The exotic exposure at 1.3250 includes the peak triggers of Double No Touch options which are due to expire next April and May. The slated April expiry DNT carries an estimated E7mn payout.
1.3250+ exotic barriers reside at 1.3300, 1.3350, 1.3400, 1.3450 and 1.3500+. The 1.3500 exotic exposure includes a knockout on a 1.2900 EUR put option which reportedly traded at 0.685% in just over E1bn yesterday for a late November 2007 expiry.
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Thursday, November 30, 2006
US TECHS: Commodities Outlook; Gold and Oil
[Gold] has rolled to Feb futures. The market had set a weekly range of less than $10 through yesterday but with today's big gains has expanded it to $15. A bearish divergence setup that formed this month on daily momentum studies will be knocked out with continued gains. Trendline support from Nov 13-17 floors held perfectly at today's low print. Trend Intensity sideticked yesterday but will easily advance today. Major daily resistance is at $655-56, weekly trendlines at $653.20 mark today's top but are just being exceeded. Monthly resistance matches dailies at $655.50 but will shift upwards come tomorrow. $660 should be a target past the mid-$655 region.
[Oil] is terminating bearish weekly trend signals and is on the road to at least challenging the same on monthly time frames come December. Projected hurdles in the new month are just past $63.10, near current prices. Jan futures are back above 50-day moving averages for the first time since breaking below on August 15. The market's ability to hold monthly pivot and trendline supports at $57.60-90 on the just-after-mid-November test was an encouraging sign for bulls following months of declines. The recent advance now finds intraday supports quite close by in the $62.70-90 region. Weekly and monthly targets are in the $64.50-65.00 band on further gains.
[Oil] is terminating bearish weekly trend signals and is on the road to at least challenging the same on monthly time frames come December. Projected hurdles in the new month are just past $63.10, near current prices. Jan futures are back above 50-day moving averages for the first time since breaking below on August 15. The market's ability to hold monthly pivot and trendline supports at $57.60-90 on the just-after-mid-November test was an encouraging sign for bulls following months of declines. The recent advance now finds intraday supports quite close by in the $62.70-90 region. Weekly and monthly targets are in the $64.50-65.00 band on further gains.
USD/CHF: Sub-1.20 Prints As CHF Soars, EUR/CHF Breaks Sub-1.59
The latest US data has dented the USD and the Franc has finally managed to take advantage with the break below 1.59 in EUR/CHF highlighting the push towards renewed Franc strength. Stops have triggered since the break below 1.2050 and the option barriers into 1.20 removed as the push continues. Trading is now attempting to consolidate the move lower but dealers also cite the need for EUR/CHF to continue to hold sub-1.59.
Stops have also triggered in the EUR cross in the move lower with technicians now pointing towards the need for trading to best the daily low from yesterday at 1.5868. Dealers in NY reference the UK's Telegraph article (pB9) on heeding the danger in the carry trade. The article quotes the already much maligned Roth comments that call for "prudence" and cite the potential risks in exchange and transaction costs.
The news may not be that current but it is always worth remembering the statistics that more than 80% of new mortgages out of many eastern European states are undertaken in Francs.
Stops have also triggered in the EUR cross in the move lower with technicians now pointing towards the need for trading to best the daily low from yesterday at 1.5868. Dealers in NY reference the UK's Telegraph article (pB9) on heeding the danger in the carry trade. The article quotes the already much maligned Roth comments that call for "prudence" and cite the potential risks in exchange and transaction costs.
The news may not be that current but it is always worth remembering the statistics that more than 80% of new mortgages out of many eastern European states are undertaken in Francs.
USD/JPY: Stops Triggered As Selling Accelerate After PMI
USD/JPY is meeting good two-way interest around the 115.75/80 area after spot broke down in the wake of a weak Chicago PMI release. The headline number came in at 49.9 forcing spot below 116.00 and through stops below 115.90. Not surprisingly a bout of aggressive US name selling came over the release, with some prime names getting the heads up just before judging by price action.
