currently, USD 17 bln is short EUR. Such a move higher should also cool expectations for a sub-parity drop.

    Economic Data(Source:Bloomberg)


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