Start your Binary Trading income NOW!!!
Tuesday, October 31, 2006
EUR/USD: Rebound Stalls after Rise in US Wages
A 1% rise in US wages and benefits is helping stall the EUR/USD recovery this morning. Prices had edged up to 1.2710 ahead the data, but rising wages and benefits adds to the Fed's discomfort over high core inflation. Dealers appear more concerned with month-end flows than data this morning. Strong US financial markets this month could put a bid under the USD at the fixing at 16:00 GMT. EUR/USD trades at 1.2701.
US ECON: ECI Up 1.0%, Firmer than Expected on Benefits Advance
A 1.1% rise in benefits costs and a 0.9% increase in wages and salaries lifted total compensation higher by 1.0% between Q2 and Q3. That's above expectations (e: +0.9%) and the fastest in six quarters. There hasn't been a gain of more than 1.0% since Q1"04.
Wages and salaries, representing about 73% of the compensation index, have risen by 0.9% for a second straight quarter. From a year ago, the wages and salaries index is up 3.2%, the most since Q2"02 (3.5%).
Benefits costs, representing the remaining 27% of total compensation, rose by their fastest in four quarters. The trend is toward strength, with a Q1 rise of 0.5% followed by a Q2 advance of 0.8% and now the Q3 increase of 1.1%.
Extrapolating that trend yields a 1.4% advance in Q4 and a 3.8% year-ago rise. Keep in mind, from Q1"03 to Q1"05, the average rise in the benefits index was 1.6%, so the latest increases are not terribly destabilizing to the inflation outlook. During the same period, however, wages and salaries rose an average 0.7% and we are apt to see more uncomfortable inflation readings from this category in the months ahead.
For private industry, wages and salaries slowed to a 0.8% climb in Q3 from a 0.9% advance in Q2. For state and local government workers, compensation costs jumped by 1.4% as wages and salaries rose by 1.4% and benefit costs rose by 1.5%. Wages and salaries accelerated from a 0.9% gain in Q2 while benefit costs rose by 1.5% for a second straight quarter. That's inflationary but this category represents a much smaller segment of the total economy than does private industry.
Wages and salaries, representing about 73% of the compensation index, have risen by 0.9% for a second straight quarter. From a year ago, the wages and salaries index is up 3.2%, the most since Q2"02 (3.5%).
Benefits costs, representing the remaining 27% of total compensation, rose by their fastest in four quarters. The trend is toward strength, with a Q1 rise of 0.5% followed by a Q2 advance of 0.8% and now the Q3 increase of 1.1%.
Extrapolating that trend yields a 1.4% advance in Q4 and a 3.8% year-ago rise. Keep in mind, from Q1"03 to Q1"05, the average rise in the benefits index was 1.6%, so the latest increases are not terribly destabilizing to the inflation outlook. During the same period, however, wages and salaries rose an average 0.7% and we are apt to see more uncomfortable inflation readings from this category in the months ahead.
For private industry, wages and salaries slowed to a 0.8% climb in Q3 from a 0.9% advance in Q2. For state and local government workers, compensation costs jumped by 1.4% as wages and salaries rose by 1.4% and benefit costs rose by 1.5%. Wages and salaries accelerated from a 0.9% gain in Q2 while benefit costs rose by 1.5% for a second straight quarter. That's inflationary but this category represents a much smaller segment of the total economy than does private industry.
USD/JPY: Rumours Of Hedge Fund Sales Above 118.00 Earlier
The market is attempting to attach a handle to the abrupt turnaround at the 118.04 high and talk is now circulating that a well known hedge fund had Dollars to go above 118.00. There is also talk of stops above 118.20 and there is a feeling among London traders that Tokyo accounts might be running a tad short.
GBP/USD: Rate Outlook Still Pointing To A November Hike
A mixed London morning for the Pound with a frothy housing market and a rise in consumer confidence but a drop in retail activity, according to the CBI. On balance still a Sterling buy with the data having little impact on the market's rate outlook. The BoE is widely expected to tighten policy by a 1/4-point next week.
Cable has traded from 1.8965 to 1.9028 and then back to 1.8960, where the current bull push started. The daily chart continues to look top heavy and corrective action is likely to dominate a thin month-end market. Risk to 1.8945-50 but expect bids to support price in the 1.8970-80 area.
Cable has traded from 1.8965 to 1.9028 and then back to 1.8960, where the current bull push started. The daily chart continues to look top heavy and corrective action is likely to dominate a thin month-end market. Risk to 1.8945-50 but expect bids to support price in the 1.8970-80 area.
Swiss Outlook (31st October 2006)
The fall in Swiss banking stocks has been the focus for Europe. In the wake of the news that UBS was being investigated for market manipulation, today they reported a hefty slump in Q3 (-21%). This has seen their share price fall by nearly 5%, which has dragged fellow bank & rival CSFB down by just over 2.5% on the local index. Although the news has had no direct impact on the FX markets it has weighed on the already damp sentiment towards the embattled Franc.
Into European trading and the USD got a boost via the back-door, as the Euro was dented by the poor early run of German numbers. As a result spot was forced above its recent short-term top at 1.2510. Stops were erased from order books in the 1.2525 area as the move higher encountered little resistance.
Fresh offers around the 1.2530 level finally stall this topside momentum while EUR/CHF selling late in the morning helped the price drift back to 1.2505/10 resistance turned support. Bulls target a run to 1.2550 should the USD continue to work higher but much will depend on the outcome of US data
Into European trading and the USD got a boost via the back-door, as the Euro was dented by the poor early run of German numbers. As a result spot was forced above its recent short-term top at 1.2510. Stops were erased from order books in the 1.2525 area as the move higher encountered little resistance.
Fresh offers around the 1.2530 level finally stall this topside momentum while EUR/CHF selling late in the morning helped the price drift back to 1.2505/10 resistance turned support. Bulls target a run to 1.2550 should the USD continue to work higher but much will depend on the outcome of US data
Sterling Outlook (31st October 2006)
The pound came under selling pressure into the 11:00GMT disclosure of October's way below-forecast CBI retail sales balance--suggesting that some players may have got wind of the terrible number.
GBP/USD plumbed an intra-day low of 1.8959 on the back of CBI shocker, having dropped to 1.8970 into its release. Intra-day highs just shy of touted offers at 1.9030 had been notched in the hour ending 09:00GMT. Bids are tipped at 1.8955/60, with some stops pegged below 1.8950. 1.8957 was yesterday's low.
Swiss name selling helped depress EUR/GBP to a 16-month low of 0.6670 in early European trade. The cross then rallied back to 0.6689 (today's Asian session base) into the CBI release. Offers are noted at 0.6695/0.6700.
October's Chicago PMI index will be revealed at 15:00GMT, alongside October's US consumer confidence index, and Q3 ECI. Chicago PMI forecast: 58.0.BoE Governor Mervyn King, and MPC members David Blanchflower, John Gieve, Kate Barker, and Rachel Lomax are all slated to appear before a House of Lords Economic Affairs Committee from 15:35GMT.
GBP/USD plumbed an intra-day low of 1.8959 on the back of CBI shocker, having dropped to 1.8970 into its release. Intra-day highs just shy of touted offers at 1.9030 had been notched in the hour ending 09:00GMT. Bids are tipped at 1.8955/60, with some stops pegged below 1.8950. 1.8957 was yesterday's low.
Swiss name selling helped depress EUR/GBP to a 16-month low of 0.6670 in early European trade. The cross then rallied back to 0.6689 (today's Asian session base) into the CBI release. Offers are noted at 0.6695/0.6700.
October's Chicago PMI index will be revealed at 15:00GMT, alongside October's US consumer confidence index, and Q3 ECI. Chicago PMI forecast: 58.0.BoE Governor Mervyn King, and MPC members David Blanchflower, John Gieve, Kate Barker, and Rachel Lomax are all slated to appear before a House of Lords Economic Affairs Committee from 15:35GMT.
Yen Outlook (31st October 2006)
In true central banker form there was something for both hawks and doves in the post BOJ report press conference. Governor Toshihiko Fukui kept the rate-outlook fairly open with reference to the possibility of a rate hike by year-end but at the same time the view that Japanese interest rates would remain very low and that there was no predetermined time for a rate increase.
The bond market has latched onto the year-end reference and JGB futures dipped and USD/JPY climbed to 117.82, putting on 50-points from early London lows. The intraday chart showed promise and the possibility of a 118.00 test, which did materialize into the Europe midday. With the daily picture suggesting a reversal the buy side is favoured for the Tuesday session.
Price had broken below a long-term trend support line last session and closed just below but the break has not been maintained and a close above the 117.55 line today could set up a run back to 118.50 before the week is out. EUR/JPY has bounced strongly from 149.20 as commercial bidding underpins the rally to 149.80.
The bond market has latched onto the year-end reference and JGB futures dipped and USD/JPY climbed to 117.82, putting on 50-points from early London lows. The intraday chart showed promise and the possibility of a 118.00 test, which did materialize into the Europe midday. With the daily picture suggesting a reversal the buy side is favoured for the Tuesday session.
Price had broken below a long-term trend support line last session and closed just below but the break has not been maintained and a close above the 117.55 line today could set up a run back to 118.50 before the week is out. EUR/JPY has bounced strongly from 149.20 as commercial bidding underpins the rally to 149.80.
Euro Outlook (31st October 2006)
Little fundamental change today in the bigger picture for the EUR/USD outlook, similar to Yesterday, and ahead of the US ISM data & Employment report (Wednesday & Friday respectively) the broader 1.2650/2750 range is expected to contain the majority of short-term fluctuations.
Intraday the poor German Retail Sales data weighed on the Euro and EUR/USD was sold back to 1.2680. However, the drop is seen as an effect of the up and coming German VAT hike, rather than a reflection of any other factors. Solid bids helped prop and spot formed a 1.2680/2700 band into the Euro Zone inflation data.
Talk of central bank bids into 1.2675 dissuaded further short-term sales while below a supranational is tipped on the bid at 1.2650. EZ HICP slowed to +1.6% Y/Y (against the expected +1.7% Y/Y) but the dip was offset by the better than expected EZ Sentiment indicators (Economic Index 110.0 Vs 109.3 Pvs).
Offers are seen at 1.2700/05 from CTA's & other prime names with more sellers at 1.2740/50. Looking ahead, NY NAPM is set for release at 14:00 GMT and Chicago PMI & Consumer Confidence at 15:00 GMT (all October).
Intraday the poor German Retail Sales data weighed on the Euro and EUR/USD was sold back to 1.2680. However, the drop is seen as an effect of the up and coming German VAT hike, rather than a reflection of any other factors. Solid bids helped prop and spot formed a 1.2680/2700 band into the Euro Zone inflation data.
Talk of central bank bids into 1.2675 dissuaded further short-term sales while below a supranational is tipped on the bid at 1.2650. EZ HICP slowed to +1.6% Y/Y (against the expected +1.7% Y/Y) but the dip was offset by the better than expected EZ Sentiment indicators (Economic Index 110.0 Vs 109.3 Pvs).
Offers are seen at 1.2700/05 from CTA's & other prime names with more sellers at 1.2740/50. Looking ahead, NY NAPM is set for release at 14:00 GMT and Chicago PMI & Consumer Confidence at 15:00 GMT (all October).
Monday, October 30, 2006
USD/CAD: Edging Higher in Range; Fed Back in Focus
USD/CAD is edging higher in its range, trading close to 1.1230 as the Fed tries to remind the market it remains a player in the game. Lacker has been on the tape all morning with hawkish comments and a report from a New York consulting shop says the Fed was surprised at the market's reaction to the Q3 slowdown.
They seem to be trying to send the message that there is no way a cut is coming any time soon. One has to ask why the statement after last week's FOMC meeting was not more explicitly hawkish, but the Bernanke Fed clearly has work to do on its communications strategy.
Offers are seen toward 1.1240/50 with Corporate Canada seen selling into strength today. Canadian year-end tomorrow are helping trim market volumes, dealers report.
They seem to be trying to send the message that there is no way a cut is coming any time soon. One has to ask why the statement after last week's FOMC meeting was not more explicitly hawkish, but the Bernanke Fed clearly has work to do on its communications strategy.
Offers are seen toward 1.1240/50 with Corporate Canada seen selling into strength today. Canadian year-end tomorrow are helping trim market volumes, dealers report.
GBP/USD: Stalling On The Pullback And Talk Of Banker Bids
The Dollar has received a shot in the arm from the US data and the hawkish line adopted by the Fed's Lacker. Cable failed at 1.9045 and has backtracked to 1.9017-20 but the pullback is stalling and there is talk of quasi official bidding interest at the 1.9020 level.
Scope to 1.90 and lower if stops are confirmed tight under the figure. Intraday plays are now likely to be squared on any further bounces to 1.9040-45, keeping the Dollar in the recovery hunt.
Scope to 1.90 and lower if stops are confirmed tight under the figure. Intraday plays are now likely to be squared on any further bounces to 1.9040-45, keeping the Dollar in the recovery hunt.
GBP/USD: Consolidating Gains on 1.90 Handle
Cable is heading into the 10am EST NY option cut on the front-foot, consolidating gains to a one-month high of 1.9045. Helping underpin the pound is expectation that the UK base rate will be hiked by 25bp to 5.0% next week (Nov 9), with risk of a further 25bp increase to 5.25% to follow in early 2007.
1.9075 (September 25 peak), 1.9092 (August 31 top), and 1.9146 (August 8, 16-month high) are among GBP/USD bull targets north of 1.9045/50. Sterling support points include 1.9004 (Friday's high), and 1.8985 (today's Asian session top).
Looking ahead: a batch of UK data will be published tomorrow, beginning with October's Nationwide UK house price survey at 07:00GMT. October's CBI retail sales survey, and October's GfK consumer confidence gauge, will also be revealed tomorrow.
1.9075 (September 25 peak), 1.9092 (August 31 top), and 1.9146 (August 8, 16-month high) are among GBP/USD bull targets north of 1.9045/50. Sterling support points include 1.9004 (Friday's high), and 1.8985 (today's Asian session top).
Looking ahead: a batch of UK data will be published tomorrow, beginning with October's Nationwide UK house price survey at 07:00GMT. October's CBI retail sales survey, and October's GfK consumer confidence gauge, will also be revealed tomorrow.
USD/JPY: Struggling To Hold The Bounce Despite Bids Building
Choppy price action above the slew of 117.00-20 bids that are reportedly in the market. Fresh rumours of a hawkish US advisory article may have helped the Dollar to 117.45 on the lift from 117.26 but offers are closing in on the market and a return to the 117.63 European highs will be a struggle.
In line September US expenditure data, an upward revision to the August release and a hawkish line from Fed's Lacker failed to trigger a strong Dollar rally but should help to keep US yields towards their session highs. USD/JPY is looking like 117.20 to 117.50 with the sub-117.00 stops still very much at risk.
In line September US expenditure data, an upward revision to the August release and a hawkish line from Fed's Lacker failed to trigger a strong Dollar rally but should help to keep US yields towards their session highs. USD/JPY is looking like 117.20 to 117.50 with the sub-117.00 stops still very much at risk.
EUR/USD: Eyeing Firmer US Yields; Talk of Hawkish Consultant
Dealers note talk of a hawkish report from a New York consulting shop saying the Fed is more likely to hike than ease, following along the same reasoning used by Lacker earlier. No matter how unfashionable that view may be, the Fed is thought to think the weak third quarter is a soft-patch which will be followed by a resumption of growth into 2007. EUR/USD has eased to 1.2713 from the mid-1.2720s. Bids are eyed at 1.2700; stops are eyed in the 1.2690/95 area. Bids return toward 1.2665/70. US bond yields have edged up to session highs at 4.69% in 10"s on the report.
Swiss Outlook (30th October 2006)
In the wake of the SNB reserve theme from Friday the weekend saw comments from the Swiss Central Bank Dept. Chairman, Hildebrand. Talking to domestic newspaper, SonntagsZeitung, he noted that the current development (i.e. the weaker CHF) was a "conundrum" as the Swiss economy remained stable.
Hildebrand went on to utter a word of warning that markets "should not assume exchange rates would stay as stable as they have in recent years" and that players should "think about hedging some strategies". However, on the notion of the carry trade the central banker relented and said that it was up to the markets to decide on there best use while on interest rates he is quoted as suggesting "rates will continue to increase if Swiss growth remains robust".
Swiss players themselves do not see any change in stance from the comments, they continue to downplay the chances of intervention and look for a further SNB rate hike in Q4 (mid-Dec) by 25bps. Into the new week and the Franc has rallied but with the Dollar stalling near recent lows USD/CHF has been forced to trade close to the 1.2500 mark.
Hildebrand went on to utter a word of warning that markets "should not assume exchange rates would stay as stable as they have in recent years" and that players should "think about hedging some strategies". However, on the notion of the carry trade the central banker relented and said that it was up to the markets to decide on there best use while on interest rates he is quoted as suggesting "rates will continue to increase if Swiss growth remains robust".
Swiss players themselves do not see any change in stance from the comments, they continue to downplay the chances of intervention and look for a further SNB rate hike in Q4 (mid-Dec) by 25bps. Into the new week and the Franc has rallied but with the Dollar stalling near recent lows USD/CHF has been forced to trade close to the 1.2500 mark.
Sterling Outlook (30th October 2006)
Sell interest circa 1.9000 is once again keeping a lid on cable, after prior good size selling around the figure on Friday. That selling topped cable at a one-month peak of 1.9004, following a rally fuelled by the much worse-than-expected 1.6% advance estimate of annualized US Q3 GDP.