Japanese names and other European interbank types have been good sellers, trying to execute stops on behalf of position traders and CTAs. Standing bids from importers and real money names are doing a decent job of soaking up the supply and the pair is showing signs of stabilising. The London fix should provide some interest, with hedge fund and corporate activity expected to be healthy due to month-end business. The dollar wants to go lower but it looks like a real struggle for USD/JPY.
Japanese names and other European interbank types have been good sellers, trying to execute stops on behalf of position traders and CTAs. Standing bids from importers and real money names are doing a decent job of soaking up the supply and the pair is showing signs of stabilising. The London fix should provide some interest, with hedge fund and corporate activity expected to be healthy due to month-end business. The dollar wants to go lower but it looks like a real struggle for USD/JPY.
EUR/USD: 1.3250 Next Hurdle as Bond Yields Fall
With the 1.3225 barrier overcome, the next hurdle becomes 1.3250 where more are eyed. Falling US bond yields are helping undermine the buck as dealers assume poor Chicago PMI will translate into a weak ISM figure tomorrow. 1.3265 is technical resistance if 1.3250 is overcome. Month-end USD selling could help achieve that goal at the 16:00 GMT fixing. EUR/USD trades at 1.3242.
GBP/USD: Ascends to Fresh 14-Year High post-Chicago PMI
Cable has risen to a new 14-year high of 1.9627 on the back of fresh USD selling following the disclosure of November's sub-50.0 Chicago PMI index. 1.9650 is among touted bull targets north of 1.9627. Commercially-driven demand for GBP has been tipped as a prime factor in today's cable appreciation. 1.9600 (former exotic option barrier level) is now a pullback support point. Lower props include 1.9580 (London morning high), 1.9550 (Dec 2004 top), and 1.9545 (yesterday's peak).
FX OPTIONS: USD/JPY Vols Steady Over NY Cut
USD/JPY vols are steady over the NY cut, with spot trading back into 116.00. 1-wk vols are trading at softer levels at 6.75/7.75 and the 1-mth shows 7.10/7.35. The market is positioning itself for a weak Chicago PMI, which may see the curve elicit some support.
In general, dollar weakness has encouraged decent interest for vols. However, spot's inability to sustain a run below 115.50 has been a source of concern for some option players exposed to vols at higher levels. On the basis of this positioning vols are unlikely to deviate too far from current levels unless we make a successful return to previous lows.
Option positions between 115.25 and 115.00 are being targeted but these have looked liked a long shot in a market restricted by sizeable two-way flows. A strong Japanese CPI number would reinforce negative USD/JPY sentiment, with many positioned for softer levels in the medium-term.
In general, dollar weakness has encouraged decent interest for vols. However, spot's inability to sustain a run below 115.50 has been a source of concern for some option players exposed to vols at higher levels. On the basis of this positioning vols are unlikely to deviate too far from current levels unless we make a successful return to previous lows.
Option positions between 115.25 and 115.00 are being targeted but these have looked liked a long shot in a market restricted by sizeable two-way flows. A strong Japanese CPI number would reinforce negative USD/JPY sentiment, with many positioned for softer levels in the medium-term.
EUR/USD: Fresh Marginal Highs as Chicago Tanks
EUR/USD raced up to fresh highs at 1.3221 as Chicago PMI falls to 49.9, below the proverbial boom/bust line at 50. Note that Chicago has not been very well correlated with ISM of late. US yields are easing as dealers fear an ISM print below 50 tomorrow. EUR/USD tested 1.3220 highs where central bank sales were rumored yesterday, protecting 1.3225 barriers.
US ECON: Chicago PMI Slips to 49.9 from 53.5, Weak
* Overall business index dips to 49.9, lowest since April 2003
* Order backlog, employment and supplier deliveries all below 50
* Prices paid index falls to 60.2, 18-month low
* Worst vendor performance in more than five years
* Correlation to ISM sharply deteriorated
The Chicago PMI slipped nearly four points to 49.9 in November from 53.5 in October. This compared to IFR's consensus estimate of 54.5 and IFR's own forecast of 54.0. Whispers of 49.0 lifted the bond market and jolted the dollar market a few minutes before the official release time. Another dealer had 49.9 ahead of the time stamp.
