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    US Market Open – Thursday, February 25, 2016: USD/JPY REVERSAL RISK GROWS



    Overnight Events

    • A number of candle hammers on Yen pairs last session
      • EUR/GBP marginal new 0.7928 high: GBP/USD 1.39-1.3964 range
      • SSEC closes down 6.4%, DAX currently up 0.6%, CAC 1.4%
      • DE Mar GfK Consumer Sent. 9.5 vs 9.4 prev, 9.3 exp
      • DE Final Jan HICP 0.4% y/y vs 0.4% prev, 0.4% exp
      • EZ Final Jan Infl. 0.3% y/y vs 0.4% prev, 0.4% exp
      • CH Q4 Ind Orders -7.7% y/y vs revised -6.7% (-5.1) prev
      • EZ Jan M3 5.0% vs 4.7% prev, 4.7% exp
      • UK Second release Q4 GDP 1.9% y/y vs 1.9% prev, 1.9% exp
      • Uk Second release Q4 GDP 0.5% q/q vs 0.5% prev, 0.5% exp
      • UK Q4 Business inv. 2.4% y/y vs revsd 4.5% (5.8%) prev
      • Kuroda to tell G20 money policy not aimed at weakening ccy-rtrs
      • BoJ Policy Board Kiuchi – Negative rates could destabilize economy Rtrs
      • China FinMin Lou – Proposal to devalue CNY not on G20 agenda – China Daily
      • ViceFinMin – CNY managed float to continue, aiming for stability – Rtrs
      • China ICBC Chairman Jiang – No basis for continued CNY devaluation – Rtrs
      • IMF urges G20 to prepare global economic stimulus plan – 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)

    • Volumes light as spot markets consolidate, vols ease
      • 1mth expiry falls post 4 day UK Easter weekend holiday, impacts vols
      • GBP/USD 1mth 11.75 from 12.7, EUR/GBP 11.8 vs 12.95
      • Supply returning further out GBP curves as extreme highs present opportunities
      • EUR/USD near large 1.10 expiry. Vols capped but ECB/FOMC risk props
      • Back end EUR related vols and EUR puts underpinned by Brexit contagion  
      • USD/JPY recovery from 1.11 test sees vols back under pressure there

    Chart - USD/JPY reversal risk grows (Source:ThompsonReuters)

    While the long-term scope remains for a break below 110.35 which would trigger further losses to mid 106.00s, the long hammer candlestick line on Wednesday and failure to break the recent 2016 110.99 low has evened out nearer-term sentiment giving bears something to think about. The risk of a corrective reversal has grown but a number of important upside levels needs daily closes above to keep any recovery alive. Bulls need to overcome the tenkan line at 112.96 and Feb 16's 114.87 high, but they will likely be bound by 115.08 – 38.2% retracement of the 121.70-110.99 (Jan/Feb) drop. A daily close above 115.08 however, will likely put expected losses on hold. Chart: https://tmsnrt.rs/20WruDk 

    Economic Data(Source:Bloomberg)


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