Further offers are touted at 1.9015, with some stops tipped above 1.9020. Bull targets include 1.9075 (Sep 25 high), 1.9092 (Aug 31 top), and 1.9146. 1.8985 (today's Asian session top) is now a support point. 1.8957 (today's Asian session base) is a lower prop. Bids are tipped around 1.8957, with some stops touted sub-1.8950.
Further demand is noted at 1.8925. September's core PCE inflation measure will be disclosed at 13:30GMT, alongside personal income and spending numbers. Annualized core PCE is forecast at 2.4%. Fed hawk Lacker is also slated to speak at 13:30GMT. The Nationwide"s monthly UK housing market survey is due at 07:00GMT tomorrow. October's CBI retail sales survey, and October"s GfK consumer confidence gauge, will also be revealed tomorrow.
Further offers are touted at 1.9015, with some stops tipped above 1.9020. Bull targets include 1.9075 (Sep 25 high), 1.9092 (Aug 31 top), and 1.9146. 1.8985 (today's Asian session top) is now a support point. 1.8957 (today's Asian session base) is a lower prop. Bids are tipped around 1.8957, with some stops touted sub-1.8950.
Further demand is noted at 1.8925. September's core PCE inflation measure will be disclosed at 13:30GMT, alongside personal income and spending numbers. Annualized core PCE is forecast at 2.4%. Fed hawk Lacker is also slated to speak at 13:30GMT. The Nationwide"s monthly UK housing market survey is due at 07:00GMT tomorrow. October's CBI retail sales survey, and October"s GfK consumer confidence gauge, will also be revealed tomorrow.
Yen Outlook (30th October 2006)
JPY was in buy-back mode in Asia following the sell-off overseas on Friday following the release of weaker-than-expected US Q3 GDP data. Lows of 117.22 recorded in Asia and 117.63 highs reached in early London.
A speculative push for sub-117.00 stops was thwarted by good importer demand and option related USD buying. This activity shook the market and brought about a short covering bounce from 117.22 to 117.63 in early London. The market is now playing a 117.30 to 117.60 range with little in the way of a bias.
Option barriers at 117.00, bids 117.20 and stops below the figure. There are also offers rumoured at 117.60-70. The buzz in the market for the last month has been the shift in some countries' reserve balances in favour of the Yen.
With the market reportedly still headlong into the "carry trade" there are fears, highlighted by today's FT front page, that a wind change in the currency market could see a scramble to close out short yen positions, causing a spike down in USD/JPY and EUR/JPY.
We have already seen a big technical shift to the downside in USD/JPY with a trend line break Friday and further confirmation so far today.
A speculative push for sub-117.00 stops was thwarted by good importer demand and option related USD buying. This activity shook the market and brought about a short covering bounce from 117.22 to 117.63 in early London. The market is now playing a 117.30 to 117.60 range with little in the way of a bias.
Option barriers at 117.00, bids 117.20 and stops below the figure. There are also offers rumoured at 117.60-70. The buzz in the market for the last month has been the shift in some countries' reserve balances in favour of the Yen.
With the market reportedly still headlong into the "carry trade" there are fears, highlighted by today's FT front page, that a wind change in the currency market could see a scramble to close out short yen positions, causing a spike down in USD/JPY and EUR/JPY.
We have already seen a big technical shift to the downside in USD/JPY with a trend line break Friday and further confirmation so far today.
Euro Outlook (30th October 2006)
Data, News, M&A and flows all conspired to leave EUR/USD largely unchanged through the European morning. In the wake of the weak US Q3 GDP data Friday the Dollar has been on offer and EUR/USD is said to be a strong buy on any signals of dips. French data & the Schneider Electric/American Power Conversion deal underpinned while the UAE news & fund USD buying weighed.
Into the North American session and EUR/USD trades 1.2715/35 but it will be the next wave of US data and rhetoric that gives the pair its short-term bias. At 13:30 GMT the Fed's Lacker is set to talk in Baltimore while Personal Income & Spending data for September is also set for release. Economists expect a median rise of 0.3% in income and 0.2% in spending. Following these key event- risks The Fed's Moskow is set to speak at 14:15 GMT in Chicago.
Dealers note speculation of option strikes set for expiry at 1.2750 into the NY cut-off at 15:00 GMT, while stops are seen above the batch of central bank offers going into 1.2765 with the stops above 70. On the downside it is not until sub-1.2700/2690 that the focus will be taken off the topside.
Into the North American session and EUR/USD trades 1.2715/35 but it will be the next wave of US data and rhetoric that gives the pair its short-term bias. At 13:30 GMT the Fed's Lacker is set to talk in Baltimore while Personal Income & Spending data for September is also set for release. Economists expect a median rise of 0.3% in income and 0.2% in spending. Following these key event- risks The Fed's Moskow is set to speak at 14:15 GMT in Chicago.
Dealers note speculation of option strikes set for expiry at 1.2750 into the NY cut-off at 15:00 GMT, while stops are seen above the batch of central bank offers going into 1.2765 with the stops above 70. On the downside it is not until sub-1.2700/2690 that the focus will be taken off the topside.
Friday, October 27, 2006
USD/MXN: Central Bank Forecasts Propel Peso Higher
USD/MXN is trading at a seven month low - 10.6815, following rosy forecasts from Banxico regarding inflation prospects for 06 and 07. For 06, Banxico is forecasting headline CPI below 4%, and "core" between 3.0-3.5%.
For 07, they are forecasting headline CPI at 3.5%, and core at 3%. Inflation recently has been pumped up by high tomato prices, due to crop shortages, and the central bank commented that although they feel it is a temporary phenomenon, it will add a volatile component to the index.
Fixed income traders have been loading up on MXN denominated bonds over recent weeks, and the rosy inflation forecast is generating new demand. Soft oil prices are dragging down the Bolsa, which is off 0.4% at 23,265, however spot FX traders are ignoring this as momentum continues to force USD/MXN lower. One note of caution, the lower Bollinger band is at 10.6700.
For 07, they are forecasting headline CPI at 3.5%, and core at 3%. Inflation recently has been pumped up by high tomato prices, due to crop shortages, and the central bank commented that although they feel it is a temporary phenomenon, it will add a volatile component to the index.
Fixed income traders have been loading up on MXN denominated bonds over recent weeks, and the rosy inflation forecast is generating new demand. Soft oil prices are dragging down the Bolsa, which is off 0.4% at 23,265, however spot FX traders are ignoring this as momentum continues to force USD/MXN lower. One note of caution, the lower Bollinger band is at 10.6700.
AUD/USD: Gains Stall As US Yields Bounce; Gold Eases
The AUD/USD is consolidating now under the morning highs of 0.7696. A bounce in the US bond yield in the wake of the strong Michigan sentiment numbers has dampened the AUD rally and similarly, gold has eased off the morning highs. AUD/USD is currently at 0.7684 with offers at 0.7700 and 0.7720. Of note is increasing talk that the drought in Australia will weigh on GDP, shaving off 0.7% of growth, according to ABARE and temper a need for a rate hike.
Though growth will be impacted, some of the negative effect is expected to be mitigated by government packages to help the farmers. The Australian budget remains in a surplus, some of which will be spent to help the rural community weather the drought and have no negative impact on the national finances.
Though growth will be impacted, some of the negative effect is expected to be mitigated by government packages to help the farmers. The Australian budget remains in a surplus, some of which will be spent to help the rural community weather the drought and have no negative impact on the national finances.
EUR/USD: Bond Rally Running out of Steam
The US bond market finally appears to be running out of steam after a big three-day rally. Yields are edging back up toward 4.70% in ten-year notes after sliding as low as 4.665. Spreads have widened out between the US and Eurozone in the last few minutes as well, to 94 bp from 92. This argues for a modest USD recovery. 1.2725 and 1.2715 are modest support on dips intraday. EUR/USD trades now at 1.2731 down from 1.2750.
USD/JPY: Decent Bids Emerging But Quality Still On The Offer
Decent bids in USD/JPY are being encountered around 117.15/25 as CTA's and other funds along with quasi-officials buy. However, quality names also still on the offer and levels around the 117.50 area are seen to offer value as bears target the lumpy stops below the 117.00 mark.
GBP/USD: 1.9000 May be a Tough Nut to Crack pre-Weekend
1.9000 may prove a tough to meaningfully crack into the weekend, amid talk of good size sell interest around the figure. Selling GBP/USD above 1.9000 has offered good value on a risk/reward basis over the past three months, with intra-day highs above 1.9000/sub-1.9092 notched on 13 separate trading days since sterling last traded above 1.9100, on August 9.
1.9146 was the August 8, 16-month peak. October's bigger-than-expected upward revision to October's Michigan Sentiment index, to 93.6, may help to prevent the pound establishing itself on a 1.90 handle pre-weekend. 1.8965 (initial post-US Q3 GDP rally high), and 1.8925 (yesterday's high), are among GBP/USD pullback support points.
1.9146 was the August 8, 16-month peak. October's bigger-than-expected upward revision to October's Michigan Sentiment index, to 93.6, may help to prevent the pound establishing itself on a 1.90 handle pre-weekend. 1.8965 (initial post-US Q3 GDP rally high), and 1.8925 (yesterday's high), are among GBP/USD pullback support points.
US TECHS: Trend signal Reaching Extended Levels for S&P
Dec S&P has clearly been in a rally since forming a double bottom in July and so far it has not done anything to imply the move is coming to a close just yet. That said the move has been fairly one way for several weeks and that has pushed our Trend Intensity measure into an extended area at 41.
While this is not a reason to abandon the move it should just heighten traders' awareness that the picture could change quickly. On longer-term (monthly) charts the channel breakout is still a major theme and points to a solid upside move over the next few weeks.
The upper line of that pattern comes in at 1364 and the contract would have to close a session or two below that level to damage the bigger picture. In terms of sentiment the 20-day put/call ratio continues to sink (currently at .63) but it is surprising that traders are not aggressively jumping on the band wagon and is an indication that the rally has more room to go.
While this is not a reason to abandon the move it should just heighten traders' awareness that the picture could change quickly. On longer-term (monthly) charts the channel breakout is still a major theme and points to a solid upside move over the next few weeks.
The upper line of that pattern comes in at 1364 and the contract would have to close a session or two below that level to damage the bigger picture. In terms of sentiment the 20-day put/call ratio continues to sink (currently at .63) but it is surprising that traders are not aggressively jumping on the band wagon and is an indication that the rally has more room to go.
USD/MXN: Mex Weakening On News Of Bid For Australian Rinker Grp
USD/MXN is trading lower as more details of the planned merger arise, and cooler heads prevail. USD/MXN has slid back down to 10.7175, primarily on the realization that CEMEX are likely to fund this deal offshore, just like CVRD did in the INCO deal, if only for the fact that 80% of Rinker's earnings emanate from the United States.
Furthermore, the offer, thought to be approximately AUD16.8bn, or roughly USD13bn is estimated to be a premium of around 27% over current market prices, however Rinker's shares have slipped approximately 30% since the end of April due to worries over the slump in the US housing industry - so CEMEX would be picking the company up at the same levels that existed six months ago.
Furthermore from an exchange rate basis, USD/MXN is currently 4-5% lower than the levels back then (11.15-11.20), and Aussie is only just over 1% higher, so net on net CEMEX would pick them up lower than the Mex peso priced per share of six months ago. Rinker makes crushed rock, cement, asphalt, concrete and concrete pipes, and as mentioned, roughly 80% of earnings come from the US, where it is has a major foothold in the fast-growing states of Florida and Arizona.
It is a great strategic fit for CEMEX, and will diversify their source of earnings. With this proposed deal, and the completion of Brazil's CVRD's takeover of INCO, the regional giants are flexing their muscles.
Furthermore, the offer, thought to be approximately AUD16.8bn, or roughly USD13bn is estimated to be a premium of around 27% over current market prices, however Rinker's shares have slipped approximately 30% since the end of April due to worries over the slump in the US housing industry - so CEMEX would be picking the company up at the same levels that existed six months ago.
Furthermore from an exchange rate basis, USD/MXN is currently 4-5% lower than the levels back then (11.15-11.20), and Aussie is only just over 1% higher, so net on net CEMEX would pick them up lower than the Mex peso priced per share of six months ago. Rinker makes crushed rock, cement, asphalt, concrete and concrete pipes, and as mentioned, roughly 80% of earnings come from the US, where it is has a major foothold in the fast-growing states of Florida and Arizona.
It is a great strategic fit for CEMEX, and will diversify their source of earnings. With this proposed deal, and the completion of Brazil's CVRD's takeover of INCO, the regional giants are flexing their muscles.
Swiss Outlook (27th October 2006)
In the European morning speculation of a weaker than expected KoF Leading Indicator was rife. Given the recent official rhetoric for a slowdown in the alpine economy into 2007 the calls for a third consecutive fall in the forward looking barometer were on the mark.
However, with the previous September reading revised lower (2.19 from 2.32) the fall into October saw the index hit 2.00. This data kept the CHF on the defensive and USD/CHF was bought as high as 1.2571 in the wake of the numbers. Bulls were tipped to be targeting a run at 1.2590 but the failure to break any higher and the impending US data risk has quickly seen these targets cut back.
Looking ahead, US advanced Q3 GDP is set for release at 12:30 GMT but with talk of a weaker than expected number also doing the rounds here there is potential for choppy USD/CHF trading ahead. +2.2% is expected but numbers as low as +1.8% are in circulation. Following this, the 13:45 GMT release of final October Michigan sentiment will provide the market with the next Dollar event- risk.
However, with the previous September reading revised lower (2.19 from 2.32) the fall into October saw the index hit 2.00. This data kept the CHF on the defensive and USD/CHF was bought as high as 1.2571 in the wake of the numbers. Bulls were tipped to be targeting a run at 1.2590 but the failure to break any higher and the impending US data risk has quickly seen these targets cut back.
Looking ahead, US advanced Q3 GDP is set for release at 12:30 GMT but with talk of a weaker than expected number also doing the rounds here there is potential for choppy USD/CHF trading ahead. +2.2% is expected but numbers as low as +1.8% are in circulation. Following this, the 13:45 GMT release of final October Michigan sentiment will provide the market with the next Dollar event- risk.
Sterling Outlook (27th October 2006)
Pre-weekend market-moving influence over GBP/USD will be exerted by today's 12:30GMT advance estimate of US annualized Q3 GDP. A rumour circulated yesterday that it may come in at a sub-forecast 1.8%.
This rumour was seen as a factor in yesterday's cable rise to a one-month high of 1.8925. Demand circa 1.8875 propped sterling through the European morning, following the break below the base of today's 1.8889-1.8921 Asian session range. Stops are tipped below 1.8865.
These could depress the rate towards 1.8850 if tripped. Flagged offers at 1.8950 and 1.9000 are among bull targets north of 1.8925. A 1.8950 option strike rolls off at today's 10am EST NY cut (14:00GMT). There is also speculation that an exotic option barrier might reside at 1.8950.
NIESR says the BoE MPC will have to hike the UK base rate to 5.25% early next year if it is to bring UK CPI down to its 2.0% target level by the end of 2007 (DJ). The MPC is expected to raise the base rate to 5.0% next month. October's final Michigan Sentiment index will be disclosed at 14:00GMT. A slight upward revision to 92.5 is expected.
This rumour was seen as a factor in yesterday's cable rise to a one-month high of 1.8925. Demand circa 1.8875 propped sterling through the European morning, following the break below the base of today's 1.8889-1.8921 Asian session range. Stops are tipped below 1.8865.
These could depress the rate towards 1.8850 if tripped. Flagged offers at 1.8950 and 1.9000 are among bull targets north of 1.8925. A 1.8950 option strike rolls off at today's 10am EST NY cut (14:00GMT). There is also speculation that an exotic option barrier might reside at 1.8950.
NIESR says the BoE MPC will have to hike the UK base rate to 5.25% early next year if it is to bring UK CPI down to its 2.0% target level by the end of 2007 (DJ). The MPC is expected to raise the base rate to 5.0% next month. October's final Michigan Sentiment index will be disclosed at 14:00GMT. A slight upward revision to 92.5 is expected.
Yen Outlook (27th October 2006)
Both USD/JPY and EUR/JPY consolidated after trading higher following a weaker than expected Japanese CPI and retail sales data overnight. The 0.2% y/y in core nationwide prices in September called into question expectations of a possible BoJ rate hike.
EUR/JPY posted a fresh all time high of 150.80, while USD/JPY traded at 118.72. Both pairs were subjected to profit taking and speculative selling pressure after MOF's Watanabe said JPY weakness would not continue due to current economic conditions in Japan.
This raises the fear of Japanese discontent over ongoing JPY weakness, leaving an element of two-way risk in the market. JPY funded carry trades and retail investor demand continued to undermine JPY, while intervention jitters and a heavy dollar tone offset gains.
A UK clearer sold a good clip early on in the European session, along with reports of sovereign commercial interest. Japanese lifer demand and importer bids fueled a recovery from the 118.35 area but the pair was unable to clear a congestion of Tokyo name offers from 118.65 up to 118.80. EUR/JPY saw very limited price action around 150.25/30 throughout.
EUR/JPY posted a fresh all time high of 150.80, while USD/JPY traded at 118.72. Both pairs were subjected to profit taking and speculative selling pressure after MOF's Watanabe said JPY weakness would not continue due to current economic conditions in Japan.
This raises the fear of Japanese discontent over ongoing JPY weakness, leaving an element of two-way risk in the market. JPY funded carry trades and retail investor demand continued to undermine JPY, while intervention jitters and a heavy dollar tone offset gains.
A UK clearer sold a good clip early on in the European session, along with reports of sovereign commercial interest. Japanese lifer demand and importer bids fueled a recovery from the 118.35 area but the pair was unable to clear a congestion of Tokyo name offers from 118.65 up to 118.80. EUR/JPY saw very limited price action around 150.25/30 throughout.