The number was below expectations and below the psychologically significant 50 line but it was just a tenth below 50 and heavily tied to the ailing auto industry. The Philly Fed index did much the same a few months ago before jumping to 5.1 in November. Still, the market fears the Chicago barometer bodes ill for tomorrow's ISM index. But while there was a 92.5% correlation between the ISM and Chicago PMI from January 2000 to August 2004, the link has deteriorated to 48.5% from September 2004 to present. So far this year, that correlation is a mere 4.1%.
The production index eased nearly five points to its lowest in 43 months. The new orders index, now down 15.3 points since September, rolled to a 15-month low. The inventories index fell almost 10 points after rising a net 18.5 points over the preceding three months.
The index on employment fell by 7.6 points to 49.4, dipping below 50 for the first time since April. The prices paid index fell for a fifth straight month and is now at an 18-month low. This index has fallen by 25.4 points from a year ago.
Manufacturing activity has retreated significantly but much of the malaise is due to autos and allied industries. That can't be easily dismissed but it is unlikely to tip the US economy into recession. Reserve judgment on the health of the factory economy until Friday's ISM report.
* Order backlog, employment and supplier deliveries all below 50
* Prices paid index falls to 60.2, 18-month low
* Worst vendor performance in more than five years
* Correlation to ISM sharply deteriorated
The Chicago PMI slipped nearly four points to 49.9 in November from 53.5 in October. This compared to IFR's consensus estimate of 54.5 and IFR's own forecast of 54.0. Whispers of 49.0 lifted the bond market and jolted the dollar market a few minutes before the official release time. Another dealer had 49.9 ahead of the time stamp.
The number was below expectations and below the psychologically significant 50 line but it was just a tenth below 50 and heavily tied to the ailing auto industry. The Philly Fed index did much the same a few months ago before jumping to 5.1 in November. Still, the market fears the Chicago barometer bodes ill for tomorrow's ISM index. But while there was a 92.5% correlation between the ISM and Chicago PMI from January 2000 to August 2004, the link has deteriorated to 48.5% from September 2004 to present. So far this year, that correlation is a mere 4.1%.
The production index eased nearly five points to its lowest in 43 months. The new orders index, now down 15.3 points since September, rolled to a 15-month low. The inventories index fell almost 10 points after rising a net 18.5 points over the preceding three months.
The index on employment fell by 7.6 points to 49.4, dipping below 50 for the first time since April. The prices paid index fell for a fifth straight month and is now at an 18-month low. This index has fallen by 25.4 points from a year ago.
Manufacturing activity has retreated significantly but much of the malaise is due to autos and allied industries. That can't be easily dismissed but it is unlikely to tip the US economy into recession. Reserve judgment on the health of the factory economy until Friday's ISM report.
GBP/USD: Erases 1.9600 Exotic Barrier, Talk of Soft Chicago PMI
Cable has sated Asian name option-related sell interest and erased a 1.9600 exotic option barrier en route to a fresh 14-year peak of 1.9604. This amid talk that November's Chicago PMI index will drop to 49.9. A rise to 54.4, from 53.5 in October, is the consensus forecast.
US ECON: Market Advisory - Census to Unveil New Rtl Sls Sample
Be on the lookout for revisions to retail sales coming at 15:00. The Census Bureau has this special note:
Special Notice Beginning with the December 13, 2006 release for October 2006, data will be based on a new sample. In addition, a special release providing historic data on a new sample basis will be provided on November 30, 2006 at 15:00. A new sample for the Advance Monthly Retail Trade Survey is selected about once every five years.
Special Notice Beginning with the December 13, 2006 release for October 2006, data will be based on a new sample. In addition, a special release providing historic data on a new sample basis will be provided on November 30, 2006 at 15:00. A new sample for the Advance Monthly Retail Trade Survey is selected about once every five years.
