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    US FX Market Open – Monday, June 13, 2016: BREXIT FEARS CONTINUE TO HAUNT STERLING

     

    Overnight Events

    • Sterling marked down again and yen safety drives GBP/JPY sharply lower
    • GBP/JPY falls nearly 2.0% to 149.50, EUR/GBP hits 0.7986, a high since Apr
    • GBP/USD -0.85%, USD/JPY -1.01%, EUR/USD 0.06%
    • DXY -0.17%, DAX -1.3%, Brent -0.8%, Iron 1.5%, Copper 0.55%
    • YouGov/Sunday Times poll – 42% to vote “remain”, 43% “leave”
    • Opinium/Observer poll – 44% would vote “remain”, 42% “leave”
    • William Hill  and Paddy Power Brexit odds 7/4 Paddy Power
    • UK 10-year gilt yield plumbed new record low of 1.212% early Europe  
    • EU’s Tusk says Brexit could threaten western political civilisation- Bild
    • SNB domestic sight depos fall in latest week by CHF2.6 bln
    • Japan ChiefCabSec Suga – Eyeing very volatile moves in Japanese stocks
    • Fitch affirms Japan at “A” and outlook revised to negative
    • Abenomics doubts drive foreigners off Japan stocks, volatility spikes –Rtrs
    • Angry banks complicate BoJ’s ability to deepen negative rates – Rtrs
    • China Stats Bureau – Downward pressures still, working to achieve targets
    • China May industrial output 6.0% y/y, 5.9% eyed

    Currency Summaries

    EUR/USD  
    • Weaker DAX underpinning EUR/USD, rate divergence weighing
    • DAX dumps 1.5% after key support around 9800 give way
    • UST/Bunds spreads narrow weighing EUR/USD: https://reut.rs/1UpvL2y
    • Bid for UST's intensifying as safety play ahead UK referendum
    • Net sees EUR/USD trapped 1.1247-74 in Europe, 1.1233-71 in Asia
    • EUR/USD likely probes 100-DMA/cloud base this week: https://reut.rs/1UuTcUg

    USD/JPY
    • USD/JPY range has been 105.74-106.95
    • Limited recovery in spot to 106.25 in London
    • Fitch release adds to the whole risk off environment
    • Hourly failures above 106.22 pivot point likely to weigh
    • Risk aversion sustains yen demand
    • Risk remains for a test of 105.50, 105.00 barriers
    • EUR/JPY has seen 119.01-120.33

    EUR/CHF
    • Near 2.5% fall from June 3 1.1105 high and key support points blown away
    • Low of 1.0840 today found bidding interest and no doubt SNB in the frame
    • Swiss CB looks to have stepped away recently and cross plunged
    • Risk aversion linked to BREXIT fears clearly a driver for CHF flow
    • SNB sight depo data highlights possible SNB absence
    • Domestic depos show decent fall while total depos up marginally
    • Risky long for 1.0930 200DMA possible trade:Chart: https://reut.rs/21hqCuc

    GBP/USD   
    • GBP/USD slid to a 2mth low of 1.4117 during the European am amid Brexit fears
    • Paddy Power & William Hill have both cut their Brexit odds to 7/4
    • First Brexit odds lower than 2/1 since Apr 19 (before Obama trip to UK)
    • 1.4159 was Asia low (1.4229 = ensuing rally high). 1.4180 was Friday’s low
    • EUR/GBP rose to an 8wk high of 0.7986 during the European am
    • 0.7935 was Asia high. 0.7930 was Friday’s high

    USD/CAD
    • USD/CAD scaled a 6-day peak of 1.2810 in Asia as WTI fell to 48.21/barrel low
    • 1.2764 = European am low (1.2760 was June 8 high)
    • Large 1.2800 option expiry for NY cut, $714mn strike

    AUD/USD     
    • AUD/USD pushed recovery envelope from 0.7359 to 0.7411 during European am
    • 0.7359 was Asia low as Asian stocks slumped (Nikkei closed down 3.5%)

    NZD/USD
    • NZD/USD eased to 0.7032 in Asia as Asian stocks slumped
    • 0.7077 = European am high. NZ Q1 C/A & GDP data due this 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)

    • Risk aversion drives vols higher across the board
    • GBP vols highest since 2008 financial crisis in to Brexit
    • 1mth Cable 28.5 – break even nearly 10 big figures
    • 1mth EUR/GBP 26.5 – record high, break even near 4 big figures
    • GBP puts 8.0 vols premium on 1mth risk reversals
    • EUR/USD 1mth up 3.0 vols in a week to 13.0 – break even 335 pips
    • USD/JPY vols bid. BoJ risk Thursday, 105.00 barriers loom

    Economic Data – No major releases scheduled

     


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