WWM - Analytics

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    US Market Open – Monday, February 22, 2016: Sterling slumps on Boris Johnson decision

    gbp222.png

    Overnight Events

    • London Mayor Boris Johnson adopts Brexit stance
    • GBP/USD falls to 1.4136 low from 1.4360 Asia high
    • USD/JPY plays 112.35-113.26 EUR/JPY 125.02-125.55
    • CH producer prices -5.3% y/y vs -5.5% prev
    • DE Flash Feb Mfg PMI 50.2 vs 52.3 prev, 52.0 exp
    • DE Flash Feb Service PMI 55.1 vs 55.0 prev, 54.7 exp
    • EZ Flash Feb Mfg PMI 51.0 vs 52.3 prev, 52.0 exp
    • EZ Flash Feb Service PMI 53.0 vs 53.6 prev, 53.3 exp
    • UK Feb CBI Trends Orders -17 vs -15 orev, -12 exp
    • SNB total sight depos up in latest wk-CHF476.197 vs 473.417
    • HSBC says London would be dominant FX center in event of Brexit
    • Swiss referendum Feb 28  spooks  international businesses – Financial Times
    • Change of regulator sets stage for overhaul of China’s markets-WSJ
    • Kuroda – Reiterates mantra, excessive risk aversion behind  market rout-Rtrs

    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)

    • GBP vols up again on Brexit flows and GBP weakness
    • Back end Vols and risk reversals long term highs Cable and Crosses
    • 24 June Cable straddle 12.75/breakeven 835 pips vs 22 June 11.2/727 pips
    • EUR/USD vols propped in to ECB/FOMC but 1mth 2.0 overvalued vs realized
    • USD/JPY quiet, many sidelined, vols in wide ranges since 11 Feb spot slide
    • CAD gamma performing to keep a bid under short date vols
    • AUD/USD languishes in recent ranges, keeps pressure on near date vols

    Chart - GBP/USD likely to test 2016 low  (Source:ThompsonReuters)

    GBP/USD's has dropped below 1.4220 as expected - the 76.4% retracement of the Jan/Feb rise (1.4080-1.4672). A daily close below will weaken the structure further. The risk is growing for losses to 2016's 1.4080 low posted in January, with a clearance below bringing 1.4000 into focus. Fourteen-day momentum is becoming increasingly negative, providing further evidence of the current bearish bias. The recovery on Friday ran into solid resistance at the 10-DMA, which is currently at 1.4391. Expect subsequent moves higher to be reasonably contained.

    Economic Data(Source:Bloomberg)

    Feb22data.png


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