US ECON: Market Advisory - Census to Unveil New Rtl Sls Sample
Be on the lookout for revisions to retail sales coming at 15:00. The Census Bureau has this special note:
Special Notice Beginning with the December 13, 2006 release for October 2006, data will be based on a new sample. In addition, a special release providing historic data on a new sample basis will be provided on November 30, 2006 at 15:00. A new sample for the Advance Monthly Retail Trade Survey is selected about once every five years.
Special Notice Beginning with the December 13, 2006 release for October 2006, data will be based on a new sample. In addition, a special release providing historic data on a new sample basis will be provided on November 30, 2006 at 15:00. A new sample for the Advance Monthly Retail Trade Survey is selected about once every five years.
US TECHS: Reaction to Prior High is Key For S&P
Dec S&P has seen a strong bounce form the 62% retracement support and is headed back to the recent highs at 1411. The sharp decline on Monday makes the reaction to that peak important as the contract may be starting a topping process. Longer-term charts remain quite bullish but if the contract fails to push through 1411 over the next week or so the market will likely encounter more selling pressure into December.
Trend signals on weekly ADX and continued respect of swing point support gives more upside the benefit of the doubt. Also the 20-day put/call ratio for equities is not showing an over abundance of bullish sentiment so the market likely has more fuel to push higher.
Trend signals on weekly ADX and continued respect of swing point support gives more upside the benefit of the doubt. Also the 20-day put/call ratio for equities is not showing an over abundance of bullish sentiment so the market likely has more fuel to push higher.
EUR/USD: Fears European Corporates Dangerously Under-Hedged
In the wake of the Telegraph article on Monday highlighting the fact that Airbus's currency hedges are set to expire in the near future, dealers note growing fears that there is complacency on currency hedges from European manufacturers on a wide scale.
An acceleration in USD losses could bring these corporates into the market to hedge and exacerbate an already strong trend. Also of note today, dealers expect USD selling at the month-end fixing at 16:00 GMT in the wake of strong stock price gains in the US this month, giving overseas investors larger USD exposures. EUR/USD is underpinned at 1.3200.
An acceleration in USD losses could bring these corporates into the market to hedge and exacerbate an already strong trend. Also of note today, dealers expect USD selling at the month-end fixing at 16:00 GMT in the wake of strong stock price gains in the US this month, giving overseas investors larger USD exposures. EUR/USD is underpinned at 1.3200.
Swiss Outlook (30th November 2006)
Broad Dollar weakness opened spot to mild selling into early European trading but the push below 1.2075 failed to find significant follow-through as Swiss inflation data was released. The flat monthly release left the Franc high and dry and the dip in [EUR/CHF] towards 1.5900 was soon bought into to stall further CHF progress against the embattled USD.
Standing bids into 1.2050 propped and the price has since worked a 1.2050/75 range with a break back above 1.2080 required to put a fresh upward bias on the short-term charts. Against the Euro the Franc failure to break 1.59 opened the cross to a bounce, trading has since rallied to 1.5931 but EUR/CHF offers have now emerged. 1.2000 option barriers remain the key downside focus.
Swiss November CPI came in flat on the month and up 0.6% on an annualized basis but this is below the +0.2% M/M & +0.7% Y/Y that some economists had been touting. The unchanged reading will do little to dissuade the market that the SNB is going to hike rates at their Q4 meeting in December but it does raise certain concerns over the longer-term outlook.
Standing bids into 1.2050 propped and the price has since worked a 1.2050/75 range with a break back above 1.2080 required to put a fresh upward bias on the short-term charts. Against the Euro the Franc failure to break 1.59 opened the cross to a bounce, trading has since rallied to 1.5931 but EUR/CHF offers have now emerged. 1.2000 option barriers remain the key downside focus.