Euro Outlook (27th October 2006)
Euro Zone data today has underpinned the "Buy on dips" mentality in EUR/USD. EZ M3 data surprised on the upside, to add pressure on the ECB and the need for further monetary tightening into the end of the year, if not into Q1 07 also. EUR/USD was initially sold into European trading as the failure to hold the break into the 1.2700's combined with the EUR/JPY sales to leave spot looking damp.
However, official bidding into 1.2665, form an Asian central bank and another regional official player, helped prop before the speculation of a weaker than expected US GDP release soon forced the Dollar onto the defensive once more.
Option players also note a large 1.2700 option strike intraday at the NY cut-off(14:00 GMT) with barriers seen into 1.2750 with talk of 1.2725's. Looking ahead, US Advance Q3 GDP data is set for release at 12:30 GMT. The consensus is for a release around the +2.2% mark but the afore mentioned speculation already has some looking for a reading around the +1.8% area. Should such numbers be seen then the option barriers & 1.28 Would soon be eyed.
However, official bidding into 1.2665, form an Asian central bank and another regional official player, helped prop before the speculation of a weaker than expected US GDP release soon forced the Dollar onto the defensive once more.
Option players also note a large 1.2700 option strike intraday at the NY cut-off(14:00 GMT) with barriers seen into 1.2750 with talk of 1.2725's. Looking ahead, US Advance Q3 GDP data is set for release at 12:30 GMT. The consensus is for a release around the +2.2% mark but the afore mentioned speculation already has some looking for a reading around the +1.8% area. Should such numbers be seen then the option barriers & 1.28 Would soon be eyed.
Thursday, October 26, 2006
USD/CHF: 1.2590's bring Out Renewed Sales - Merz Comments Eyed
Into early North American trading and sellers in USD/CHF into the 1.2590's are limiting the rebound at present. In other news, the Swiss Finance Minister, Hans-Rudolf Merz, has comments to Bloomberg reporters that "further franc weakness is not desired".
In a report of the comments the official is reported to say that "the country should look after its own currency" and that a further decline (past the recent six-year low) against the Euro is not warranted.
He also backed the SNB and their policy on rates while reiterating the official rhetoric, seen from Roth in his recent speech, that the Franc remains inside the range against the Euro.
In a report of the comments the official is reported to say that "the country should look after its own currency" and that a further decline (past the recent six-year low) against the Euro is not warranted.
He also backed the SNB and their policy on rates while reiterating the official rhetoric, seen from Roth in his recent speech, that the Franc remains inside the range against the Euro.
FX OPTIONS: EUR/USD 1mth R/R Comes Better Offered for EUR Puts
The 1mth 25 delta risk reversal has come better offered for EUR puts, to 0.15 pct last, on the back of this morning's spot ascent to 1.2670. This is the highest level at which EUR/USD has traded since October 6--a day on which the 1mth R/R flipped to favour downside strikes (post-NFP). Expiry-wise: there is speculation that a 1.2650 strike rolls off at today's 10am EST NY cut (14:00GMT). A 1.2650 exotic barrier was erased in early European trade (1.2642 was today's Asian session top).
USD/CHF: Selling Into Rallies Preferred, 1.2585 & 1.2600 Eyed
Selling into strength ahead of the North American open is preferred and London players note the 1.2585/90 & 1.2600/05 areas as offering value depending on your approach to risk aversion. Bids into 1.2560/65 will prop stabs at the downside into early NorAm trading with bears said to be targeting 1.2550 as a dynamic target before looking to exit existing shorts.
Against the Euro, the Franc has attempted to rally on the day but bids in the cross into 1.5915 have limited further EUR/CHF stabs lower. Support at 1.5900 is the ultimate goal for further Swissie strength but with the Dollar very much the central story today it is unlikely that the price will head for this level unless ECB speakers contradict the early Trichet comments and signal no further ECB rate tightening.
Against the Euro, the Franc has attempted to rally on the day but bids in the cross into 1.5915 have limited further EUR/CHF stabs lower. Support at 1.5900 is the ultimate goal for further Swissie strength but with the Dollar very much the central story today it is unlikely that the price will head for this level unless ECB speakers contradict the early Trichet comments and signal no further ECB rate tightening.
Swiss Outlook (26th October 2006)
The bounce to 1.2625 into early European trading gave European traders the higher levels they required to sell into. As they gave their first reaction to the overnight Fed verdict & announcement spot was sold back below 1.2600 as short CHF positions continued to be bought back.
Stops triggered on the way down before bids into 1.2560/65 were found to limit further Dollar weakness. However, bears look for a return towards 1.2550 then 1.2500. Selling into strength into North America is preferred and London players note the 1.2585/90 & 1.2600/05 areas as offering value depending on your approach to risk aversion and the view your take on the US data.
Elsewhere, the latest calculation of the Swiss consumption indicator by UBS saw the headline come in at 1.88 in September, up from 1.72 in August. The data reflects the continued robust undertones within the domestic economy with the latest figure seen as "significantly" above its long-term average at 1.49. Private consumption remains solid but with the potential for a slowdown in growth into 2007 these numbers will become increasingly important.
Stops triggered on the way down before bids into 1.2560/65 were found to limit further Dollar weakness. However, bears look for a return towards 1.2550 then 1.2500. Selling into strength into North America is preferred and London players note the 1.2585/90 & 1.2600/05 areas as offering value depending on your approach to risk aversion and the view your take on the US data.
Elsewhere, the latest calculation of the Swiss consumption indicator by UBS saw the headline come in at 1.88 in September, up from 1.72 in August. The data reflects the continued robust undertones within the domestic economy with the latest figure seen as "significantly" above its long-term average at 1.49. Private consumption remains solid but with the potential for a slowdown in growth into 2007 these numbers will become increasingly important.
Sterling Outlook (26th October 2006)
Cable rallied to an intra-week peak just north of 1.8850 during the European morning, as the continent absorbed the fact that yesterday's FOMC statement was less hawkish than some had feared. The pound also benefited from an upbeat assessment of the UK growth outlook from Chancellor Brown (FT).
Touted offers at 1.8860 represent an obstacle to additional appreciation. The offers reside a pip above last Friday's high. Some stops are tipped above 1.8870/75. These could inflate the rate towards 1.8900 if tripped. Further sell interest is expected to emerge ahead of 1.8900--a level at which exotic option barriers reside.
These are the peak triggers of Double No Touch options, carrying a cumulatively estimated GBP 10 million payout, which are slated to expire next April. 1.8899 was the October 3 high. US September durable goods orders will be disclosed at 12:30GMT, alongside weekly jobless claims.
Durable goods orders forecast: +1.0% m/m, ex-transport +2.0% m/m. Jobless claims forecast: 307k. September new home sales will be revealed at 14:00GMT. Forecast: 1040k.
Touted offers at 1.8860 represent an obstacle to additional appreciation. The offers reside a pip above last Friday's high. Some stops are tipped above 1.8870/75. These could inflate the rate towards 1.8900 if tripped. Further sell interest is expected to emerge ahead of 1.8900--a level at which exotic option barriers reside.
These are the peak triggers of Double No Touch options, carrying a cumulatively estimated GBP 10 million payout, which are slated to expire next April. 1.8899 was the October 3 high. US September durable goods orders will be disclosed at 12:30GMT, alongside weekly jobless claims.
Durable goods orders forecast: +1.0% m/m, ex-transport +2.0% m/m. Jobless claims forecast: 307k. September new home sales will be revealed at 14:00GMT. Forecast: 1040k.
Yen Outlook (26th October 2006)
Yield plays influenced the market in quiet trade. The US FOMC statement weighed on the dollar as players adjusted expectations for the medium-term outlook on rates. European players were early sellers of USD/JPY after the pair edged away from 119.00 overnight.
The pair drifted lower as EUR/USD made up ground in response to hawkish comments from ECB Chief Trichet. The pair was supported into the 118.60 area from importer bids, trust banks and reports of small Eastern European buying. Proprietary accounts and leverage names used the pullback to establish longs while the 118.55 support held.
EUR/JPY retained a bid tone, buoyed by Japanese retail investor demand and general flight to yield by hedge funds and macro accounts. AUD/JPY, GBP/JPY and EUR/JPY all traded on a firm footing. EUR/JPY cleared stops above 150.30 and extended to 150.48. Option accounts and real money names drove the pair lower.
USD/JPY is expected to retain a narrow range amid a heavy dollar tone and good size option bids ahead of 118.50 strikes. EUR/JPY is likely to be skewed towards 150.50, where large size exotic positions remain.
The pair drifted lower as EUR/USD made up ground in response to hawkish comments from ECB Chief Trichet. The pair was supported into the 118.60 area from importer bids, trust banks and reports of small Eastern European buying. Proprietary accounts and leverage names used the pullback to establish longs while the 118.55 support held.
EUR/JPY retained a bid tone, buoyed by Japanese retail investor demand and general flight to yield by hedge funds and macro accounts. AUD/JPY, GBP/JPY and EUR/JPY all traded on a firm footing. EUR/JPY cleared stops above 150.30 and extended to 150.48. Option accounts and real money names drove the pair lower.
USD/JPY is expected to retain a narrow range amid a heavy dollar tone and good size option bids ahead of 118.50 strikes. EUR/JPY is likely to be skewed towards 150.50, where large size exotic positions remain.
Euro Outlook (26th October 2006)
Option related sales kept the 1.2650 barriers protected in Asian trading. However, into early European action and the immediate response to the less hawkish FOMC overnight was to buy dips. 1.2625 limited the downside and buying from all areas of the FX walk of life was seen as the price rallied back to the Asian session peak at 1.2645.
Protective offers were soon absorbed and spot was able to break higher, triggering stops on the move through 1.2655. Standing offers were seen from 1.2665 back to 1.2675 and these have attempted to stall further Euro strength. Bids are now seen thick back from 1.2655 to 1.2645 after the upbeat Trichet comments.
Into North American trading and the Trichet speech may be historic but with the ECB's Weber, Quaden, Mersch, Stark & Liikanen still to come intraday (after 09:00 GMT, 14:00 & 16:00 GMT respectively), there could be a lot of mileage in the long EUR play today. On the US data front, the New Home Sales data set for release at 14:00 GMT will provide the Dollar with its early risk. More offers are seen into 1.2700 while stops are said to be building sub-1.2625.
Protective offers were soon absorbed and spot was able to break higher, triggering stops on the move through 1.2655. Standing offers were seen from 1.2665 back to 1.2675 and these have attempted to stall further Euro strength. Bids are now seen thick back from 1.2655 to 1.2645 after the upbeat Trichet comments.
Into North American trading and the Trichet speech may be historic but with the ECB's Weber, Quaden, Mersch, Stark & Liikanen still to come intraday (after 09:00 GMT, 14:00 & 16:00 GMT respectively), there could be a lot of mileage in the long EUR play today. On the US data front, the New Home Sales data set for release at 14:00 GMT will provide the Dollar with its early risk. More offers are seen into 1.2700 while stops are said to be building sub-1.2625.
Wednesday, October 25, 2006
USD/JPY: Static Ahead Of FOMC, While 150 Eludes EUR/JPY
USD/JPY is static ahead of the US FOMC decision, with prices hovering around the 119.15/20 area. The pair made a brief uptick earlier on in the session but was unable to overcome the 119.30 level amid Japanese commercial selling. Reports of a large Japanese entity around the 119.30 emerged in the European morning session and this activity appeared to cap the topside into the NY cut.
Offers are noted from 119.30 up to 119.50, with exporters and local names lowering their interest after yesterday's failure at 119.65. Elsewhere, EUR/JPY continues to struggle around the 150.00 region. A brief move higher saw the pair record a 150.05 high but a series of Japanese and European names appeared on the offer.
Real money selling and options interest has been behind the interest, while vague reports of central bank activity has done the rounds after reports of commercial interest early on in the week. Focus beyond the US FOMC meeting is expected to turn to Japanese policy, with CPI due for a Friday release. Currently, interbank sources are touting rumours of a well know Washington based advisory looking for a dovish BOJ.
Offers are noted from 119.30 up to 119.50, with exporters and local names lowering their interest after yesterday's failure at 119.65. Elsewhere, EUR/JPY continues to struggle around the 150.00 region. A brief move higher saw the pair record a 150.05 high but a series of Japanese and European names appeared on the offer.
Real money selling and options interest has been behind the interest, while vague reports of central bank activity has done the rounds after reports of commercial interest early on in the week. Focus beyond the US FOMC meeting is expected to turn to Japanese policy, with CPI due for a Friday release. Currently, interbank sources are touting rumours of a well know Washington based advisory looking for a dovish BOJ.
USD/CAD: Easier After Data; Commodities Rise
USD/CAD has eased to session lows in the wake of soft US housing data and a bounce in commodities. A drawdown in US crude inventories is helping rally crude prices while gold has recouped most of its morning losses on the weaker USD tone. Support lies near 1.1250 near-term while better support is at 1.1205. 1.1285/90 is resistance.
EUR/USD: Dollar Sales Pick Up, US Yields Ease
EUR/USD has pushed to fresh session highs in the mid-1.2590s as US yields edge lower in the wake of the US home sales data. The data was slightly soft, but nothing to get too excited about. US/Eurozone yield differentials have narrowed a bit today given the juxtaposition between strong Ifo and weak home sales. The 10 year spread has tightened to 98 bp from 102 earlier in the week. Offers are seen at 1.2595/00 while small stops are eyed above. 1.2570 is support on dips near-term.
EUR/CHF: Pressing Higher As Swissy Tad Softer On Crosses
EUR/CHF has just traded to a session high 1.5931, as Swissy has adopted a generally softer tone against most crosses. GBP/CHF has traded up to a US session high of 2.3760, CHF/JPY dropped to a session low 94.09, and AUD/CHF is trading sideways at 0.9620, but has sustained itself at the lower end of the day's range after trading as high as 0.9650 in Asia. CAD/CHF seems to be the lone holdout, having traded as high as 1.1232, having opened NY at 1.1215. The net effect on USD/CHF has been neutral, with the pair trading in a 1.2650-65 range for the past half hour.
Swiss Outlook (25th October 2006)
Only the most dedicated of European traders got a look at the Roth comments yesterday. Unlike their North American counterparts, European players got their first look at the SNB Chairman's rhetoric today.
Talking on all subjects from the pace of the 2007 slowdown to the 1.58/59 EUR/CHF comfort zone the central bank head was moderately hawkish. However, the one subject he failed to touch upon, just happened to be the subject that the majority of the market wanted to hear about.
Interest rates "remain low" but no signals yet for confirmation that the SNB will raise target LIBOR bands in Q4 (December). Intraday, pre-Fed long Dollar squaring has driven many trades but brief forays in USD/CHF into the 1.2640's have found only more support. Add to this the bounce in EUR/CHF off 1.5900 and the Franc has looked unable to eke out further gains.
Looking ahead, US Housing & Chicago Fed data are set for release at 14:00 GMT but it will be the 18:15 GMT FOMC rate verdict & accompanying statement that attract the bulk of the attention.
Talking on all subjects from the pace of the 2007 slowdown to the 1.58/59 EUR/CHF comfort zone the central bank head was moderately hawkish. However, the one subject he failed to touch upon, just happened to be the subject that the majority of the market wanted to hear about.
Interest rates "remain low" but no signals yet for confirmation that the SNB will raise target LIBOR bands in Q4 (December). Intraday, pre-Fed long Dollar squaring has driven many trades but brief forays in USD/CHF into the 1.2640's have found only more support. Add to this the bounce in EUR/CHF off 1.5900 and the Franc has looked unable to eke out further gains.
Looking ahead, US Housing & Chicago Fed data are set for release at 14:00 GMT but it will be the 18:15 GMT FOMC rate verdict & accompanying statement that attract the bulk of the attention.
Sterling Outlook (25th October 2006)
Touted offers at 1.8785 and 1.8800 represent obstacles to GBP/USD pushing its recovery envelope from yesterday's five-day lows just south of 1.8680. Rumoured stops above 1.8800 could spur fresh upward momentum if tripped. Above-figure bull targets include 1.8835 (Monday's top), 1.8859 (last Friday's two-week peak), and 1.8900. Exotic option barriers, carrying a cumulatively estimated GBP 10 million payout, reportedly reside at 1.8900.
1.8770 (yesterday's high) is now a pullback support point. Lower props include 1.8754 (today's Asian session roof), 1.8722 (today's Asian session floor), and 1.8694 (yesterday's NY session base). Yesterday"s hawkish comments from BoE Chief Economist Bean (BoE website) underpin the expectation that the UK base rate will be hiked to 5.0% next month.
Today's key event risk is the 18:15GMT FOMC statement to accompany a forecast "unchanged" US rate verdict. There is speculation that it may be more hawkish than the September 20 statement. US September existing home sales will be revealed at 14:00GMT. Forecast: 6.23 million.
1.8770 (yesterday's high) is now a pullback support point. Lower props include 1.8754 (today's Asian session roof), 1.8722 (today's Asian session floor), and 1.8694 (yesterday's NY session base). Yesterday"s hawkish comments from BoE Chief Economist Bean (BoE website) underpin the expectation that the UK base rate will be hiked to 5.0% next month.
Today's key event risk is the 18:15GMT FOMC statement to accompany a forecast "unchanged" US rate verdict. There is speculation that it may be more hawkish than the September 20 statement. US September existing home sales will be revealed at 14:00GMT. Forecast: 6.23 million.
Yen Outlook (25th October 2006)
USD/JPY did little in European trade. For the most part, USD/JPY traded on the weaker side on the back of long liquidation ahead of the all-important FOMC statement. The pair edged down to 118.96 before steadying.
