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US FX Market Open –Friday, July 1, 2016: STERLING REMAINS UNDER ATTACK INTO JULY

 

Overnight Events

• GBP/USD -0.11%, USD/JPY -0.55%, EUR/USD -0.02%
• DXY -0.07%, DAX 0.25%, Brent -0.35%, Gold 2.57%
• CH May Retail sales -1.6% y/y vs -1.9% prev
• CH Jun Mfg PMI 51.6 vs 55.8 prev, 55.4 exp
• De Jun Mfg PMI 54.5 vs 54.4 prev, 54.4 exp
• EZ jun Mfg PMI 52.8 vs 52.6 prev, 52.6 exp
• UK Jun Mfg PMI 52.1 vs 50.1 prev, 49.9 exp
• UK Tory PM race-Leadsom overtakes Gove into 2nd spot with bookies
• Austrian presidential election must be held again-Courts
• Czech Pres. Calls for referendum on EU /NATO aftershock UK Brexit
• BoJ Tankan may be overly optimistic too, most answers in by Jun 2013
• Labor stats aside, Japan data weak – CPI largest drop since Apr 2013
• Mfg PMI showing contraction for fourth straight month
• Japanese large firms see USD/JPY averaging 111.41 – perhaps a stretch
• Japan's GPIF's portfolio lost $50B last fiscal year (source) - Rtrs
• BoJ Tankan June big mfg index 6, non-mfg 19, 4 and 19 eyed
• Jpn Jun mfg PMI 48.1, flash 47.8, May final 47.7, 4th straight contraction
• Sources - Jpn GPIF portfolio losses Y5-5.5 trln fiscal yr ended Mar-Rtrs
• China Jun Caixin mfg PMI 48.6, 49.1 eyed, May 49.2  16th m contraction
• China Jun official services PMI 53.7, May 53.1

Currency Summaries

EUR/USD
• EUR/USD inches higher in Europe as news & data underpin
• European range 1.1072-1.1117
• EZ PMI best in 6  months [nL9N18100K], Jobless down
• US/Bund spreads support EUR/USD: https://reut.rs/297LMHf
• Changing capital key not on agenda says ECB
• Weekly Ichi cloud key EUR/USD: https://reut.rs/297P90Q
• Close over risks short-squeeze, possibly to levels seen ahead UK vote

USD/JPY
• Japanese exporters interest remains in size above 103.00 in USD/JPY
• Blipped up to 103.40 in Asia in thin conditions, 102.44 has been the low
• Japanese exporters took advantage of the rise to sell decent amounts
• Technical outlook mixed due to the daily close above 102.94
• 48/72H log correlation between spot and Nikkei futures 0.65/ 0.61
• EUR/JPY range has been 113.71-114.66

EUR/CHF
• EUR/CHF remained heavy through early Europe
• Weak Thurs saw 1.0802 low and 1.0819 today
• A bruised and battered UK political scene a driver
• Swiss sales and PMI data negative but having little impact
• Cross looking to resume its fall and targets 1.07 n/t
• SNB CHF vigil to apply the brakes and could intensify
• Chart: https://reut.rs/296VuZX

GBP/USD
• GBP/USD topped out at 1.3325 after rallying off 1.3262 (early Ldn low)
• 1.3251 = ensuing low as GBP continues to suffer on post-Brexit uncertainty
• 1.3207 was Thursday’s low after dovish Carney. 1.3350 = Asia high
• UK mfg PMI better than expected, but 99% of survey responses pre-Brexit vote
• EUR/GBP has risen to 0.8380 again amid UK political/economic uncertainty
• 0.8380 was Monday’s 27mth high (marginally bettered Thursday)

USD/CAD
• USD/CAD traded an approximate half-cent range during the European am
• 1.2928-1.2975. Asia high was 1.2973. WTI oil circa $48/barrel at 6.30am ET

AUD/USD  
• AUD/USD extended north to 0.7488 (intra-week high) during the European am
• 0.7436-0.7469 was Asia range. Stops tipped above 0.75 (option expiry level)
• 0.7510 was pre-weekend rally high from Brexit vote-spurred 0.7305 low last week
• Australian election Saturday, RBA seen on hold next week (Tuesday)

NZD/USD
• NZD/USD rose to a 1wk peak of 0.7174 during the European am
• Relatively high-yields are key source of support for kiwi

Option Expirations(Source:ThompsonReuters)

• Vols mostly heavy – most front end vols have now retraced post Brexit gains
• GBP 1mth vol demand at pre Brexit lows (12.5), helped by Thur’s Carney comments
• Ongoing uncertainty and GBP woes should keep GBP vols bid on dips
• 1mth risk reversals in Cable hit 1.75 from 10.0 and now 2.25 GBP puts
• JPY related 1mth vols now supported by BoJ (29 July) and easing fears

 



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