Swiss November CPI came in flat on the month and up 0.6% on an annualized basis but this is below the +0.2% M/M & +0.7% Y/Y that some economists had been touting. The unchanged reading will do little to dissuade the market that the SNB is going to hike rates at their Q4 meeting in December but it does raise certain concerns over the longer-term outlook.
Sterling Outlook (30th November 2006)
Sterling soared from the European open, en route to a 14-year peak of 1.9580. Stops above 1.9550 and 1.9565 were tripped en route to that peak. Some option-protective sell interest might emerge ahead of 1.9600 if GBP/USD progresses on towards the figure, re: a touted 1.9600 exotic option barrier.
2.00 is among flagged bull targets beyond (2.01 was the September 1992 high, pre-Black Wednesday). 1.9545/50 is now a pullback support window. 1.9550 was the December 2004 top. 1.9545 was yesterday's peak. Lower props include 1.9528 (Tuesday's high), 1.9500, and 1.9450. Today's Asian session range was 1.9449-1.9494.
BoE Governor Mervyn King told the TSC that the GBP exchange rate against an average of all other currencies has not risen in any way near the amount that GBP/USD has risen (Reuters). US personal income and consumption data, plus October's core PCE and weekly jobless claims, will be disclosed at 13:30GMT. November's Chicago PMI index will ensue at 15:00GMT.
2.00 is among flagged bull targets beyond (2.01 was the September 1992 high, pre-Black Wednesday). 1.9545/50 is now a pullback support window. 1.9550 was the December 2004 top. 1.9545 was yesterday's peak. Lower props include 1.9528 (Tuesday's high), 1.9500, and 1.9450. Today's Asian session range was 1.9449-1.9494.
BoE Governor Mervyn King told the TSC that the GBP exchange rate against an average of all other currencies has not risen in any way near the amount that GBP/USD has risen (Reuters). US personal income and consumption data, plus October's core PCE and weekly jobless claims, will be disclosed at 13:30GMT. November's Chicago PMI index will ensue at 15:00GMT.
Yen Outlook (30th November 2006)
The JPY crosses continued to have a large influence on price action. EUR/JPY scaled the previous high to record a new high of 153.49. This was the fifth consecutive session of new highs, following ongoing and steady interest to sell JPY against the high yielders.
GBP/JPY, AUD/JPY, NZD/JPY all performed well, holding onto firm levels. In contrast, USD/JPY spent another session caught up in the range, with backdrop dollar weakness being offset by steady JPY selling via the crosses. USD/JPY fell below 116.00 in early Europe amid good US name selling but soon regained its poise amid real money demand and bid interest from short-term speculative accounts. Interest rate developments continue to influence price action and this will drive sentiment into the weekend. The US session sees a run of key data, with personal income PCE deflator and Chicago PMI anticipated.
Tomorrow sees the release of Japanese CPI, which may shed more light on the Japanese outlook. Levels to watch for the market remain the 153.50 barriers in EUR/JPY and USD/JPY will favour the range while we trade inside 115.30 and 116.60.
GBP/JPY, AUD/JPY, NZD/JPY all performed well, holding onto firm levels. In contrast, USD/JPY spent another session caught up in the range, with backdrop dollar weakness being offset by steady JPY selling via the crosses. USD/JPY fell below 116.00 in early Europe amid good US name selling but soon regained its poise amid real money demand and bid interest from short-term speculative accounts. Interest rate developments continue to influence price action and this will drive sentiment into the weekend. The US session sees a run of key data, with personal income PCE deflator and Chicago PMI anticipated.
Tomorrow sees the release of Japanese CPI, which may shed more light on the Japanese outlook. Levels to watch for the market remain the 153.50 barriers in EUR/JPY and USD/JPY will favour the range while we trade inside 115.30 and 116.60.
Euro Outlook (30th November 2006)
Both a UK Clearer and a Swiss bank have noted in their research notes that December should be a good month for EUR/USD. However, neither is convinced of the longer-term sustainability of the Euro gains into the new-year.