Tokyo sources noted a lack of Japanese importer buys across the fix and this helped to turn sentiment. Intervention fears fueled the corrective price action. Yesterday's New York afternoon saw speculation of BOJ rate checking and further talk of European central bank activity from 150.00 in EUR/JPY. This added to the defensive tone in both pairs.
USD/JPY triggered small stops below 119.00 but Japanese retail investor demand for the JPY crosses provided liquidity at the lows. AUD/JPY was buoyant after strong Australian CPI data and ongoing Uridashi related demand, while GBP/JPY was supported by general interest for yield and this kept EUR/JPY underpinned ahead of 149.60.
The focus for JPY remains the large 120.00 USD/JPY option positions. The topside is capped from option players. Japanese exporters also have some interest, notably lowering their activity to the 119.40/50 area after yesterday's failure at 119.65.
Tokyo sources noted a lack of Japanese importer buys across the fix and this helped to turn sentiment. Intervention fears fueled the corrective price action. Yesterday's New York afternoon saw speculation of BOJ rate checking and further talk of European central bank activity from 150.00 in EUR/JPY. This added to the defensive tone in both pairs.
USD/JPY triggered small stops below 119.00 but Japanese retail investor demand for the JPY crosses provided liquidity at the lows. AUD/JPY was buoyant after strong Australian CPI data and ongoing Uridashi related demand, while GBP/JPY was supported by general interest for yield and this kept EUR/JPY underpinned ahead of 149.60.
The focus for JPY remains the large 120.00 USD/JPY option positions. The topside is capped from option players. Japanese exporters also have some interest, notably lowering their activity to the 119.40/50 area after yesterday's failure at 119.65.
Euro Outlook (25th October 2006)
Still the market waits for the verdict from the FOMC, due at 18:15 GMT. However, as European traders ambled down the home straight, EUR/USD only had the small matter of the latest IFO data to negotiate. Ahead of the release, there were rumours of a weaker-than-expectation number. Fueled by the disappointing Belgian data yesterday the talk was of 102.8, however, the eventual 105.3 (above the 104.5 consensus) left the Euro underpinned.
Bids into 1.2555/60 propped and soon spot was bouncing back towards the Asian session top at 1.2578. However, solid standing offers from 1.2570 back to 1.2780 have attempted to cap while EUR/JPY sales ahead of 150.00 are also supposed to have added weight. Central Bank sellers are seen into 1.2595/2600 while on the downside it is not until sub-1.2525 bids that lumpy stops reside.
Looking ahead, US Housing & Chicago Fed data are set for release at 14:00 GMT but with the main-event now within touching distance it will take a break outside 1.2545/85 before any sign of follow-through interest is instigated. Also watch for comments from the EU's Almunia.
Bids into 1.2555/60 propped and soon spot was bouncing back towards the Asian session top at 1.2578. However, solid standing offers from 1.2570 back to 1.2780 have attempted to cap while EUR/JPY sales ahead of 150.00 are also supposed to have added weight. Central Bank sellers are seen into 1.2595/2600 while on the downside it is not until sub-1.2525 bids that lumpy stops reside.
Looking ahead, US Housing & Chicago Fed data are set for release at 14:00 GMT but with the main-event now within touching distance it will take a break outside 1.2545/85 before any sign of follow-through interest is instigated. Also watch for comments from the EU's Almunia.
Tuesday, October 24, 2006
LATAM: Regional Ccys Easier On Local Issues
A late spurt of Peso selling in thin markets after last night's close pushed USD/MXN higher last night, with the pair touching a high of 10.8785 around 6.00 PM last night. Traders speculate that it was "fund" related, although they are a bit mystified why a "sophisticated investor" would enter the markets with almost no liquidity, other than with the purpose of moving the market. Late yesterday afternoon disappointing MXN retail sales figures were released, which revealed y-on-y growth of 2.9%, quite a bit lower than the 3.2% median estimate from local economists.
Some traders attributed the late Peso sell off to this as a harbinger for lower growth in general, as strategists and economists have been waiting for the deceleration in the US economy to show up in MXN data. USD/MXN has remained well bid over night, and the pair opened NY trading at 10.8675 - up roughly 50pts from last night's NY close. The front contract on the BM&F opened this morning at 2.1455, up slightly from its 2.1440 close last night.
There was a slight negative tone to the market on the open after President Lula got shellacked in the televised presidential debate last night over the "dossier scandal", however traders are ambivalent as they feel that Lula is still likely to win, and if he didn't Alckmin would be a pro-growth, pro-business president - so its a win-win. Local commercial dollar sales have knocked the contract back down to 2.1430 (2.1400 spot equivalent).
Some traders attributed the late Peso sell off to this as a harbinger for lower growth in general, as strategists and economists have been waiting for the deceleration in the US economy to show up in MXN data. USD/MXN has remained well bid over night, and the pair opened NY trading at 10.8675 - up roughly 50pts from last night's NY close. The front contract on the BM&F opened this morning at 2.1455, up slightly from its 2.1440 close last night.
There was a slight negative tone to the market on the open after President Lula got shellacked in the televised presidential debate last night over the "dossier scandal", however traders are ambivalent as they feel that Lula is still likely to win, and if he didn't Alckmin would be a pro-growth, pro-business president - so its a win-win. Local commercial dollar sales have knocked the contract back down to 2.1430 (2.1400 spot equivalent).
FX OPTIONS: EUR/USD Front & Mid-Date EUR Puts In Demand
We have been told that a 1.2480 EUR put option traded at 6.0 pct in an estimated E250mn during the London morning. The strike has been set just south of the 12-week low of 1.2484 plumbed on October 13. There are also reports of earlier interest for 3mth 20 delta EUR puts - to follow prior downside strike demand yesterday.
3mth 1.2400 EUR puts were reportedly paid at 6.6 pct in an estimated E250mn yesterday, with 3mth 1.2250 EUR puts traded at 6.75 pct in an estimated E150mn. The above-mentioned EUR put interest is helping the 3mth 25 delta risk reversal maintain a downside strike premium. 0.05/0.15 EUR puts over is the current market.
3mth ATM strikes are additionally tipped to have traded at 6.45 pct in an estimated E250mn yesterday. The 3mth is 6.4/6.5 last. Expiry-wise: the size of the 1.2550 strike rolling off at today's 10am EST NY cut is estimated at E400mn.
3mth 1.2400 EUR puts were reportedly paid at 6.6 pct in an estimated E250mn yesterday, with 3mth 1.2250 EUR puts traded at 6.75 pct in an estimated E150mn. The above-mentioned EUR put interest is helping the 3mth 25 delta risk reversal maintain a downside strike premium. 0.05/0.15 EUR puts over is the current market.
3mth ATM strikes are additionally tipped to have traded at 6.45 pct in an estimated E250mn yesterday. The 3mth is 6.4/6.5 last. Expiry-wise: the size of the 1.2550 strike rolling off at today's 10am EST NY cut is estimated at E400mn.
USD/CAD: Consolidating after Probe Through 200-Day Average
USD/CAD is in consolidation mode after triggering stops on the move through the 200-day moving average at 1.1305 this morning. The USD retains a firm bid across the board this morning with dealers pricing in the risk of a hawkish statement from the FOMC on Wednesday.
The economic calendars are light today with employment insurance claims from Canada expected at 12:30 (seen up 1.7%) and Richmond Fed at 14:00 GMT. M&A overhang and month-end repatriation by oil and gas producers may limit USD/CAD upside this morning.
CVRD extended its bid for Inco yet again, this time to November 3, while the Shell Canada deal is still in the works. 1.1290/00 is modest support on dips in USD/CAD near-term, while 1.1335 is resistance, the 61.8% retracement of the 1.1420/1.1205 drop. USD/CAD trades now at 1.1305.
The economic calendars are light today with employment insurance claims from Canada expected at 12:30 (seen up 1.7%) and Richmond Fed at 14:00 GMT. M&A overhang and month-end repatriation by oil and gas producers may limit USD/CAD upside this morning.
CVRD extended its bid for Inco yet again, this time to November 3, while the Shell Canada deal is still in the works. 1.1290/00 is modest support on dips in USD/CAD near-term, while 1.1335 is resistance, the 61.8% retracement of the 1.1420/1.1205 drop. USD/CAD trades now at 1.1305.
EUR/USD: Little Net Change at US Open
EUR/USD opens nearly unchanged this morning after a modest dip into the 1.2520s during the London morning. A rise in the Eurozone current account deficit was offset by a surge in industry orders, helping EUR/USD push slightly higher in its range.
EUR/JPY demand is helping keep dips shallow. The US calendar is light today with Richmond Fed at 14:00 the main event. At 13:00 GMT Belgian business sentiment is set for release, which is closely correlated with Ifo. 4.0 is expected, a slight dip from 4.5 next month. Ifo follows tomorrow.
Asian buying is rumored on dips this morning to 1.2525. Stops are seen below 1.2520 but bids return from 1.2510 on down. Offers are seen in the 1.2555 area on rallies near-term. Small stops are seen at 1.2560/65. A large 1.2550 options expiry is seen keeping markets well contained through the 14:00 GMT New York cut.
EUR/JPY demand is helping keep dips shallow. The US calendar is light today with Richmond Fed at 14:00 the main event. At 13:00 GMT Belgian business sentiment is set for release, which is closely correlated with Ifo. 4.0 is expected, a slight dip from 4.5 next month. Ifo follows tomorrow.
Asian buying is rumored on dips this morning to 1.2525. Stops are seen below 1.2520 but bids return from 1.2510 on down. Offers are seen in the 1.2555 area on rallies near-term. Small stops are seen at 1.2560/65. A large 1.2550 options expiry is seen keeping markets well contained through the 14:00 GMT New York cut.
Swiss Outlook (24th October 2006)
Intraday the Swiss Franc has continued to feel the pressure of the carry, as the CHF remains the favored tool to fund various positions. As a result the Swissie is noted as the weakest of the European set with USD/CHF bought to a fresh 3-day high at 1.2708 while EUR/USD was rallied to 1.5925 as the CHF weakness was accentuated by the steadier Euro.
Looking ahead, the US FOMC meeting that kicks-off today is expected to drive short & longer-term sentiment towards the Dollar. However, the two-day meeting forces the market to mark time ahead of the verdict tomorrow.
Elsewhere, look for a change in the tone of official rhetoric from the central bank Chairman in his speech later today. The SNB's Roth (who is due to speak at 15:45 GMT in Zurich) has of late taken a slightly more positive view than the broader pessimistic SNB outlook. However, with data beginning to reflect the view that 2007 could hold scope for a more acute slowdown, there is likely to be growing pressure on the central bank head to explain the official line on both the current outlook and the potential implications of such a move.
Looking ahead, the US FOMC meeting that kicks-off today is expected to drive short & longer-term sentiment towards the Dollar. However, the two-day meeting forces the market to mark time ahead of the verdict tomorrow.
Elsewhere, look for a change in the tone of official rhetoric from the central bank Chairman in his speech later today. The SNB's Roth (who is due to speak at 15:45 GMT in Zurich) has of late taken a slightly more positive view than the broader pessimistic SNB outlook. However, with data beginning to reflect the view that 2007 could hold scope for a more acute slowdown, there is likely to be growing pressure on the central bank head to explain the official line on both the current outlook and the potential implications of such a move.
Sterling Outlook (24th October 2006)
Asian sovereign buy interest around 1.8680 helped to prop GBP/USD through the London morning, following the early Europe break below 1.8712 (today's Asian session base). There is speculation that the Asian sovereign demand might be M&A-related. Further buy interest from the same Asian sovereign is tipped around 1.8660. Double-day lows just shy of 1.8660 were plumbed last Wednesday and Thursday. Stops are touted sub-1.8650.
1.8712 is now a rebound resistance level. Upper obstacles include 1.8736 (today's Asian session peak), 1.8741 (yesterday's NY session high), and 1.8750. October's CBI manufacturing orders book balance, disclosed at 10:00GMT, came in at a much worse-than-expected minus 20. EUR/GBP scaled a fresh intra-day peak of 0.6716 on the back of the bad number. Some stops are touted above 0.6720.
Bids are tipped below 0.6700, inclusive of orders at 0.6695. BoE Chief Economist Charles Bean is slated to speak about globalization and inflation at the LSE at 17:30GMT.
1.8712 is now a rebound resistance level. Upper obstacles include 1.8736 (today's Asian session peak), 1.8741 (yesterday's NY session high), and 1.8750. October's CBI manufacturing orders book balance, disclosed at 10:00GMT, came in at a much worse-than-expected minus 20. EUR/GBP scaled a fresh intra-day peak of 0.6716 on the back of the bad number. Some stops are touted above 0.6720.
Bids are tipped below 0.6700, inclusive of orders at 0.6695. BoE Chief Economist Charles Bean is slated to speak about globalization and inflation at the LSE at 17:30GMT.
Yen Outlook (24th October 2006)
USD/JPY and other JPY crosses remain bid with JPY still the funding currency of choice. Interest was on the light side but dealers noted continuing demand for GBP, AUD and NZD from Japanese retail investors. This helped to maintain upward pressure in GBP/JPY, AUD/JPY and NZD/JPY. EUR/JPY maintained a supportive tone as a result of the firmness in these JPY crosses.
USD/JPY was buoyed by the dollar bid tone into today's US FOMC meeting. The pair traded close to the 119.50 region throughout the European morning. A US investment house was a good buyer, although gains were stymied by sovereign name selling and large Japanese sell orders from 119.60 up to 119.90. A large 119.50 option strike also restricted price action, leaving choppy price action around the 119.50 pivot. Near-term price action is expected to favour the dollar, with traders positioning for a hawkish Fed statement.
Japanese rate hike expectations have also been reduced, which should see USD/JPY as the main beneficiary for intra-day flows. Defensive selling ahead of 120.00 should increase as we approach 119.75/80, with a concentration of sellers ahead of these triggers.
USD/JPY was buoyed by the dollar bid tone into today's US FOMC meeting. The pair traded close to the 119.50 region throughout the European morning. A US investment house was a good buyer, although gains were stymied by sovereign name selling and large Japanese sell orders from 119.60 up to 119.90. A large 119.50 option strike also restricted price action, leaving choppy price action around the 119.50 pivot. Near-term price action is expected to favour the dollar, with traders positioning for a hawkish Fed statement.
Japanese rate hike expectations have also been reduced, which should see USD/JPY as the main beneficiary for intra-day flows. Defensive selling ahead of 120.00 should increase as we approach 119.75/80, with a concentration of sellers ahead of these triggers.
Euro Outlook (24th October 2006)
Today marks the start of the two-day FOMC meeting that many in the market are looking at to spark a new phase in the Dollar bull-run. Rumours and speculation of a hawkish undertone to the Fed statement remain rife but IMM names have been noted buying EUR/USD, in what some are calling a pegging back of pre-FOMC Long USD positions.
The Euro has been weighed on in European trading by the 150 level in EUR/JPY while EUR/USD was underpinned by the surge in Euro Zone Industrial Production in August. The lower Euro levels have helped the index leap by 3.7% on the month and 14.3% on an annualized basis, compared to the +0.8% & +10.1% that was generally expected. Offers into 1.2550 capped as German & Eastern European accounts sold while European interbank players have been noted on both sides keeping the price choppy inside 1.2525/50.
Looking ahead, less significant US data is set for release early-on into North America while comments dominate the latter half of the day.
The Euro has been weighed on in European trading by the 150 level in EUR/JPY while EUR/USD was underpinned by the surge in Euro Zone Industrial Production in August. The lower Euro levels have helped the index leap by 3.7% on the month and 14.3% on an annualized basis, compared to the +0.8% & +10.1% that was generally expected. Offers into 1.2550 capped as German & Eastern European accounts sold while European interbank players have been noted on both sides keeping the price choppy inside 1.2525/50.
Looking ahead, less significant US data is set for release early-on into North America while comments dominate the latter half of the day.
Monday, October 23, 2006
USD/CHF: Rally Extends Into 1.2680's As Bulls Turn To 1.27 Test
The rally in the Dollar has continued intraday with USD/CHF offering little resistance in the wake of the latest wave of buying. Spot has finally broken above the late European high at 1.2678 and offers into the 1.2680's are now being absorbed as bulls eye an extension of the appreciation towards the key 1.2700 level.
Above 1.2709 stands as the daily high from Thursday and a run to this level will wipe the Dollar losses from late last week from the charts.
Swiss weakness is clearly the most pronounced of the European currencies on the day with even the Euro looking slightly more resilient now. As a result the cross rally has now begun once more with offers in EUR/CHF into 1.5915/20 being tested/absorbed.
Above 1.2709 stands as the daily high from Thursday and a run to this level will wipe the Dollar losses from late last week from the charts.
Swiss weakness is clearly the most pronounced of the European currencies on the day with even the Euro looking slightly more resilient now. As a result the cross rally has now begun once more with offers in EUR/CHF into 1.5915/20 being tested/absorbed.
EUR/USD: Shifts into Lower Gear
EUR/USD has shifted into a lower gear as short-term speculators continue to pair back longs taken last week. Much ink has been spilled today over the hawkish nature of the Fed and this has dealers looking to trim EUR/USD longs. Overnight news that the German BDI sees an export slowdown next year, while the big German VAT hike is expected to crimp domestic demand, is hurting the EUR as well. Small bids are seen layered down to the 1.2500 level and a 1.2550 expiry is expected to keep dips limited near-term. With the market oversold on an intraday basis, the big moves for the day look to be behind us, in all likelihood. Offers are eyed at 1.2575 near-term with more toward 1.2600.
