WWM - Analytics


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    US FX Market Open – Thursday, June 2, 2016: USD/CAD RECLAIMS 1.31 HANDLE AMID OPEC MEETING FOCUS

    Overnight Events

    • BOJ's Sato calls for modifying policy framework – RTRS
    • Sato criticizes negative rates, urges flexible policy framework - RTRS
    • Sato: NIRP may have monetary tightening, not easing, effect -  RTRS
    • Sato: Unnecessary to persist in hitting 2% inflation target at all costs - RTRS
    • Sato: Sales tax hike delay won't affect monetary policy – RTRS
    • Moody’s: Japan PM Abe’s decision to delay sales-tax hike credit negative – RTRS
    • Moody’s: Japan tax hike delay makes fiscal goals more challenging – RTRS
    • Japan May Consumer confidence index 40.9 vs 40.8 prev
    • MoF flows wk-ended May 28 – Japan buy Y124.9bn foreign stocks, sell 549.4bn bonds, Y12.4bn bills
    • MoF flows foreign investors sell Y175.3bn Japan stocks, buy Y68.0bn bonds, sell Y788.6bn bills
    • China Vice Fin Min Zhu: Fed rate decisions will have big economic impact - RTRS
    • Zhu: US and China must up policy coordination, cooperation – RTRS
    • Zhu: Fed should communicate better on rates - RTRS
    • Australia Apr Retail sales 0.2% vs 0.4% prev, 0.3% exp
    • Saudis pledge not to shock oil markets at OPEC clash looms – RTRS
    • Euro Zone Apr Producer prices -0.3% vs 0.3% prev, 0.1% exp
    • UK May Markit/CIPS Cons PMI 51.2 vs 52.0 prev, 52.0 exp
    • Summer hiring in Spain may give Rajoy pre-election boost – RTRS
    • FTSE could fall over 10% if UK votes to leave EU–UBS Wealth Management – RTRS
    • Turkish central bank to focus more on jobs, growth-presidential adviser - RTRS
    • Turkish PM says ‘irrational’ for Germany to approve genocide resolution - RTRS

    Currency Summaries

    • DXY 95.27 today vs 95.90 Wed and a 2mth high 95.968 Monday
    • EUR/USD 1.1114-94 Wed, 1.1221 today vs 10wk low 1.1097 Mon'
    • 23.6% of 1.1616-1.1097 at 1.1220, sellers here today, setbacks limited
    • Next resistance 1.1226/1.1243 (24/23 May highs)
    • Support Mon's 1.1097 low, 200DMA 1.1096. 1.7bln 1.11 expiry, 620mln 1.12
    • Not much expected from ECB, O/n vol prices 84 pips and also gets NFP
    • Brexit risk keeps implied vols well above realised - 1mth 9.9 vs 6.4

    • USD/JPY saw a high of 109.59 in Asia before dropping to 108.83
    • Sato comments on NIRP & 2% target saw a drop in USD/JPY
    • Bids from Japanese importers, investors limit downside near-term
    • 109.00 NY cut expiry worth 1.32B should act as a magnet into early NY
    • Nikkei fell 2.32%, 48H log correlation between Nikkei futures & spot( 0.76)
    • EUR/JPY has seen a range of 121.99-122.51

    • USD/CHF tad weaker with USD overall after USD/JPY-led setback Tues-Weds
    • USD/CHF holds 0.9862 Weds low, support 0.9834/35 (23.6% May hi/low & 21-DMA)
    • EUR/CHF buoyant and holds 1.10 even while stuck below 21-DMA (1.1071)
    • SNB likely wants to prevent CHF appreciation, NEER stalled for months now
    • GBP/CHF still driving, firmly below 21-DMA but nearly oversold on slow stochs

    • GBP/USD was helped to 1.4469 European am high by profit-taking on GBP shorts
    • 1.4418 was low after weaker than expected UK construction PMI at 4.30am ET
    • Brexit fears fuelled recent slide from 1.4650 to 1.4385 re: ICM phone poll shock
    • EUR/GBP elicited support circa 0.7754 (last week’s high) during the European am
    • 0.7752 = 1.29 GBP/EUR. 0.7776 = 15-day high in Asia, 38.2% of 0.8117-0.7566

    • USD/CAD fell to 1.3055 European am low as WTI rose to high just shy of 49.50
    • 1.3110 = subsequent high as oil prices retreated amid focus on OPEC meeting
    • Large 1.3100 option expiry for NY cut, $1bn strike. ADP jobs report due 8.30am ET

    • AUD/USD has dropped to threaten 0.7200 amid pipeline RBA cut expectations
    • Capital Economics tips 25bp RBA rate cut in Aug & further cuts to 1% in 2017
    • Near half-yard 0.7200 option expiry for NY cut, in addition to 1.6 yard 0.7240 strike
    • 0.7269 was Asia high after smaller than expected Australian trade deficit

    • NZD/USD met fresh headwind on approach to 0.6850 in Asia
    • 0.6834 = 16-day high. 0.6785 = subsequent low (during the European am)
    • Pre-0.6850 NZD/USD fails stretch back to May 9 (0.6843 = May 17 high)
    • AUD/NZD fell to a 4mth low of 1.0590 in Asia. 1.0632 = subsequent high
    • Drop to 1.0590 influenced by Westpac tipping unchanged RBNZ OCR next week

    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 just off yesterdays higher levels in most pairs as spot markets settle
    • Event risk underpins however, FED, BoJ and especially Brexit via 1mth expiry
    • 1mth GBP/USD vol 7yr high at 21.0 o/n vs 17.0 before Tues’ Leave lead in poll
    • 1mth EUR/USD almost 3.0 above realised vol at 9.9.
    • Not much priced in for NFP – O/n EUR and JPY vol around 18.0/82 pips
    • Big expiries today AUD 1.6bln 0.7240, JPY 1.3bln 109, CAD 1bln 1.31

    Chart(Source: ThompsonReuters)

    USD/JPY cloud rejection weighs
    USD/JPY scope is for losses through the kijun line at 108.72 and  108.50 – 50% retrace of the 105.55-111.45 May rise. Spot broke above the Ichimoku cloud top this week, but failed to register a daily close above, instead it relapsed to close below the cloud base. This rejection of the cloud weighs on the market and adds to the bearish structure. Only a daily close above the cloud top needed to revive bulls. Chart: https://reut.rs/22zed69


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