The UK name cites the 04 rally to the historical high while their counterpart Swiss note talks of the "shadow year-end" today and how the US unit could struggle but ultimately that any pressure would be reversed. Intraday spot had been bought above 1.3180 but supply into the 1.32's continues to rebuff advances. Swiss & European players sold in good size to cap early-on but trading failed to pull back and speculative buyers soon broke the pair into the 1.32's to trip stops.
However, follow-through was muted ahead of the EZ data and the price pulled back before more Europeans sold into the rally. Euro cross buying has continued to support spot on dips amid European trading. Trading continues to attempt to consolidate the push into the 1.3200's but decent supply remains into 1.3210 with the option barriers up at 1.3220/25 & 1.3250 then coming into view. Small stops 1.3210+ with better size 1.3230+.
The UK name cites the 04 rally to the historical high while their counterpart Swiss note talks of the "shadow year-end" today and how the US unit could struggle but ultimately that any pressure would be reversed. Intraday spot had been bought above 1.3180 but supply into the 1.32's continues to rebuff advances. Swiss & European players sold in good size to cap early-on but trading failed to pull back and speculative buyers soon broke the pair into the 1.32's to trip stops.
However, follow-through was muted ahead of the EZ data and the price pulled back before more Europeans sold into the rally. Euro cross buying has continued to support spot on dips amid European trading. Trading continues to attempt to consolidate the push into the 1.3200's but decent supply remains into 1.3210 with the option barriers up at 1.3220/25 & 1.3250 then coming into view. Small stops 1.3210+ with better size 1.3230+.
USD/JPY: Out Of Focus, Supported By Carry Trade Interest
General USD weakness has not really affected USD/JPY with the pair holding up relatively well overnight on the back of sizeable carry trade interest, especially in the JPY crosses. USD/JPY is, so to say, out of the loop and dealers expect more of the same today.
Japan October industrial production data probably won't help unless much stronger-than-expected. Median forecasts are for a 0.4% m/m decline. USD/JPY does continue to see large offers around 116.50, and these look to continue to cap unless the IP data proves to be much weaker than expected. Even given a weak IP report, with USD still generally weak, any push to the upside should be limited. Specs are eyeing some stops above the line of offers at 116.50 however and these could be tripped.
Other specs are sure to cap it immediately thereafter however. Downside support is seen at 115.85-90 again with bids below 116.00 still seen thick. The New York low was limited to 115.90 and London to 115.93 overnight. USD/JPY currently trades 116.23/26.
Japan October industrial production data probably won't help unless much stronger-than-expected. Median forecasts are for a 0.4% m/m decline. USD/JPY does continue to see large offers around 116.50, and these look to continue to cap unless the IP data proves to be much weaker than expected. Even given a weak IP report, with USD still generally weak, any push to the upside should be limited. Specs are eyeing some stops above the line of offers at 116.50 however and these could be tripped.
Other specs are sure to cap it immediately thereafter however. Downside support is seen at 115.85-90 again with bids below 116.00 still seen thick. The New York low was limited to 115.90 and London to 115.93 overnight. USD/JPY currently trades 116.23/26.
EUR/USD: Offered Tone but Holding Above 1.3150
EUR/USD retains an offered tone as European trading winds down but dips continue to find buyers in the 1.3140/50 area. A supra-national central bank has been spotted buying several times this morning. Stops continue to build below the 1.3130 level with the market hanging onto long positions, buy and large.
The short-covering portion of the rally appears to be over and the building of long positions remains intense. A shakeout may be necessary before fresh highs can be made. Dealers are closely eying Cable for clues as it has the closest major topside hurdle to conquer, the 1.9550 level.
It has come very close but so far is failing. Deeper profit-taking in GBP/USD is likely to drag EUR/USD lower as well. 1.3090/1.3100 is first support, followed by the 1.3060 area.
The short-covering portion of the rally appears to be over and the building of long positions remains intense. A shakeout may be necessary before fresh highs can be made. Dealers are closely eying Cable for clues as it has the closest major topside hurdle to conquer, the 1.9550 level.