USD/CAD: Retail Sales Firm but USD Buyers on Dips
USD/CAD dipped in the wake of a strong retail sales report from Canada but found buyers toward 1.1260 and bounced into the 1.1275 area before stalling. Dealers are keeping one eye on the big USD as EUR/USD drifts lower on the day. Medium-term CAD bulls are heartened by the failure of the greenback to overcome the 1.1285 Fibo retracement this morning (38.2% of 1.1420/1.1205). USD offers are scatted up to the 1.1305 area; stops are poised above the 200 day moving average at 1.1306.
Swiss Outlook (23rd October 2006)
The Franc has been forced onto the back-foot into European trading as the Dollar began retracing the losses it incurred late last week. USD/CHF has now taken back over 75% of the Thursday losses and into North American trading the rally to 1.2675 is currently consolidating. Technical retracement levels weighed in Europe but ultimately these proved little more than bull targets and stalling points amid the USD/CHF rally.
The break above the 50.0% Fibo at 1.2660 (from the sell-off from 1.2773 (October 13th high) to 1.2549 (October 20th low)) now has bulls looking for a run to 1.2690 (the 61.8% Fibo of the above move. Into North American trading and there is little fresh event-risk in the pipeline with decent bids noted on a pullback to 1.2645/50.
Elsewhere, the latest CME data has shown that speculative Dollar long positions have rallied to their highest levels since December 05. In the week to last Tuesday they hit USD 8.9Bln. The ratio of short CHF & JPY positions highlights the continued appetite for carry trades financed by lower yielding currencies like the Yen & the Franc.
The break above the 50.0% Fibo at 1.2660 (from the sell-off from 1.2773 (October 13th high) to 1.2549 (October 20th low)) now has bulls looking for a run to 1.2690 (the 61.8% Fibo of the above move. Into North American trading and there is little fresh event-risk in the pipeline with decent bids noted on a pullback to 1.2645/50.
Elsewhere, the latest CME data has shown that speculative Dollar long positions have rallied to their highest levels since December 05. In the week to last Tuesday they hit USD 8.9Bln. The ratio of short CHF & JPY positions highlights the continued appetite for carry trades financed by lower yielding currencies like the Yen & the Franc.
Sterling Outlook (23rd October 2006)
Cable slumped by more than a cent to a four-day low of 1.8713 during the London morning, as the USD elicited benefit from speculation that the Fed may be in no hurry to cut the funds rate, re: Fed-watcher Greg Ip's article in today's WSJ. A Thomson Financial survey for the FT was more hawkish still--with more than 40% of the US fund managers polled of the opinion that the Fed will resume hiking within the next six months.
The pound has also been negatively impacted by the announcement from Royal Dutch Shell that it has approached the board of Shell Canada to acquire the 22% it does not yet own in the business for C$7.7bn cash (FT website). A 1.8700 option rolls off at today's 10am EST NY cut, and some demand might emerge into the strike level if GBP/USD extends south. Stops are expected under 1.8700.
Sub-figure bear targets include 1.8680, and 1.8660. Double-day lows just shy of 1.8660 were plumbed last Wednesday and Thursday.Ernst & Young's ITEM Club predicts UK economic growth of 2.6% this year, increasing to 2.9% next year (Sunday Times).
The pound has also been negatively impacted by the announcement from Royal Dutch Shell that it has approached the board of Shell Canada to acquire the 22% it does not yet own in the business for C$7.7bn cash (FT website). A 1.8700 option rolls off at today's 10am EST NY cut, and some demand might emerge into the strike level if GBP/USD extends south. Stops are expected under 1.8700.
Sub-figure bear targets include 1.8680, and 1.8660. Double-day lows just shy of 1.8660 were plumbed last Wednesday and Thursday.Ernst & Young's ITEM Club predicts UK economic growth of 2.6% this year, increasing to 2.9% next year (Sunday Times).
Yen Outlook (23rd October 2006)
JPY consolidated in quiet European trade. For the most part, USD/JPY and the JPY crosses maintained their broader trading ranges. USD/JPY was underpinned by a broadly firmer dollar, with interbank names and speculative account demand overcoming 119.00 offers from CTAs. Stops were filled at 119.05 and 119.10 as the dollar buying gained momentum. The pair overcame 119.20 technical resistance to record a 119.26 session high before consolidating around 119.20. EUR/JPY experienced sideways movement after struggling to overcome 150.00 offers.
German and French name sellers were noted amid reports of real money based hedging ahead of Wednesday's large coupon and redemption payment. Japanese retail investor demand was a supportive influence, with decent demand noted through AUD/JPY, GBP/JPY and EUR/JPY.
The potential for decent movement over the next day or two is likely to be reduced ahead of Wednesday US FOMC announcement. We expect range bound EUR/JPY activity, while USD/JPY should benefit from a slightly more hawkish US rate perception after an editorial from WSJ's Greg Ip. Focus is on USD/JPY offers from 119.35 up to 119.50. RB.
German and French name sellers were noted amid reports of real money based hedging ahead of Wednesday's large coupon and redemption payment. Japanese retail investor demand was a supportive influence, with decent demand noted through AUD/JPY, GBP/JPY and EUR/JPY.
The potential for decent movement over the next day or two is likely to be reduced ahead of Wednesday US FOMC announcement. We expect range bound EUR/JPY activity, while USD/JPY should benefit from a slightly more hawkish US rate perception after an editorial from WSJ's Greg Ip. Focus is on USD/JPY offers from 119.35 up to 119.50. RB.
Euro Outlook (23rd October 2006)
Into the new week and the Dollar has rallied. European dealers cited the impending US FOMC meeting as "far too great" an event-risk to ignore and as a result previous USD shorts have been cut while speculators have taken advantage of the perceived higher levels in EUR/USD to build pre-FOMC Dollar longs.
These have been undertaken despite the recent high levels of open speculative positions, they are being driven by the belief that the Fed & the accompanying statement will hold a more hawkish undertone (particularly in regard to the US inflation outlook).
Therefore negating the need for any cuts and fueling the view that the next Fed move will in fact be another hike. As ever - only time will tell. In the short-term, there is little event-risk on the calendar, with only the sporadic ECB comments set to pepper the North American session.
Option players note the expiry today of several 1.2550 strikes, that are now near the current market price. Technicians see a break below 1.2535 as key (with 1.2450/80 then targeted) intraday while sellers into strength are looked for at 1.2565 & 1.2575/85.
These have been undertaken despite the recent high levels of open speculative positions, they are being driven by the belief that the Fed & the accompanying statement will hold a more hawkish undertone (particularly in regard to the US inflation outlook).
Therefore negating the need for any cuts and fueling the view that the next Fed move will in fact be another hike. As ever - only time will tell. In the short-term, there is little event-risk on the calendar, with only the sporadic ECB comments set to pepper the North American session.
Option players note the expiry today of several 1.2550 strikes, that are now near the current market price. Technicians see a break below 1.2535 as key (with 1.2450/80 then targeted) intraday while sellers into strength are looked for at 1.2565 & 1.2575/85.
Friday, October 20, 2006
Swiss Outlook (20th October 2006)
Ahead of the weekend there has been little to keep alive the volatility from yesterday. Calendars on both sides of the Atlantic are bare and it has been this sparse event-risk that has prolonged the consolidation phase to encompass the European morning. The late Asian bounce off 1.2557 in USD/CHF worked the pair to 1.2594 into early European trading.
However, continued selling from model accounts in various reasonable sizes kept the price from testing 1.2700. This failure combined with a slight CHF relief-rally, in the wake of the marginally better than expect Swiss Producer & Import data, forced spot to ease.
However, until a break below 1.2550 is seen USD/CHF is likely to trade inside the new 1.2550/2600 comfort-zone. Looking ahead, the US FOMC meeting next week is set to hold the broader market focus going forward.
The fall in US inflation has seen the risk of a further hike from the Fed ease, however, with no cut on the table yet for early 2007 the Dollar remains modestly supported. London players look for USD weakness ahead of the verdict with 1.2400 eyed a target.
However, continued selling from model accounts in various reasonable sizes kept the price from testing 1.2700. This failure combined with a slight CHF relief-rally, in the wake of the marginally better than expect Swiss Producer & Import data, forced spot to ease.
However, until a break below 1.2550 is seen USD/CHF is likely to trade inside the new 1.2550/2600 comfort-zone. Looking ahead, the US FOMC meeting next week is set to hold the broader market focus going forward.
The fall in US inflation has seen the risk of a further hike from the Fed ease, however, with no cut on the table yet for early 2007 the Dollar remains modestly supported. London players look for USD weakness ahead of the verdict with 1.2400 eyed a target.
Sterling Outlook (20th October 2006)
Asia was reluctant to hold the pound and gradually traded cable down from 1.8785 to an early European low of 1.8758. UK names were buyers from the off and set themselves up nicely for the UK growth data. A pick up to 1.8783 ahead of the numbers. The data surprised to the topside with a 0.7% rise on the quarter and a 2.8% pick up on the year.
The GDP was better than forecast and has added strength to the market"s view that the BoE will tighten policy at the November meeting. Strength in the service sector was a highlight along with a healthy rise in manufacturing output. There is a warning in yet another set of above trend growth numbers that the fourth quarter could struggle to keep the trend going.
Expectations of a follow up hike to a November move are now heavily dependant on November's data releases. GBP/USD was trading around 1.8780 before the data and ranup to new two-week highs of 1.8735. Little in the way of resistance until the 1.8775 highs from October 6. Once the data dust settles look for Sterling to consolidate above the 1.8800 level.
The GDP was better than forecast and has added strength to the market"s view that the BoE will tighten policy at the November meeting. Strength in the service sector was a highlight along with a healthy rise in manufacturing output. There is a warning in yet another set of above trend growth numbers that the fourth quarter could struggle to keep the trend going.
Expectations of a follow up hike to a November move are now heavily dependant on November's data releases. GBP/USD was trading around 1.8780 before the data and ranup to new two-week highs of 1.8735. Little in the way of resistance until the 1.8775 highs from October 6. Once the data dust settles look for Sterling to consolidate above the 1.8800 level.
Yen Outlook (20th October 2006)
JPY favoured consolidation in quiet trading conditions. USD/JPY was held to a narrow range after struggling to break 118.00 in yesterday's New York session. The downside was underpinned amid importer bids and option related support. Bearish dollar sentiment restricted movement on the topside. Offers from 118.40/45 capped throughout and the pair drifted towards 118.25 ahead of the North American open.
EUR/JPY was corrective after trading up to 149.62 in the Asian session. Selling from custodial names and trust banks was noted, with some of the activity linked to a big coupon and redemption payment due next week (France 34 billion).
This left the pair on a heavier footing but the pair found support ahead of 146.00 amid demand from leverage accounts and Japanese players looking for yield. Activity from Japanese names was evident via GBP/JPY, AUD/JPY and EUR/JPY. A thin data schedule should result in a quiet European afternoon session.
EUR/JPY is biased to the downside after meeting resistance at 149.65. Stops are noted at 148.80. USD/JPY is bearish but expected to hold above the 118.00 handle, where a large barrier expires on Monday.
EUR/JPY was corrective after trading up to 149.62 in the Asian session. Selling from custodial names and trust banks was noted, with some of the activity linked to a big coupon and redemption payment due next week (France 34 billion).
This left the pair on a heavier footing but the pair found support ahead of 146.00 amid demand from leverage accounts and Japanese players looking for yield. Activity from Japanese names was evident via GBP/JPY, AUD/JPY and EUR/JPY. A thin data schedule should result in a quiet European afternoon session.
EUR/JPY is biased to the downside after meeting resistance at 149.65. Stops are noted at 148.80. USD/JPY is bearish but expected to hold above the 118.00 handle, where a large barrier expires on Monday.
Euro Outlook (20th October 2006)
Early European trading saw EUR/USD stuck in a 1.2620/30 band as the overnight failure to break above 1.2645 weighed. With solid offers once more tipped in the 1.2640's, back to 1.2650, dealers preferred to wait for a break above 1.2655 before entering further long positions.
This unwillingness to trade left the price adrift and ahead of the 11:00 London fix the pair was sold. The price eased and short-term players were noted selling for a return and retest of 1.2600 support. Yet hawkish ECB rhetoric and the speculation of 1.2600 strikes intraday aided the standing bids at the figure and 1.2600/50 now holds.
Looking ahead, there is no key US data set for release into the North American session. At 13:30 GMT the EU Monetary Affairs Commissioner, Almunia, is set to speak in Brussels but following this there is little other event-risk to shape pre-weekend activity.
As a result the focus is turning towards the US FOMC meeting, due next week. The fall in US inflation has seen the risk of a further hike from the Fed ease, however, with no cut on the table yet for early 2007 the Dollar remains modestly supported.
This unwillingness to trade left the price adrift and ahead of the 11:00 London fix the pair was sold. The price eased and short-term players were noted selling for a return and retest of 1.2600 support. Yet hawkish ECB rhetoric and the speculation of 1.2600 strikes intraday aided the standing bids at the figure and 1.2600/50 now holds.
Looking ahead, there is no key US data set for release into the North American session. At 13:30 GMT the EU Monetary Affairs Commissioner, Almunia, is set to speak in Brussels but following this there is little other event-risk to shape pre-weekend activity.
As a result the focus is turning towards the US FOMC meeting, due next week. The fall in US inflation has seen the risk of a further hike from the Fed ease, however, with no cut on the table yet for early 2007 the Dollar remains modestly supported.
EUR/JPY: Sentiment Growing Increasingly Bearish
Traders are growing increasingly bearish on EUR/JPY with the cross having stalled above 150.00 and the end of a six year uptrend seen. Rising expectations that the ECB will pause on rates, while speculation of a rate increase is pushing JGB yields higher is seen narrowing the yield differential and weighing on the cross. Warnings over carry trades are also a negative for the EUR/JPY outlook along with comments since September from European officials concerned over JPY weakness. The cross trades at 149.03 currently with offers tipped at 149.20, 149.50, 149.75 and 150.00. Stops are building under 148.60 with reports of recommendations to short the cross if 148.50 gives way with traders beginning to position for a large downside move.
USD/CAD: Dodge Reiterates M&A Flows Supporting CAD
Bank of Canada"s Dodge is on the wires, reiterating the earlier policy report that M&A flows are supporting the CAD. The current Thomson data for M&A flows show that M&A flows into Canada this year are at $51 bln and the largest of any net cross-border M&A flows. Inward flows have risen from only a net $5 bln in the first quarter of this year. Dodge also notes that the risk outlook appears balanced. USD/CAD is trading near the base of the day"s range at 1.1335 with the policy report meeting market expectations and higher gold and a weaker USD bolstering the CAD. M&A flows can be found on our website at www.ifrmarkets.com. Look under "Forex Watch" then "Macro Flows."
USD/CHF: Still Offered Despite No Follow Through On Stops
USD/CHF is still trading heavy despite the lack of follow through on the stops at 1.2610. The low was 1.2603, some rumours of barrier defence at 1.2600 - but they seem to be rumours only. 1.2600 was the last "significant low" on the hourly chart that prompted a 70 pt power surge that helped propel USD/CHF to its recent highs, and it may well be that techies and momentum accounts are keying off this as a good target level for taking profits - and as any old salt knows, you never want to leave your orders right at the figure. The 200 day M/A which seems to be in vogue is at 1.2580, which coincides with the 50% Fibo of 1.1920/ 1.3240 - so it should prove to be formidable support, and the 20 day M/A is moving up to cross over the 200 day M/A shortly, currently at 1.2565. If the North Korean general story proves to be a storm in a tea cup, these would be very attractive levels to get long with stops below 1.2580. One final thought - 1.2604 is where the support line off the Oct 5 and Oct 8 lows comes in today.
Swiss Outlook (19th October 2006)
Swiss data has aided the Franc intraday, as domestic Trade and Retail Sales releases proved it is not all doom & gloom yet for the Alpine economy. The nights might be drawing in but that is no excuse to pull the shutters down on the CHF just yet and USD/CHF was sold from 1.2703 to 1.2641 in Europe.
Broader Dollar weakness, albeit more a period of stalling that was seized upon, has added to the ability of the Franc to hold onto the gains and bears are now eyeing a break below 1.2640 support. Should any such break be seen then the 1.2600 will fast approach as further stops are triggered with technicians looking to the Fibo & 200-Day moving average line around 1.2580.
Into North American trading and sellers in USD/CHF are camped in the 1.2660/65 area to cap any initial rebounds ahead of the early US weekly data (due at 12:30 GMT). Further into the session and the 14:00 GMT release of September Leading Indicators is eyed while the 13:45 GMT Poole comments could also add insight into the current FOMC mentality.
Broader Dollar weakness, albeit more a period of stalling that was seized upon, has added to the ability of the Franc to hold onto the gains and bears are now eyeing a break below 1.2640 support. Should any such break be seen then the 1.2600 will fast approach as further stops are triggered with technicians looking to the Fibo & 200-Day moving average line around 1.2580.
Into North American trading and sellers in USD/CHF are camped in the 1.2660/65 area to cap any initial rebounds ahead of the early US weekly data (due at 12:30 GMT). Further into the session and the 14:00 GMT release of September Leading Indicators is eyed while the 13:45 GMT Poole comments could also add insight into the current FOMC mentality.
Thursday, October 19, 2006
Sterling Outlook (19th October 2006)
Price action churned through the overnight session with the market contained within a 1.8667 to 1.8697 range. Small buy stops tight above 1.8695 provided the early London market with a target and the push higher accelerated to 1.8730. Still talk in the market of a sizeable Cable overhang although much of the speculative selling that has shaped recent Sterling weakness has reportedly thinned out. Much weaker than expected UK retail sales for Sept slammed Cable down from 1.8730 to 1.8665 from where consolidation set in.
