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    US FX Market Open – Friday, June 17, 2016: BREXIT BRUISED MARKET SLOWS UP INTO W/E



    Overnight Events

     USD/JPY 0.01%, GBP/USD 0.4%, EUR/USD 0.25%
    • DXY 0.05%, DAX 1.25%, FTSE 1.2%, Brent 1.8%, Iron 1.9%
    • EZ Apr C/A s/adj E36.2 bln vs E 26.3 bln rvsd prev
    • EZ Apr Net Inv E128.8 bln vs E22.5 bln rvsd prev
    • EZ Q1 labour costs 1.7% y/y vs 1.3% y/y prev
    • EZ Q1 Wages 1.8% vs 1.5% prev
    • UK Paddy Power 13/8 Brexit,  1/2-Remain
    • Jpn FinMin Aso – Very concerned over one-sided, rapid, spec FX moves
    • MoF Asakawa – MoF, BoJ, FSA share view volatility up in FX, fin’l mkts
    • Source – BoJ offer USD funding with 5 other cbs if mkts roiled by Brexit – Rtrs
    • Investors brace for specter of USD/JPY 100 – Nikkei
    • Japan Cabinet Office leaves economic assessment as is, CPI rise slower
    • EconMin Ishihara – Japan exiting deflation, moving forward – Rtrs
    • UK $1.1bn stock fund withdrawals largest in a year – Financial Times
    • NZ Fonterra – Dairy output to fall 3% this season – Rtrs

    Currency Summaries

    • Technically looks supported for run back to 1.1300-10 but market tired
    • Lack of flow overnight indicative of a fatigued and Brexit bruised market
    • Broader financial picture less frenetic too with oil, iron and yields firmer
    • Cross action still main EUR driver: EUR/JPY 2.25% abv Thurs low at best
    • EUR/USD 1.1220-1.1270 today with 1.13 break to open further gains
    • No convinced EUR has the legs though: Chart: https://reut.rs/1UzwhuU

    • 104.84-08 range in Asia. Exporters amongst offers touted 105.00
    • More offers 105.50. 780mln expiries 104.90-105.00
    • Jpn official comments underpin. Pair currently 104.30
    • Brexit risk also likely limits recoveries, certainly props vols and JPY calls
    • Weekly close below 200wma (106.10) looks likely - first time since Dec 2014
    • Next barriers 103.50, 103.56 was Thurs new 2yr low

    USD/JPY 105 line in sand breached, officials' hands tied
    Yesterday's plunge took USD/JPY down from an early 106.02 high to as low as 103.55, blowing through Japan's unofficial line in the sand at 105.00 with only minimal threats of action. ChiefCabSec Suga warned against rapid, speculative FX moves at his regular press conference and was echoed by a MOF official presumably caught by reporters. FinMin Aso also spoke out against one-sided FX moves early today, but the market looks to have already decided that no intervention is in the offing. Like other major central banks, the BOJ is viewed as having its hands tied ahead of the UK's EU referendum Thursday. A Brexit could see renewed pressure on GBP & safe-haven flows into not only USD, but JPY & CHF as well. The feeling in Tokyo is that officials are gearing up for possible coordinated action. With BOJ officials meeting their MOF & FSA counterparts this morning any action could very well be coordinated among Japanese official institutions, with the possibility of the BOJ also easing policy further.

    • EUR/CHF new recovery high but EUR lift fractured and weak
    • Markets weary heading into w/e after bruising week
    • Cross plays 1.0828-1.0875 and 1.0840 into New York
    • Risk mkt marginally better, commodities and stocks up and yields firmer
    • Spot resumes sideways congested trade after Thurs 0.9572=0.9687 swings
    • USD/CHF a bear biased 0.9620-0.9656 range
    • Chart: 1) https://reut.rs/24VsoSB 2) https://reut.rs/1V07yf2

    • GBP/USD extended north to a 4-day high of 1.4312 during the European am
    • Ascent influenced by hopes Britain might vote to remain in EU next week
    • Paddy Power quotes 7/4 for Brexit vs 5/4 shortest price Thursday
    • 1.4013 was Thursday’s 10wk low, before GBP short covering-assisted gains
    • EUR/GBP plumbed a 1wk low of 0.7864 during the European am
    • 0.7864 = 130 pips before Thursday’s 2mth high

    • USD/CAD elicited fresh support circa 1.2900 in Asia: 1.2899 = session low
    • 1.2897 = Asia low Thursday, before lower oil price-influenced rise to 1.3086
    • Crude oil prices up for the first time in 7 days Friday: WTI just under 47/barrel
    • Canadian May inflation data due 8.30am ET. CPI f/c 1.6% y/y

    • AUD/USD Mooted offers at 0.7400/05 are helping to keep a lid on the pair
    • 0.7402 = 100DMA. 0.7404 = Asia high. 0.7405 was Tuesday’s high
    • More offers tipped near 0.7450 (0.7445/47 = Thursday/Wednesday highs)
    • 0.7400 & 0.7450 option expiries for NY cut, A$266mn & A$440mn strikes

    • NZD/USD respected its 0.7033-0.7068 Asia range thru the European am
    • 0.7035 & 0.7100 option expiries for NY cut, NZ$271mn & NZ$384mn strikes

    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)

    • Big jump 1wk vols on Brexit capture - see below implied break evens
    • Cable traded 53.0 vols/835 pips.Bid/offer spreads 15 vols wide since
    • EUR/GBP 48.0/418 pips, EUR/USD 20.0/250 pips, USD/JPY 21.0/250 pips
    • EUR/JPY 28.0/363 pips. GBP/JPY 60 vols/986 pips. EUR/CHF 18.0/215 pips
    • AUD/USD the cheapest at 16.0 vols or 131 pips break even
    • Vol curves ease as risk sentiment recovers, but well above last week’s lows

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