It has come very close but so far is failing. Deeper profit-taking in GBP/USD is likely to drag EUR/USD lower as well. 1.3090/1.3100 is first support, followed by the 1.3060 area.
USD/JPY: Price Action Limited After Brief Downside Test
USD/JPY price action is limited after a brief test of levels below the 116.00 handle. Movement below 116.00 has lacked progress due to a wave of institutional investor demand. The usual carry trade interest has been evident, although there is a sense that USD/JPY may losing its way a little after bouncing out of the mid 115's and unable to sustain a move higher.
The JPY crosses have been driving price action, yet also look subdued as some hedge funds favour profit taking ahead of tomorrow's month-end. Note, a number of US financial institutions are closing their books tomorrow, which could lead to further whippy price action.
The JPY crosses have been driving price action, yet also look subdued as some hedge funds favour profit taking ahead of tomorrow's month-end. Note, a number of US financial institutions are closing their books tomorrow, which could lead to further whippy price action.
US ECON: Crude Inventories Down 0.3 Mln Barrels; Gasoline Down
EIA reported crude oil inventories for the week ended November 24 slid for the first time in five weeks and 0.3 mln barrels. This is the smallest drop in inventories since the September 22 week (-0.1). Weekly crude oil imports dropped.
FX OPTIONS: EUR/USD Huge 1.3000 Expiry Tomorrow
An estimated E1.4bn 1.3000 option strike rolls off at tomorrow's 10am EST NY cut (Thursday, 15:00GMT), alongside 1.3100 and 1.3300 strikes. More 1.3000 and 1.3100 strikes expire on Friday.
USD/CHF: Downside Limited As EUR/CHF Attempts To Clear 1.5900/05
Weaker than expected US housing data but still USD/CHF remains supported. With the US unit resilience showing no sign of abating those who had looked to go short are now touting short-term long trades as the price looks to break back above the 1.21 level.
I feel there is a fundamental argument for fresh shorts but with flows still favoring the greenback a run above 1.2110 cannot be discounted. Stops are seen above this latter level with talk of more offers standing at 1.2145/50. Adding to the Franc weakness is the rally being seen in EUR/CHF at present with any clear break of 1.5905 said to add momentum to the USD/CHF push for a break higher.
Currently the EUR cross holds near the figure and buyers continue to take on shorts in the wake of the poor KoF.
I feel there is a fundamental argument for fresh shorts but with flows still favoring the greenback a run above 1.2110 cannot be discounted. Stops are seen above this latter level with talk of more offers standing at 1.2145/50. Adding to the Franc weakness is the rally being seen in EUR/CHF at present with any clear break of 1.5905 said to add momentum to the USD/CHF push for a break higher.
Currently the EUR cross holds near the figure and buyers continue to take on shorts in the wake of the poor KoF.
US TECHS: Commodities Outlook; Gold, Silver and Oil
Perhaps unnoticed up to now is how weekly [gold] momentum has snuck back into positive territory starting last week after prices stabilized in early October and then rose. [Silver] is a much stronger market technically, having surpassed early September highs as compared to gold, and never seeing weekly momentum in negative territory this year. IFR's proprietary Trend Intensity study has upticked bullishly in gold the past two days and is set to do so again today even on flat performance. The market does have huge hurdles on weekly and monthly charts in the $641 to $651 region, so it is far from being out of the woods. As long as the T/I signal holds, expect $641-51 to be challenged.
In [oil], weekly momentum is starting to turn up based on activity seen the first few days of this week, the first sign of recovery on that time frame since prices first headed south. Combine that with a bullish divergence on daily charts, and hopes of a recovery never quite disappear. Trendline resistance is at $62.00 and $62.90 today and other technical studies show the $62 region as important resistance as well. Intraday supports have lined up in the $60.95-61.25 zone as volatility slows. Weekly bear trends turn neutral on Friday with a $60.20 or better close, but monthly bears are safe.