Look for bidding at 1.8665 and offers in the 1.8740-50 area. The daily chart shows price held between the 10 and 21-day moving averages, currently 1.8635 and 1.8765. Direction remains clouded as Sterling trades towards the bottom-end of a broad 1.8500 to 1.90 range. On Balance a buy but scope seen limited.
In the news, a dovish stance adopted by BoE's, Rachel Lomax, has not worried the Pound too much but her view that economic indicators appeared to have ticked down in the last month or two has taken some attention away from the double hike vote, revealed in last session's MPC minutes.
Look for bidding at 1.8665 and offers in the 1.8740-50 area. The daily chart shows price held between the 10 and 21-day moving averages, currently 1.8635 and 1.8765. Direction remains clouded as Sterling trades towards the bottom-end of a broad 1.8500 to 1.90 range. On Balance a buy but scope seen limited.
In the news, a dovish stance adopted by BoE's, Rachel Lomax, has not worried the Pound too much but her view that economic indicators appeared to have ticked down in the last month or two has taken some attention away from the double hike vote, revealed in last session's MPC minutes.
Yen Outlook (19th October 2006)
USD/JPY and the JPY crosses consolidated in the European session. JPY made up ground early on in the European session amid rumours of a BOJ hike in December. The rumours emanated from the Japanese money market amid traders citing BOJ contact over year-end funding. Sovereign name offers in USD/JPY and EUR/JPY also fueled talk of Russian interest, forcing speculative accounts to hit the bid in USD/JPY and EUR/JPY.
USD/JPY bids were filled from 118.80 down to 118.50, with stops tripped below the latter to record a 118.45 low. Importers and proprietary names bought in size from the lows and the pair recovered into the 118.65 area. EUR/JPY traded down to 149.75 and turned higher with USD/JPY to recapture levels above 149.00. Offers from 149.20/30 capped the cross, while USD/JPY traded indecisively.
Short-term accounts pointed towards a developing bear trend on the daily chart, while medium-term players remain bullish while spot holds onto levels above the 118.35 long-term trend line. Both pairs are corrective despite the tentative recovery made from yesterday's lows. We do not expect a return to the recent highs in the near-term.
USD/JPY bids were filled from 118.80 down to 118.50, with stops tripped below the latter to record a 118.45 low. Importers and proprietary names bought in size from the lows and the pair recovered into the 118.65 area. EUR/JPY traded down to 149.75 and turned higher with USD/JPY to recapture levels above 149.00. Offers from 149.20/30 capped the cross, while USD/JPY traded indecisively.
Short-term accounts pointed towards a developing bear trend on the daily chart, while medium-term players remain bullish while spot holds onto levels above the 118.35 long-term trend line. Both pairs are corrective despite the tentative recovery made from yesterday's lows. We do not expect a return to the recent highs in the near-term.
Euro Outlook (19th October 2006)
Into European trading and dealers expected the Dollar to struggle, with many looking for the unit to witness a down-day. Early European trading saw the near expectation German & French data do little to boost the Euro but with the Dollar on the defensive the pair managed to base the late Asian pullback into 1.2530/35.
EUR positive M&A speculation and the potential for a US/EZ rate spread rebound helped spot work higher and stops were triggered above 1.2660. Smaller intraday positions were removed in the 60's but the larger orders into the 1.2570's were also triggered as the topside stayed in focus. Central bank supply helped limit the topside and no test of 1.2580 was seen (1.2577 the high). Bids are noted into 1.2550 while stops sit below 1.2520.
Into North American trading and the higher levels should attract more aggressive players and with official supply and option related supply (linked to the 1.2600 option barriers) seen into 1.2580 the topside is expected to find the going tough. Yet with 1.2500 and below equally well defended a rough 1.2480/2580 range could begin to be formed.
EUR positive M&A speculation and the potential for a US/EZ rate spread rebound helped spot work higher and stops were triggered above 1.2660. Smaller intraday positions were removed in the 60's but the larger orders into the 1.2570's were also triggered as the topside stayed in focus. Central bank supply helped limit the topside and no test of 1.2580 was seen (1.2577 the high). Bids are noted into 1.2550 while stops sit below 1.2520.
Into North American trading and the higher levels should attract more aggressive players and with official supply and option related supply (linked to the 1.2600 option barriers) seen into 1.2580 the topside is expected to find the going tough. Yet with 1.2500 and below equally well defended a rough 1.2480/2580 range could begin to be formed.
Wednesday, October 18, 2006
FX OPTIONS: USD/JPY Vols Turn Offered, With Spot Back Above 119
USD/JPY vols turn offered, with spot trading back above 119.00. ATM sellers have come out in force since the curve opened at improved levels in today's session. The move into 119.00 is back in familiar territory and also where a decent number of strikes changed hands this week, fueling gamma related selling interest.
Vols traded on a cautious footing in the low 118's with the market a little under weight of gamma/vega from 118.00. The recovery in spot has seen the curve revert to last week's trough, which are relatively low on an historical basis. Price action will remain whippy as spot swings between 118.30-120.00. Movement on the extremes will encourage vol demand but the USD/JPY downside holds the biggest potential for an increase in vega.
The run through in the curve is at 6.45/7.20 in the 1-wk, 7.10/7.40 in the 1-mth and 7.35/7.55 in the 3-mth. The 6-mth and 1-yr contracts show 7.65/7.80 and 7.85/7.95 respectively.
Vols traded on a cautious footing in the low 118's with the market a little under weight of gamma/vega from 118.00. The recovery in spot has seen the curve revert to last week's trough, which are relatively low on an historical basis. Price action will remain whippy as spot swings between 118.30-120.00. Movement on the extremes will encourage vol demand but the USD/JPY downside holds the biggest potential for an increase in vega.
The run through in the curve is at 6.45/7.20 in the 1-wk, 7.10/7.40 in the 1-mth and 7.35/7.55 in the 3-mth. The 6-mth and 1-yr contracts show 7.65/7.80 and 7.85/7.95 respectively.
AUD/USD: USD Index Bounces Back; Hampers AUD
The bounce back in the USD index is also hampering the AUD this morning with the index rising back above 87.05 after pulling back from the fresh recent highs above 87.20 that were made last week. The index will have to break above 87.30 to underpin the gains that have emerged on this index since May, which has aided the positive view for the USD. The index components are as follows with the EUR weighting at 57.6% followed by JPY at 13.6%, GBP 11.9%, CAD at 9.1%, SEK at 4.2% and CHF at 3.6%. AUD/USD continues to find support on dips under 0.7530 and trades at 0.7533.
USD/CAD: Options-related Selling Caps Advance
A sizeable 1.1400 vanilla expiry at 14:00 GMT is helping keep a lid on USD/CAD this morning. The buck is benefiting from firm core inflation figures which should keep the Fed on inflation-watch in the months ahead while the mixed housing data suggests the sector is not in free-fall, as many had feared. If the economy is not dragged down by housing as many had expected, the Fed will have to stay more focused on inflation than they otherwise would have been. Recent Fed speak shows that shift clearly. 1.1375 is near-term support followed by stronger support at 1.1345/50. USD/CAD trades at 1.1385.
Swiss Outlook (18th October 2006)
The Franc rallied into early European trading and USD/CHF was forced below its late Asian session base at 1.2670. 1.2656 printed but aggressive UK Clearer and US player buying soon helped the pair bounce. Offers into 1.2690 have since capped the rebound with 1.2700 tipped as a key topside trigger.
Looking ahead, USD/CHF will encounter a US data double at 12:30 GMT. US CPI and Housing Start data provide the early North American risk and should the data fuel further Dollar weakness then a break below 1.2640 will be looked for to add momentum to the downside. A French player is targeting 1.2630 as a "dynamic target", while other more aggressive players are said to look for a run at 1.2590 in the medium-term should the Dollar stay on the defensive.
Swiss data is set for unveiling tomorrow with Retail sales & Trade data (August & September respectively) expected to highlight the view that the alpine economy is continuing to grow at a robust rate. Earlier today, SNB's member Hildebrand noted that he saw no signs that the Swiss economy was on the verge of overheating.
Looking ahead, USD/CHF will encounter a US data double at 12:30 GMT. US CPI and Housing Start data provide the early North American risk and should the data fuel further Dollar weakness then a break below 1.2640 will be looked for to add momentum to the downside. A French player is targeting 1.2630 as a "dynamic target", while other more aggressive players are said to look for a run at 1.2590 in the medium-term should the Dollar stay on the defensive.
Swiss data is set for unveiling tomorrow with Retail sales & Trade data (August & September respectively) expected to highlight the view that the alpine economy is continuing to grow at a robust rate. Earlier today, SNB's member Hildebrand noted that he saw no signs that the Swiss economy was on the verge of overheating.
Sterling Outlook (18th October 2006)
A 25bp UK base rate hike to 5.0% next month (November 9) now appears a nailed-on certainty--despite expected opposition from ultra-dove David Blanchflower, following the October 4/5 MPC minutes disclosure that Andrew Sentance and Tim Besley voted for a 25bp rise earlier this month (BoE website).
Sentance was making his MPC debut. Besley joined the MPC in September. GBP/USD once again ran into resistance ahead of touted offers at 1.8740 in a knee-jerk reaction to the MPC minutes release. Sterling previously ran into a wall pre-1.8740 in early European trade. 1.8737 was yesterday's high. Cable bids are tipped at 1.8690/95 (1.8694 was today's Asian session base), with some stops noted below 1.8690. Further demand is pegged at 1.8650.
US September CPI and housing starts are due at 12:30GMT. Core CPI forecast +0.2% m/m, +2.9% y/y. Headline: down 0.3% m/m. Housing starts forecast: 1640k. UK September retail sales figures are due at 08:30GMT tomorrow. Forecast: +0.4% m/m, +4.1% y/y. Friday will see the preliminary estimate of UK Q3 GDP. Forecast: +0.6% q/q, +2.7% y/y.
Sentance was making his MPC debut. Besley joined the MPC in September. GBP/USD once again ran into resistance ahead of touted offers at 1.8740 in a knee-jerk reaction to the MPC minutes release. Sterling previously ran into a wall pre-1.8740 in early European trade. 1.8737 was yesterday's high. Cable bids are tipped at 1.8690/95 (1.8694 was today's Asian session base), with some stops noted below 1.8690. Further demand is pegged at 1.8650.
US September CPI and housing starts are due at 12:30GMT. Core CPI forecast +0.2% m/m, +2.9% y/y. Headline: down 0.3% m/m. Housing starts forecast: 1640k. UK September retail sales figures are due at 08:30GMT tomorrow. Forecast: +0.4% m/m, +4.1% y/y. Friday will see the preliminary estimate of UK Q3 GDP. Forecast: +0.6% q/q, +2.7% y/y.
Yen Outlook (18th October 2006)
USD/JPY continued its correction into the European session, with early interbank names reacting to fears that the BOJ may be monitoring carry trades. BOJ officials were quick to deny the reports but USD/JPY triggered stops below 118.40 to record a 118.31 low. The pair was unable to sustain the move below the key 118.35 trend line due to sizeable demand.
Proprietary based accounts and leverage funds used the recent pullback as an opportunity to establish fresh longs. Real money demand was also sizeable and the pair was able to make a modest rally up to 118.75. Exporters and CTAs capped the pair into 118.80 ahead of the North American open. EUR/JPY experienced sideways movement after a 148.51 low. Options support underpinned and real money activity helped to take the pair back into 148.80 in the European morning.
The pair was unable to progress beyond 148.95 due to standing offers from Japanese accounts across the 149.00 handle. The market is expected to trade on a nervous footing, with both pairs biased to the downside in spite of the consolidation.USD/JPY and EUR/JPY key levels are 118.35 and 148.50 in the near-term.
Proprietary based accounts and leverage funds used the recent pullback as an opportunity to establish fresh longs. Real money demand was also sizeable and the pair was able to make a modest rally up to 118.75. Exporters and CTAs capped the pair into 118.80 ahead of the North American open. EUR/JPY experienced sideways movement after a 148.51 low. Options support underpinned and real money activity helped to take the pair back into 148.80 in the European morning.
The pair was unable to progress beyond 148.95 due to standing offers from Japanese accounts across the 149.00 handle. The market is expected to trade on a nervous footing, with both pairs biased to the downside in spite of the consolidation.USD/JPY and EUR/JPY key levels are 118.35 and 148.50 in the near-term.
Euro Outlook (18th October 2006)
Into European trading and with the Dollar on the back foot, ahead of its key inflation data, the Euro attempted to rally. Spot printed 1.2560 and traded at this high in several directions before fresh supply emerged from a prime US investment name. Interbank selling and jitters over further solid offers above 1.2565 forced spot to ease. Bids into 1.2540 were being tested as EUR/GBP sales weighed but the poor EZ data and dovish German institute comments helped the price drop back to 1.2533. Bids are seen into 1.2530 and once the full DIHK statement was digested the pair began to stabilize back in the 1.2540's. Also there is speculation on a further 1.2550 expiry.
Looking ahead, US CPI and the impact of previous US rate increases will hold the focus of the early North American session. Also set for unveiling at 12:30 GMT is September Housing Start data. With the housing slowdown also being given critical importance another significant fall will dent the Dollar and keep the focus in EUR/USD on the renewed 1.2600 option barriers. Central bank supply and stops are seen above 1.2570/80.
Looking ahead, US CPI and the impact of previous US rate increases will hold the focus of the early North American session. Also set for unveiling at 12:30 GMT is September Housing Start data. With the housing slowdown also being given critical importance another significant fall will dent the Dollar and keep the focus in EUR/USD on the renewed 1.2600 option barriers. Central bank supply and stops are seen above 1.2570/80.
Tuesday, October 17, 2006
USD/CHF: A Quick 15-pip Climb After US Price Data
A jump in core US September producer prices and the Dollar lifts to 1.2700 from 1.2685. The data has had a sudden impact on the market but the Dollar is already slipping back to the low 1.2690's.
A push and pull play after the data with the headline prices falling by a greater than expected 1.3% but a surprise increase ion the core element. The market appears reluctant to put all bets on the PPI data and is now waiting for the TIC numbers at 13:00 GMT.
USD/CHF continues to trade towards the middle of a 1.2675-1.2715 range and below a trend resistance line currently at 1.2705.
A push and pull play after the data with the headline prices falling by a greater than expected 1.3% but a surprise increase ion the core element. The market appears reluctant to put all bets on the PPI data and is now waiting for the TIC numbers at 13:00 GMT.
USD/CHF continues to trade towards the middle of a 1.2675-1.2715 range and below a trend resistance line currently at 1.2705.
EUR/USD: Eye-Opening Jump in Core PPI
The big jump in core inflation has opened a few eyes this morning. The Fed"s protestations that the US is not out of the inflation woods may begin to have a bit more resonance as a result.
The core rose 0.6% versus expectations of a milder 0.2% rise. Market reaction was to buy the USD briefly, but dealers want to wait for TIC data before aggressively jumping into the market. EUR/USD reached 1.2511 before bouncing back to the present 1.2526 level. Offers are eyed in the 1.2545 area near-term while bids are seen near 1.2500 ahead of expiries at 14:00 GMT.
The core rose 0.6% versus expectations of a milder 0.2% rise. Market reaction was to buy the USD briefly, but dealers want to wait for TIC data before aggressively jumping into the market. EUR/USD reached 1.2511 before bouncing back to the present 1.2526 level. Offers are eyed in the 1.2545 area near-term while bids are seen near 1.2500 ahead of expiries at 14:00 GMT.
AUD/USD: Rise in Core PPI Takes US Yields Higher; AUD Steady
The rise in core PPI to higher-than-expected results of 0.6% has seen US ten-year bond yields move higher to 4.776% from 4.762% prior to the number. But the rise in yields has been tempered by the large 1.3% slump in the headline number which so far, has left AUD steady around 0.7533.
The tight price action may suggest option interest with a 0.7550 barrier already cleared in the move up overnight. The Fed is likely to keep focused on core inflation however which leaves the bias for higher rates intact and still positive for the USD which should temper AUD gains today.
The next move for AUD will depend on the metals markets today and the follow-through reaction from the bonds. The Treasury International Capital data or TIC may not have much impact since the sharp rise in custody holdings to record highs last week still shows that foreign central banks are accumulating the USD. Bids remain at 0.7530.
The tight price action may suggest option interest with a 0.7550 barrier already cleared in the move up overnight. The Fed is likely to keep focused on core inflation however which leaves the bias for higher rates intact and still positive for the USD which should temper AUD gains today.
The next move for AUD will depend on the metals markets today and the follow-through reaction from the bonds. The Treasury International Capital data or TIC may not have much impact since the sharp rise in custody holdings to record highs last week still shows that foreign central banks are accumulating the USD. Bids remain at 0.7530.
US ECON: Sep PPI Falls 1.3% Overall but Core Jumps 0.6%
Headline wholesale inflation fell by 1.3% between August and September, far more than the 0.7% expected by the consensus. There was a -1.3% estimate in IFR's weekly economist survey and IFR's own point estimate was -1.1%. Perhaps the bigger surprise, however, is the 0.6% jump in the core PPI rate. That followed a curious 0.4% decline in August but was nevertheless, the biggest 1-month jump in 19 months. There hasn't been an increase of more than 0.6% since December 1998 (+1.0%).
USD/CHF: Attempting to Hold The Lift From 1.2675
The intraday bear trend is holding but a modest run up from 1.2675 has brought about consolidation at 1.2690. The market is now caught between the outside day extremes from last Friday with the underlying bull run losing its grip having posted highs not seen since April but pullbacks limited to this session's 1.2675 low. Support from the Friday low comes in at 1.2665 with the 10-day moving average behind at 1.2645.
