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    US FX Market Open –Tuesday, July 5, 2016: GBP HIT BY ANOTHER ROUND OF BREXIT JITTERS


    Overnight Events

    • GBP/USD -1.05%, USD/JPY -0.8%, EUR/USD -0.02%
    • DXY 0.03%, DAX -0.15%, Iron 2.1%, Brent -2.2%
    • DE Jun Service PMI 53.7 vs 53.2 prev, 53.2 exp
    • EZ Jun Final Service PMI 52.8 vs 52.4 prev, 52.4 exp
    • UK Jun Service PMI 52.3 vs 53.5 prev, 52.7 exp
    • EU’s Weber-London in relative chaos Rtrs
    • UK BoE Current outlook for financial stability is challenging
    • BoE Some Brexit risks starting to crystallise
    • BoE reduces counter cyclical buffers to zero pct
    • BoE Lower ccb will reduce capital buffers by 5.7 Bln Stg  
    • UK Standard Life Inv says suspended trade in its UK real estate fund
    • UK turns to private sector for Brexit talks. FT
    • 'Britain seeks consultants to bridge trade negotiator gap with Brussels  FT
    • UK Finance ministrysays no FX intervention in June Rtrs
    • EZ May retail Sales 1.6% y/y vs 1.4% prev, 1.6% exp
    • BoE Gov Carney to kick-off policy easing Tuesday – IFR.
    • YouGov/CEBR - Pessimism among UK businesses almost doubles after EU vote
    • RBA leaves OCR as is at 1.75%, inflation quite low
    • RBS Infl to remain low for some time, AUD could complicate economic rebalancing
    • Japan GPIF’s stock-heavy portfolio takes hit from Brexit turmoil
    • Japan June services PMI 49.4, in contraction, vs May 51.2
    • China June Caixin services PMI up to 52.7, 11-month high
    • Chinese Premier Li says it’s not easy to achieve 6.7% GDP growth
    • China has more room to fine tune monetary policy ibn H2 – China Sec Journal

    Currency Summaries

    • Euro zone service & composite PMIs edge higher
    • UST/bund spreads narrow underpinning EUR/USD. Cash heads safer US assets
    • CNY little moved but prints new low TR basket, again supports EUR
    • Quiet EUR/USD session, rally today maybe result SNB buying EUR/CHF
    • EUR/GBP strongly supported. Pound hits multi-year lows
    • Ahead Fri's NFPs suppression US rates weighing dollar, boost yield search

    • USD/JPY breaks lower, triggering stops below the 102.00 level
    • Spot has dropped from 102.58 to hit 101.65 so far
    • Market was heavy from the start of Asia due to weak Nikkei & fixing supply
    • Nikkei closed down 0.67%, snaps a recent winning streak
    • USD/JPY 48/72H log correlation with Nikkei futures @ 0.59/ 0.62
    • USD/JPY trading below 101.97 pivot level
    • EUR/JPY has fallen from 114.33 to hit 113.17

    • EUR/CHF jumps 25-30 ticks: https://reut.rs/29jIO5S
    • Cross plays 1.0806-1.0835 range
    • Looks like intervention, occurs as risk appetite dented by China GDP spec
    • EUR/USD up sharply in tandem, CB needs to trade legs to get enough liquidity
    • While unlikely to be confirmed, CHF moves momentarily boost riskier assets
    • China stock moves are at odds with spec about GDP: https://reut.rs/29fITEc
    • AUD, GBP and JPY are likely winners of any SNB rebalancing

    • GBP/USD slid to a fresh 31yr low of 1.3112 during the European am
    • Early Ldn losses courtesy of Standard Life’s UK real estate fund suspension
    • 1.3242-1.3284 was Asia range. 1.3240-1.3340 was Monday’s Ldn range
    • EUR/GBP rose to fresh 31mth high 10 pips shy of 0.85 during European am
    • UK real estate concerns fuelled rise. 0.8391-0.8405 was Asia range

    • USD/CAD has been helped to 1.2910 by lower oil prices
    • WTI $47.70/barrel at 6.15am ET, 130 cents lower on the day
    • Offers expected near 1.2925 (pre-weekend high). 1.2923 = Monday’s high
    • 1.2832 was 10-day low Monday (US Independence Day)

    • AUD/USD eased to a European am low of 0.7486 amid a decline in risk appetite
    • 0.7545 was Asia high after unchanged RBA gave no guidance on whether it might cut again
    • 0.7545 was Monday high too, when option-related selling helped cap gains
    • Talk of recent demand for AUD from yield-seeking real money investors

    • NZD/USD plumbed an early Europe low of 0.7188 after Nikkei closed down 0.67%
    • 0.7221 = ensuing high. 0.7241 = 10-day high Monday
    • Talk of recent demand for NZD from yield-seeking real money investors
    • Fonterra dairy auction result expected circa 10am ET

    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)

    • EUR/USD: 1.1000 (892M), 1.1100 (776M), 1.1155 (191M), 1.1200 (194M)
    • GBP/USD: 1.3200 (303M), 1.3500 (1.5B)
    • EUR/GBP: 0.8260 (500M), 0.8400 (202M)
    • USD/CAD: 1.2715 (455M), 1.2825 (170M), 1.3050 (493M)
    • USD/JPY: 101.00 (150M). AUD/USD: 0.7465 (459M), 0.7500 (100M)

    Looking Ahead - Economic Data (GMT)
    • 14:00 Factory Orders May mkt -0.5% m/m, prev 1.9% y/y
    • 14:00 Factory Orders ex-Trans May prev -0.3% m/m

    Looking Ahead - Events, Other Releases (GMT)
    • 15:45 FedTrade ops 30-yr Fannie Mae/Freddie Mac max $2.125 bln
    • 18:30 FRB New York's Dudley C.Comm roundtable discussion; Binghamton

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