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US Market Open – Thursday, March 3, 2016: Event risk curbing FX activity


Overnight Events

• USD/JPY resumes updraft: 113.41 to 114.28 seen  
• GBP/USD off a 1.4109 high but surprisingly resilient after data
• DAX just in the black, gold up, oil mixed, DXT flat to firmer
• UK Feb N/Wide hse prices 4.8% y/y vs 4.4% prev, 5.0% exp
• UK Feb Service PMI 52.7 vs 55.6 prev, 55.1 exp
• DE Feb Service PMI 55.3 vs 55.1 prev, 55.1 exp
• DE Final Feb Comp PMI 54.1 vs 53.8 prev
• EZ Final Feb Service PMI 53.3  vs 53.0 prev, 53.0 exp
• EZ Final Feb Comp PMI 53.0 vs 52.7 prev, 52.7 exp
• EZ Jan R.Sales 2.0% y/y vs 1.4% prev, 1.3% exp
• BoJ Nakaso reiterates steps to each CPI target - Rtrs
• BoJ Gov Kuroda – Will adjust policy without hesitation if needed
• Kuroda-Will strengthen communication with market-Rtrs
• Japan official – No talk about JPY at Shanghai G20 – Rtrs
• Japan Feb PMI services 51.2, slowest expansion in 7-mos, Jan 52.4
• China Feb Caixin PMI services 51.2, Jan 52.4

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)

 • O/n vols get NFP, but not much priced in, suggests limited reaction expected
• 1wk gets ECB – EUR/USD 1wk vol up 5.5 vols or 70 pips since yesterday
• 1mth EUR/USD 11.1 vs 11.9 this week, ECB/FOMC limit deeper decline
• Solid risk appetite pressures JPY related vols – all much lower this week
• 1wk NZD gets RBNZ,  easing risk keeps 1mth NZD 1.95 over AUD/USD
• Front end GBP vols much lower, back end losses more limited by Brexit risk
• USD/CNH 1mth vol now lowest since early Dec and off 4.5 vols in 3 weeks  

Chart - AUD/USD bulls likely to push o(Source:ThompsonReuters)

On January 28 we predicted that AUD/USD would storm higher to eventually perform a daily close above the 200-DMA. On Wednesday the market managed to break and close above the 200-DMA, currently at 0.7256, which means bulls have scope to take this market a lot higher. The focus is on 0.7338/0.7495 – 38.2%/50% retracement of the 0.8164 to 0.6827 (May 2015/January 2016), these levels are likely to be overcome. Fourteen-day momentum remains positive, reinforcing the underlying bullish structure. Only a daily close back below the 200-DMA, however, will end the bullish cycle and put the risk back on the downside. Chart: https://tmsnrt.rs/1SkqxnX

Economic Data – (Source:Bloomberg)March3data.png

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