Swiss players are suggesting the market will be reluctant to push the Swissy too far from current levels ahead of this week's trade, producer and import price and retail sales data. The imminent release of US data might alter this view somewhat. Producer prices are first up and could generate some market volatility.
Swiss players are suggesting the market will be reluctant to push the Swissy too far from current levels ahead of this week's trade, producer and import price and retail sales data. The imminent release of US data might alter this view somewhat. Producer prices are first up and could generate some market volatility.
LATAM: Regional Currencies Give Back Gains On Equity Worries
The regional currencies opened a little weaker this morning, with USD/MXN opening up at 10.8710, after closing at 10.8475. Local traders said that yesterday's movements were exaggerated by tax payments due today, and that once that effect is removed the Peso may give back some of the gains it picked up over the past week.
The front contract on the BM&F opened at 2.1425, after last night's official 2.1390 close, with the battle for the presidency coming to its acme at the end of the month, most of the headlines have been allocated to what either the President or the contender will or won't do, but have had little impact on currency markets. The only hard data, steel production up 6.5% y-on-y, down 3% y-on-y from the same month a year ago due to a blast furnace accident forced closure still reflects the robust Brazilian economy. Local traders were more focused upcoming US data, and soft Asian EM markets, worrying about a carryover into local markets.
The front contract on the BM&F opened at 2.1425, after last night's official 2.1390 close, with the battle for the presidency coming to its acme at the end of the month, most of the headlines have been allocated to what either the President or the contender will or won't do, but have had little impact on currency markets. The only hard data, steel production up 6.5% y-on-y, down 3% y-on-y from the same month a year ago due to a blast furnace accident forced closure still reflects the robust Brazilian economy. Local traders were more focused upcoming US data, and soft Asian EM markets, worrying about a carryover into local markets.
AUD/USD: Metal Prices Seen Underpinning AUD
Rising metal prices are seen helping to underpin the AUD performance though the currency was unable to sustain a break above 0.7550 overnight and is opening around 0.7536, similar to levels seen yesterday in NY. The LMEX base metals index closed at the highest levels since May yesterday with the CRB closing at the highest since Sept 8th.
Comex gold is tipped to open $1 higher this morning with copper prices rising 4.0% on the Shanghai exchange overnight to the best levels since Sept 11th. Partly driving the metals performance are the strong price gains in tin which rose 12% yesterday to 17-year highs. Rate hike expectations are also boosting AUD as was the large uridashi issue from last week.
Dampening the AUD performance continues to be option-related selling and the selling on AUD/JPY ahead of 90.00. In addition, longer term holders of AUD are still paring positions at current levels. AUD/USD support is at 0.7525/30 and lower at 0.7495/00 with resistance remaining in the 0.7555/60 area.
Comex gold is tipped to open $1 higher this morning with copper prices rising 4.0% on the Shanghai exchange overnight to the best levels since Sept 11th. Partly driving the metals performance are the strong price gains in tin which rose 12% yesterday to 17-year highs. Rate hike expectations are also boosting AUD as was the large uridashi issue from last week.
Dampening the AUD performance continues to be option-related selling and the selling on AUD/JPY ahead of 90.00. In addition, longer term holders of AUD are still paring positions at current levels. AUD/USD support is at 0.7525/30 and lower at 0.7495/00 with resistance remaining in the 0.7555/60 area.
USD/CAD: Familiar Ranges Ahead of BOC
USD/CAD is holding familiar ranges between 1.1350 and 1.1390 as the market to eye barrier options at 1.1400. The BOC meeting is the main event for USD/CAD with dealers mindful of the risk that the BOC highlights downside economic risks in light of yesterday's poor manufacturing report and recent moderation in the labor market.
A US slowdown combined with a still-strong currency could wreak havoc ahead. Dealers suspect the BOC may try and cheapen up the Loonie by highlighting downside risks. TIC data from the US complicates the picture slightly as it is released at the same time as the BOC statement.
1.1460 is the near-term upside target should 1.1400 barriers be overcome. Model and momentum buying is expected on a break above those levels. 1.1345/50 is near-term support on dips while the 1.1315/25 zone is also important. Heavy stops are eyed on a break below that level.
A US slowdown combined with a still-strong currency could wreak havoc ahead. Dealers suspect the BOC may try and cheapen up the Loonie by highlighting downside risks. TIC data from the US complicates the picture slightly as it is released at the same time as the BOC statement.
1.1460 is the near-term upside target should 1.1400 barriers be overcome. Model and momentum buying is expected on a break above those levels. 1.1345/50 is near-term support on dips while the 1.1315/25 zone is also important. Heavy stops are eyed on a break below that level.
Swiss Outlook (17th October 2006)
With the Euro taking a slight hit after its brace of disappointing data (annualized September EZ HICP was revised down from +1.8% to +1.7% and October ZEW hit -27.4 from the previous -22.2) the Swissie is bracing for a similar price action. However, key Swiss domestic data is not due for release until later in the week.
As a result the Franc has managed to buck the broader "stalling" trend intraday as "safer" flows were seen from those trimming positions elsewhere. USD/CHF was sold back to 1.2673 while EUR/CHF broke below 1.5900 to trigger stops and hit a low of 1.5889 thus far.
US data is now in focus into the North American session with the 12:30 GMT unveiling of September PPI providing the early risk. More bids are seen into 1.2665 while sellers into 1.2695/2700 are attempting to cap rebounds. Economists look for a fall of over 1.0% on the month while the core rate is expected to correct slightly from the previous -0.4% (+0.2% M/M the current consensus.
Elsewhere, option traders note a 1.5940 option expiry in the EUR cross that will help cap should any rebounds back into the 1.5900's be seen.
As a result the Franc has managed to buck the broader "stalling" trend intraday as "safer" flows were seen from those trimming positions elsewhere. USD/CHF was sold back to 1.2673 while EUR/CHF broke below 1.5900 to trigger stops and hit a low of 1.5889 thus far.
US data is now in focus into the North American session with the 12:30 GMT unveiling of September PPI providing the early risk. More bids are seen into 1.2665 while sellers into 1.2695/2700 are attempting to cap rebounds. Economists look for a fall of over 1.0% on the month while the core rate is expected to correct slightly from the previous -0.4% (+0.2% M/M the current consensus.
Elsewhere, option traders note a 1.5940 option expiry in the EUR cross that will help cap should any rebounds back into the 1.5900's be seen.
Sterling Outlook (17th October 2006)
The pound has rallied since the 08:30GMT disclosure that September's annualized UK CPI came in at 2.4%. The as-forecast number underpins the expectation that the BoE MPC will hike the UK base rate by 25bp to 5.0% next month (November 9). The UK base rate was last at 5.0% in early September 2001. Sterling sated sell interest at 1.8650 following the CPI release, with stops above 1.8655 subsequently tripped en route to a one-week peak of 1.8682. Touted bull targets above include 1.8700, 1.8740, and 1.8775.
1.8650/55 is now a pullback support window. 1.8643 (today's Asian session peak) and 1.8612 (today"s Asian session base) are among prop points below. The as-expected UK CPI is a factor in today's EUR/GBP drop to an 11-day low of 0.6710. Stops are touted below 0.6710. More stops are tipped sub-0.6700. There are a raft of US figures due today, inclusive of September PPI at 12:30GMT, August TIC data at 13:00GMT, and September industrial production and capacity utilization at 13:15GMT. PPI is forecast down 0.7% m/m. IP is forecast down 0.1% m/m. CU is forecast at 82.2%.
1.8650/55 is now a pullback support window. 1.8643 (today's Asian session peak) and 1.8612 (today"s Asian session base) are among prop points below. The as-expected UK CPI is a factor in today's EUR/GBP drop to an 11-day low of 0.6710. Stops are touted below 0.6710. More stops are tipped sub-0.6700. There are a raft of US figures due today, inclusive of September PPI at 12:30GMT, August TIC data at 13:00GMT, and September industrial production and capacity utilization at 13:15GMT. PPI is forecast down 0.7% m/m. IP is forecast down 0.1% m/m. CU is forecast at 82.2%.
Yen Outlook (17th October 2006)
JPY extended yesterday's gains, with USD/JPY and EUR/JPY continuing to trade on a heavy footing. USD/JPY filled in 118.90 bids and stops through 118.80 and 118.75. Selling was noted from speculative accounts, while exporters also lowered their offers. This capped the potential for a recovery and kept pressure on the downside.
Importers, option accounts and CTAs were noted on the bid. The activity limited movement and underpinned USD/JPY between 118.60-70 ahead of the North American open. EUR/JPY followed the USD/JPY move, with technical based accounts and speculative funds unwinding longs. Stops were filled below 148.90 and the pair extended to 148.60. Leverage fund activity elicited support but the pair remain heavy throughout. Bias is expected to remain on the downside.
JPY has benefited from yesterday's Russian central bank announcement on reserves. This will cap the potential for further gains and turn focus on overstretched speculative positioning. A USD/JPY move through 118.30 would increase the chances of liquidation, while EUR/JPY has potential to make an extended run on 147.75 after the 149.00 level gave way.
Importers, option accounts and CTAs were noted on the bid. The activity limited movement and underpinned USD/JPY between 118.60-70 ahead of the North American open. EUR/JPY followed the USD/JPY move, with technical based accounts and speculative funds unwinding longs. Stops were filled below 148.90 and the pair extended to 148.60. Leverage fund activity elicited support but the pair remain heavy throughout. Bias is expected to remain on the downside.
JPY has benefited from yesterday's Russian central bank announcement on reserves. This will cap the potential for further gains and turn focus on overstretched speculative positioning. A USD/JPY move through 118.30 would increase the chances of liquidation, while EUR/JPY has potential to make an extended run on 147.75 after the 149.00 level gave way.
Euro Outlook (17th October 2006)
Into Europe and early sellers took advantage of the 1.2540+ rates ahead of what was potentially Euro negative slew of numbers. Spot eased back to 1.2525 but talk of an upbeat German ZEW release did the rounds and the price was soon bouncing. However, Macro buyers were just as quickly forced to reverse as the dismal ZEW was compounded by near expectation Euro Zone data.
1.2525 was again re-tested and with bids being filled the pair has managed to work lower, 1.2521 the current low. Ahead of the North American open and spot is eyeing the downside. More bids are seen trailing back to the better size into 1.2510/15 area but London players now see the US entrance as key to the short-term direction. Should North American players take a look at the earlier EZ & German data and sell the Euro then a run at 1.2500/05 could be on the cards. However, if the impending US data keeps them from pulling the trigger then the Asian central bank bids into 1.2505 will remain untested for the moment as the EUR manages to stave off further weakness. 1.2550 & 1.2575/80 are seen as the key topside level.
1.2525 was again re-tested and with bids being filled the pair has managed to work lower, 1.2521 the current low. Ahead of the North American open and spot is eyeing the downside. More bids are seen trailing back to the better size into 1.2510/15 area but London players now see the US entrance as key to the short-term direction. Should North American players take a look at the earlier EZ & German data and sell the Euro then a run at 1.2500/05 could be on the cards. However, if the impending US data keeps them from pulling the trigger then the Asian central bank bids into 1.2505 will remain untested for the moment as the EUR manages to stave off further weakness. 1.2550 & 1.2575/80 are seen as the key topside level.
NZD/USD: AUD/NZD Seen Overvalued
AUD/NZD has been firm most of the NY session, pressing against the overnight highs of 1.1455/60 but is now giving up gains, dropping back to 1.1420. Traders here see the cross overvalued with the recent basis for long AUD/NZD recommendations based on expected revisions of the CPI weightings that should see inflation drop in NZ. However, the analysts are blatantly ignoring the fact that even with the expected decline, inflation is running well above the RBNZ comfort zone and the housing and labor markets are still seen underpinning price pressures in the economy.
Some pundits are now calling for an RBNZ rate hike this month, and this is being ignored in the price of the cross which still has NZD with a yield premium over AUD. Even more conservative analysts see a 50/50 chance of a NZ rate hike before the year end. This risk is seen pressuring the recent longs, risking a pullback to 1.1200 in coming sessions. NZD/USD is at 0.6594/99 currently, still meeting offers ahead of 0.6600 with more sellers tipped at 0.6620.
Some pundits are now calling for an RBNZ rate hike this month, and this is being ignored in the price of the cross which still has NZD with a yield premium over AUD. Even more conservative analysts see a 50/50 chance of a NZ rate hike before the year end. This risk is seen pressuring the recent longs, risking a pullback to 1.1200 in coming sessions. NZD/USD is at 0.6594/99 currently, still meeting offers ahead of 0.6600 with more sellers tipped at 0.6620.
EUR/USD: Hawkish Poole Helps Blunt USD Dip
EUR/USD had been experience a modest rally, edging into the high 1.2520s but hawkish comments from the Fed's Poole seem to have stalled the rally for now. Poole bluntly says present inflation levels are too high and that it is important to get the current inflation rate down. We are likely to see inflation rates taper down, he says, taking some of the edge off the initial comments. Draconian measures will not be needed if inflation ebbs, he says. EUR/USD trades at 1.2525. Offers lie at 1.2540/45 and again toward 1.2585/90.
Swiss Outlook (16th October 2006)
Despite a doubling in short CHF positions on the IMM in the latest data, CHF has become the most compelling financing currency for carry trades in the wake of the announcement this morning that the Russian central bank had begun to add JPY to its reserve mix. JPY carry trades suffered some as a result but CHF fell against the JPY and maintained a weak tone against most other majors. The USD backed and filled today with cross activity overshadowing USD direction with little fresh news of note today. USD/CHF dipped to 1.2694 on investment house sales this morning before settling into a tight range between 1.2705 and 1.2730 for the balance of the session.
Looking ahead to Europe tomorrow, dealers will focus on the ZEW survey. -20 is expected after last month's -22. Later in the day, the US reports its TIC data for August. Last month showed a sub-par surplus in the capital account, insufficient to cover the deficit. Another poor figure amid record trade deficits could halt the USD bull-run in its tracks. A figure below $70 bln will probably prompt some USD/CHF sales tomorrow. 1.2665 is key support near-term.
Looking ahead to Europe tomorrow, dealers will focus on the ZEW survey. -20 is expected after last month's -22. Later in the day, the US reports its TIC data for August. Last month showed a sub-par surplus in the capital account, insufficient to cover the deficit. Another poor figure amid record trade deficits could halt the USD bull-run in its tracks. A figure below $70 bln will probably prompt some USD/CHF sales tomorrow. 1.2665 is key support near-term.
Sterling Outlook (16th October 2006)
GBP/USD traded in the upper half of the days range during the US session, supported by rising UK house price data and M&A-driven demand for the pound. These helped push EUR/GBP lower early on the day and pumped GBP/USD toward 1.8650 briefly. Short-covering kicked in as stops were tripped in several waves from 1.8590, 1.8600, 1.8625, and 1.8640 before prices eased back to 1.8595 intraday. 1.8585 is support now on dips, the 50% retracement of the bounce from 1.8525.
UK inflation data is set for release tomorrow. A dip to 2.4% is expected, but given the slide in energy prices last months, we'd wager a weaker figure will be seen. Most will look past the September data as a one-off, should it dip sharply. MPC members have already predicted a temporary downside blip in the September data. ZEW may be more important as another weak figure could pressure the EUR and drag cable down with it. Last month saw a -22 reading. -20 is expected this month. Some 1.8500 barriers rolled off today, but more are eyed on the books, dealers report, suggesting more protection on dips.
UK inflation data is set for release tomorrow. A dip to 2.4% is expected, but given the slide in energy prices last months, we'd wager a weaker figure will be seen. Most will look past the September data as a one-off, should it dip sharply. MPC members have already predicted a temporary downside blip in the September data. ZEW may be more important as another weak figure could pressure the EUR and drag cable down with it. Last month saw a -22 reading. -20 is expected this month. Some 1.8500 barriers rolled off today, but more are eyed on the books, dealers report, suggesting more protection on dips.
Yen Outlook (16th October 2006)
USD/JPY opened in NY 119.11/16 weighed down overnight by the news Russia was adding JPY to its foreign currency reserves. US investment and trading banks along with custody and European names were among the sellers but were met with good Japanese bids at 119.01. Good buying orders remain at 119.00 but stops are said to lie under 119.00 and are staggered down to 118.00. US data was positive with strong gains in the NY Empire State Manufacturing index and with hawkish comments from Fed's Poole. Bounces were capped at 119.30 with price action caught in a 119.01-30 range. The option defense remains at 120.00 and 120.50 but traders still see a risk for USD/JPY to test those levels if core US CPI and PPI, due this week, are high.
EUR/JPY was more bearish with the cross testing the top of the Ichimoku cloud at 149.01 for the first time since March. The cross was capped at 149.30 in NY with comments from EU Alumnia asking for more flexible Asian forex pushing EUR/JPY lows to levels just under 149.00. Traders are more bearish EUR/JPY then USD/JPY after the continued recent failures to break 150.50.
EUR/JPY was more bearish with the cross testing the top of the Ichimoku cloud at 149.01 for the first time since March. The cross was capped at 149.30 in NY with comments from EU Alumnia asking for more flexible Asian forex pushing EUR/JPY lows to levels just under 149.00. Traders are more bearish EUR/JPY then USD/JPY after the continued recent failures to break 150.50.
Euro Outlook (16th October 2006)
EUR/USD had a very mild upside bias today as fallout from the Russian announcement that it is accumulating JPY reserves helped weigh on USD/JPY and drag the other majors marginally lower in its wake. EUR/JPY tested 149.00 before bouncing back, giving the EUR a modest bid into the close. Mixed talk from various Fed speakers netted out to more of the same on balance: the Fed is on hold but with a tightening bias. 1.2538 was the intraday top today while EUR/USD held above 1.2500 throughout the US session. 1.2485/90 is key near-term support while 1.2460/75 is more significant medium-term support.
ZEW is on tap for tomorrow morning and will be particularly influential if weak. If strong, the market will likely wait until after the TIC data to trash the USD. TIC inflows were sub-par last month and after a $70 bln trade deficit last week, another short-fall will prompt heavy short-covering in EUR/USD. Stops above 1.2600 are eyed while more are seen on the downside on a 1.2450/60 break. US industrial production is out tomorrow and capacity use will be closely eyed by economists. With unemployment low, tight cap u will keep the Fed on guard.
ZEW is on tap for tomorrow morning and will be particularly influential if weak. If strong, the market will likely wait until after the TIC data to trash the USD. TIC inflows were sub-par last month and after a $70 bln trade deficit last week, another short-fall will prompt heavy short-covering in EUR/USD. Stops above 1.2600 are eyed while more are seen on the downside on a 1.2450/60 break. US industrial production is out tomorrow and capacity use will be closely eyed by economists. With unemployment low, tight cap u will keep the Fed on guard.
Friday, October 13, 2006
GBP/USD: Awaiting US Retail Sales, Bids Tipped at 1.8580
Fresh market-moving influence over GBP/USD may be exerted by the imminent 12:30GMT disclosure of US September retail sales. These are forecast +0.2% m/m.
A better-than-expected number could depress cable towards touted bids at 1.8580. The bids reside a couple of pips below today's Asian session base. Lower support points include 1.8560, 1.8537, 1.8517, and 1.8500. A supra-national entity was seen on the bid below 1.8560 yesterday. 1.8537 was yesterday"s base.
1.8517 was Wednesday's 11-week low. A large exotic option barrier reportedly resides at 1.8500. This is slated to expire on Monday.
1.8630/35 is a sterling resistance window, with Asian Central Banks seen on the offer ahead of 1.8635 in early European trade. 1.8650 is an upper obstacle.
US September import prices will also be revealed at 12:30GMT. These are forecast down 1.3% m/m.
A better-than-expected number could depress cable towards touted bids at 1.8580. The bids reside a couple of pips below today's Asian session base. Lower support points include 1.8560, 1.8537, 1.8517, and 1.8500. A supra-national entity was seen on the bid below 1.8560 yesterday. 1.8537 was yesterday"s base.
1.8517 was Wednesday's 11-week low. A large exotic option barrier reportedly resides at 1.8500. This is slated to expire on Monday.
1.8630/35 is a sterling resistance window, with Asian Central Banks seen on the offer ahead of 1.8635 in early European trade. 1.8650 is an upper obstacle.
US September import prices will also be revealed at 12:30GMT. These are forecast down 1.3% m/m.
EUR/USD: Waiting for Cues from US Retail Sales
EUR/USD opens right where the US left it last night in the low 1.2550s after some divergent commentary from various Fed members overnight. Dealers are looking for the US retail sales data to break the tie between the hawkish Moskow and dovish Poole comments. Poole highlighted downside risks to growth and productivity while Moskow said more rate hikes may be necessary. Retail sales are seen firm, but the big drop in gasoline prices may keep growth in the headline figure muted. Look for the ex-gasoline figure to get a sense of what the consumer is up to.
EUR/USD is trying to forge a bottom on the medium-term charts and many will eye a sustained move above 1.2575 as a sign a near-term bottom is in. 1.2615 is the next stumbling block if 1.2575 is overcome on a sustained basis. 1.2500 barriers continue to frustrate the downside near-term.
EUR/USD is trying to forge a bottom on the medium-term charts and many will eye a sustained move above 1.2575 as a sign a near-term bottom is in. 1.2615 is the next stumbling block if 1.2575 is overcome on a sustained basis. 1.2500 barriers continue to frustrate the downside near-term.
USD/JPY: Range Bound Ahead Of US Data Releases
USD/JPY is range bound ahead of US data releases starting at 12:30GMT. Prices have struggled to move out of the 119.00-50 range amid modest size interest on either side of the market. Exporters and speculative accounts cap gains, while the downside is underpinned by Japanese support. The market looks comfortable around the 119.30 and only a close below 118.90 would cast some doubt on the strong bullish underlying trend. Stops are noted through 119.00, 118.90 and 118.80 and Japanese names note good interest into 118.50 from Japanese institutional investors.
EUR/GBP: Sterling On The Attack As Rate Advantage Hits Home
A healthy three-day bull run vs the rate challenged Dollar and a return to higher levels vs the EUR following Thursday's modest EUR/GBP rebound. Some UK accounts are now sidelined having helped push the cross to 0.6740 lows and then covered positions. This afternoon's US retail sales data might provide some late week volatility but the Sterling market is now looking ahead to next week and the release of MPC minutes, inflation data, retail sales and the initial take on quarter three GDP.
EUR/GBP is set to post a bear close on the day but the bigger picture remains one of range trading between 0.6713 and 0.6770. Advantage the Pound with initial support for the cross at 0.6740, the 21-day moving average line.
EUR/GBP is set to post a bear close on the day but the bigger picture remains one of range trading between 0.6713 and 0.6770. Advantage the Pound with initial support for the cross at 0.6740, the 21-day moving average line.
Nordics: Oilfield Closures To be Shortlived
Reaction to the Norwegian Oil field closures should be fairly short lived as news surfaced of the reason being inadequate lifeboat standards. Comments from Royal Dutch Shell suggest a closure period of no more than 2 weeks giving them sufficient time to carry out corrective measures and start pumping again. Statoil comment that the closure period for their platform would be even less. The combined impact of both field closures amounts to around 280,000 barrels per day.
Nordics: Nokky Unchanged Despite Supply Cuts
Norwegian Kroner levels remained relatively intact despite news of Oilfield shutdowns in Norway. As the worlds 3rd largest supplier, reaction to the news caused the Oil price to jump more than a dollar.
USD/CHF: Prop Account Happy To Take Partial Profit
The initial push into the 1.2700's has seen 1.2707 hit but supply continues to flow in an effort to hamper the USD/CHF attempt to consolidate the break above the figure. One proprietary account has been a good seller around 1.2705 as they book partial profits on their earlier longs. However, with the topside still in focus and spot threatening to run towards 1.2715/20 they are said to be wary of exiting their trade completely.
Swiss Outlook (13th October 2006)
Into European trading and the Swiss Franc looked largely unchanged following the overnight volatility in the wake of the dovish Fed comments from Poole. However, these were soon shrugged off and dealers returned to selling the Swissie, as the low yielding currency and central bank jitters over the longer-term economic outlook left the market seeing few attractions to holding the alpine unit in either the short or longer-term.
USD/CHF rallied from 1.2667 to re-test the supply trailing from 1.2690 to 1.2700 as a US name bought good clips for several of its corporate customers. Swiss players, European names, proprietary accounts and other funds were active amid the move but it was the US player and their calls for a return/retest of the 1.2700's that helped spark the U-turn. More offers then noted above 1.2715.
Looking ahead, US September Import/Export Prices & Retail Sales data are due at 12:30 GMT. Higher USD rates are not expected to have had any considerable impact on the Labour Dept. release while economists look for the September Retail Sales headline to show a 0.2% rise.
USD/CHF rallied from 1.2667 to re-test the supply trailing from 1.2690 to 1.2700 as a US name bought good clips for several of its corporate customers. Swiss players, European names, proprietary accounts and other funds were active amid the move but it was the US player and their calls for a return/retest of the 1.2700's that helped spark the U-turn. More offers then noted above 1.2715.
Looking ahead, US September Import/Export Prices & Retail Sales data are due at 12:30 GMT. Higher USD rates are not expected to have had any considerable impact on the Labour Dept. release while economists look for the September Retail Sales headline to show a 0.2% rise.
Sterling Outlook (13th October 2006)
There are a raft of potentially market-moving UK data releases next week, inclusive of Tuesday's September inflation figures, Wednesday's unemployment statistics, and Thursday's retail sales. Minutes from this month's BoE MPC meeting will also be published next week, on Wednesday.
Asian Central Banks were touted as early Europe sellers of cable ahead of 1.8635(Monday's low). This offering interest helped cap the break through 1.8628 (today's Asian session peak). 1.8600 marks the subsequent pullback low.
Sub-1.8600 support points include 1.8582 (today's Asian session base), 1.8560 (a supra-national entity was seen on the bid below 1.8560 yesterday), 1.8537 (yesterday's low), 1.8517 (Wednesday's 11-week floor), and 1.8500. An exotic option barrier reportedly resides at 1.8500. The barrier is believed to be the base of a large Double No Touch, which is tipped to expire on Monday.
US September retail sales will be disclosed at 12:30GMT, alongside import prices. October's Michigan Sentiment index, and August biz inventories, ensue into 14:00GMT. Retail sales forecast: +0.2% m/m.
Asian Central Banks were touted as early Europe sellers of cable ahead of 1.8635(Monday's low). This offering interest helped cap the break through 1.8628 (today's Asian session peak). 1.8600 marks the subsequent pullback low.
Sub-1.8600 support points include 1.8582 (today's Asian session base), 1.8560 (a supra-national entity was seen on the bid below 1.8560 yesterday), 1.8537 (yesterday's low), 1.8517 (Wednesday's 11-week floor), and 1.8500. An exotic option barrier reportedly resides at 1.8500. The barrier is believed to be the base of a large Double No Touch, which is tipped to expire on Monday.
US September retail sales will be disclosed at 12:30GMT, alongside import prices. October's Michigan Sentiment index, and August biz inventories, ensue into 14:00GMT. Retail sales forecast: +0.2% m/m.
Yen Outlook (13th October 2006)
JPY was fairly stable, with USD/JPY and EUR/JPY trading towards the lower end of the weekly range. USD/JPY dipped after BOJ Governor Fukui refused to rule out a rate hike before the end of the year, although he added that policy would depend on the economy and prices. USD/JPY filled in large 119.15 bids reportedly from a quasi-official name but was unable to trade beyond 119.09 amid CTA and importer interest. Interbank names and intra-day shorts covered positions and the pair drifted higher over the course of the morning.
The topside was capped at 119.45/50 amid exporters offers and speculative account selling. Spot's failure to reassert itself on 119.80 yesterday has seen players lowering their offers, which is casting some doubt over the near-term sustainability of the uptrend. Excessive positioning in favour of JPY shorts may see stops below 119.00 and 118.80 come into play in the European afternoon. Directional bias will be tied to today's US data releases, with retail sales business inventories and Michigan sentiment due. Elsewhere, EUR/JPY continues to trades on a supportive footing, above 149.50-30 stops.
The topside was capped at 119.45/50 amid exporters offers and speculative account selling. Spot's failure to reassert itself on 119.80 yesterday has seen players lowering their offers, which is casting some doubt over the near-term sustainability of the uptrend. Excessive positioning in favour of JPY shorts may see stops below 119.00 and 118.80 come into play in the European afternoon. Directional bias will be tied to today's US data releases, with retail sales business inventories and Michigan sentiment due. Elsewhere, EUR/JPY continues to trades on a supportive footing, above 149.50-30 stops.
Euro Outlook (13th Octoer 2006)
Following the Poole comments overnight spot pushed to a high of 1.2579 but the EUR failed to sustain the gains and amid lightened European flow the pair soon eased back to 1.2550 support.
Looking ahead, the battle of the central banks continues with the ECB's Stark the next speaker on the rostrum at 12:30 GMT. As he speaks in Dublin the market will also brace for the release of US September Import/Export Prices & Retail Sales data. Higher USD rates are not expected to have had any considerable impact on the Labour Dept. release while economists look for the September Retail Sales headline to show a 0.2% rise.
Elsewhere, dealers note a 1.2500 expiry to make it a clean-sweep for the week of 1.25 strikes. Add to this, option barriers in play at this level and the downside will again expect to find protection on approach to the previous bounce low at 1.2503. Below, "very large" stops are seen sub-1.2480 while the 200-Day moving average sits at 1.2473 at present with speculation that reserve managers will have a lot interest should such rates be plumbed in the near-term.
Looking ahead, the battle of the central banks continues with the ECB's Stark the next speaker on the rostrum at 12:30 GMT. As he speaks in Dublin the market will also brace for the release of US September Import/Export Prices & Retail Sales data. Higher USD rates are not expected to have had any considerable impact on the Labour Dept. release while economists look for the September Retail Sales headline to show a 0.2% rise.
Elsewhere, dealers note a 1.2500 expiry to make it a clean-sweep for the week of 1.25 strikes. Add to this, option barriers in play at this level and the downside will again expect to find protection on approach to the previous bounce low at 1.2503. Below, "very large" stops are seen sub-1.2480 while the 200-Day moving average sits at 1.2473 at present with speculation that reserve managers will have a lot interest should such rates be plumbed in the near-term.
Thursday, October 12, 2006
AUD/USD: Rising US Stocks Aid USD, Temper AUD Gains
Rising US stocks are aiding the USD and tempering the AUD gains, along with option-related selling and AUD/JPY selling into rallies. Strong earnings results from McDonalds, Costco and Yum have seen the DJIA rise 69 pts this morning to 11,921, taking the DJIA to new record highs.
Traders are also shrugging off the US trade deficit, attributing the rise to a strong economy and voicing expectations that the recent fall in oil prices could see the deficit contract in coming months. On the flip side and a positive for AUD, Gold has continued its bounce and is now trading at session highs of $576.00. AUD/USD is at 0.7504/06 and continues to stall under the earlier high of 0.7511.
Traders are also shrugging off the US trade deficit, attributing the rise to a strong economy and voicing expectations that the recent fall in oil prices could see the deficit contract in coming months. On the flip side and a positive for AUD, Gold has continued its bounce and is now trading at session highs of $576.00. AUD/USD is at 0.7504/06 and continues to stall under the earlier high of 0.7511.
FX OPTIONS: EUR/USD 1mth Vol Goes 6.9 pct Bid-to-Offered
1mth implied option volatility has gone 6.9 pct bid-to-offered through today's European session--thereby extending a retreat from yesterday's 7.05 pct 23-day bid peak. The 1mth expiry date is currently November 14, having fallen on November 9 yesterday and the day before.
Exactly one week ago, an estimated E3bn of short-dated options out to the 1mth period were bought by a US name. A day prior to this touted gamma buying, the 1mth traded at a lifetime-low equaling 6.35 pct (Oct 4). The 1mth first traded at 6.35 pct at the end of Q3 (Sep 29).
Exactly one week ago, an estimated E3bn of short-dated options out to the 1mth period were bought by a US name. A day prior to this touted gamma buying, the 1mth traded at a lifetime-low equaling 6.35 pct (Oct 4). The 1mth first traded at 6.35 pct at the end of Q3 (Sep 29).
EUR/HUF: June Levels Revisited As The Cross Falls Away
A lack of fresh negative domestic factors and a degree of political certainty has allowed technicals to drive the Forint higher this week. EUR/HUF has fallen sharply from October 4's 276.95 highs to levels under 265.00, not seen since June. There is talk of 265.00 option barriers giving way but price action, although heavy, suggests little in the way of stop loss action.
Modest short covering has lifted the EUR back to 265.00 from 264.30-40 lows. The market is lacking fresh supply and a rebound into the weekend now the risk. Looking to the Friday session and August industrial output provides the data focus. Current account, producer prices and import/export data from the Czech economy could also have some Friday influence.
Modest short covering has lifted the EUR back to 265.00 from 264.30-40 lows. The market is lacking fresh supply and a rebound into the weekend now the risk. Looking to the Friday session and August industrial output provides the data focus. Current account, producer prices and import/export data from the Czech economy could also have some Friday influence.
USD/BRL: Brazilian Markets Closed, But EM In Good Shape
Brazilian markets are closed for the Columbus Day holiday, therefore the offshore NDF market is the only game in town. Spot is being indicated at 2.1495-05, 1-mth NDF is 2.16 30-50, which implies the Nov BM&F date is at 2.1590/10. Normally when the BM&F is trading the spreads would be 10pts. Yesterday afternoon's early close saw the front contract going out at 2.1692, so today's indications show the Real up about a big figure from yesterday.
NY EM Forex traders report that all EM currencies are "bid", or firm this morning, and that even the slightly disappointing 50bp SARB hike could not dampen traders' enthusiasm. There were reports of US hedge funds loading up on MXN around the 10.9550 level this AM, and adding whatever EM they could (at reasonable prices) to their shopping carts. The fact that USD/ZAR could not sustain its 7.7150 highs registered post- SARB announcement, and has reversed trend on the day and is trading at the lows (7.5875) has gotten NY EM Forex traders" attention.
With this leitmotif, and the superior yield in BRL, we expect to see more downward pressure on USD/BRL, and with no BACEN in today for a "snap auction" the usual buyers are absent. On the other hand the heavy weight of onshore export dollars is also absent. Either way, for now EM markets look in good shape.
NY EM Forex traders report that all EM currencies are "bid", or firm this morning, and that even the slightly disappointing 50bp SARB hike could not dampen traders' enthusiasm. There were reports of US hedge funds loading up on MXN around the 10.9550 level this AM, and adding whatever EM they could (at reasonable prices) to their shopping carts. The fact that USD/ZAR could not sustain its 7.7150 highs registered post- SARB announcement, and has reversed trend on the day and is trading at the lows (7.5875) has gotten NY EM Forex traders" attention.
With this leitmotif, and the superior yield in BRL, we expect to see more downward pressure on USD/BRL, and with no BACEN in today for a "snap auction" the usual buyers are absent. On the other hand the heavy weight of onshore export dollars is also absent. Either way, for now EM markets look in good shape.
Subscribe to:
Posts (Atom)