In [oil], weekly momentum is starting to turn up based on activity seen the first few days of this week, the first sign of recovery on that time frame since prices first headed south. Combine that with a bullish divergence on daily charts, and hopes of a recovery never quite disappear. Trendline resistance is at $62.00 and $62.90 today and other technical studies show the $62 region as important resistance as well. Intraday supports have lined up in the $60.95-61.25 zone as volatility slows. Weekly bear trends turn neutral on Friday with a $60.20 or better close, but monthly bears are safe.
Wednesday, November 29, 2006
EUR/USD: Quick Dip on US Sell Recommendation
Dealers noted a quick slide from the low 1.3170s to 1.3150 on a recommendation from a US money center bank to go short EUR/USD for a dip back onto the 1.29-handle near-term. The buck is holding up reasonably well despite slightly weaker than expected US new home sales, a sign the market may be tiring.
EUR/USD dealers are keying off the 1.9550 level in cable, and the inability to break above that level may help set of a broad-based short-covering rally in the next day or two. The Fed's Beige Book will be eyed for further clues this afternoon. After Bernanke yesterday, dealers expect a cautious tone on inflation going forward. EUR/USD trades at 1.3158.
EUR/USD dealers are keying off the 1.9550 level in cable, and the inability to break above that level may help set of a broad-based short-covering rally in the next day or two. The Fed's Beige Book will be eyed for further clues this afternoon. After Bernanke yesterday, dealers expect a cautious tone on inflation going forward. EUR/USD trades at 1.3158.
US ECON: Oct New Home Sales Down 3.4%; Downward Revision to Sep
New home sales slipped further in October and the September rate was revised lower. At 1.004 mln, the seasonally adjusted annualized rate is the lowest since July (0.979 mln). The rate had improved in both August and September, by 2.1% and 3.7%, respectively. Both IFR and the median had called for a 1.050 mln rate in October.
There is now a 7.0-month supply of homes to clear, up from 6.7 months in September. The number of homes available, however, declined 4k to 558k, a 7-month low. The 3-month moving average on inventory fell to 6.9 months from 7.0 months in September, a 15-year high.
The median price jumped 13.9% in October to a 6-month high and the third highest on record. In September, the median price fell by 9.3%, the most in any one month since September 1981. The October jump is the highest on record but dubious. Prices have fluctuated, up one month and down the next, consistently since January. From this pattern, we expect price to fall by 4.8% in November to 236.6k. From a year ago, the median price of a new home is up 1.9%, whereas the median price for an existing one-family home is down 11.5%.
Sales of new homes in the Northeast fell by 39.0% for the month, building on a 27.2% drop in September. From a year ago, new home sales in the Northeast were off 52.6%. At just 36k, the October rate was the lowest since January 1982. Sales in the Midwest fell by 5.6%, also the fourth decline in five months and putting the year-ago drop at -26.5%. Sales in the South were off 1.7%, the first decline in three months. The year-ago pace is down 15.4%. Sales in the West rose by 3.2% for the month but remained down 36.5% from October 2005.
There is now a 7.0-month supply of homes to clear, up from 6.7 months in September. The number of homes available, however, declined 4k to 558k, a 7-month low. The 3-month moving average on inventory fell to 6.9 months from 7.0 months in September, a 15-year high.
The median price jumped 13.9% in October to a 6-month high and the third highest on record. In September, the median price fell by 9.3%, the most in any one month since September 1981. The October jump is the highest on record but dubious. Prices have fluctuated, up one month and down the next, consistently since January. From this pattern, we expect price to fall by 4.8% in November to 236.6k. From a year ago, the median price of a new home is up 1.9%, whereas the median price for an existing one-family home is down 11.5%.
Sales of new homes in the Northeast fell by 39.0% for the month, building on a 27.2% drop in September. From a year ago, new home sales in the Northeast were off 52.6%. At just 36k, the October rate was the lowest since January 1982. Sales in the Midwest fell by 5.6%, also the fourth decline in five months and putting the year-ago drop at -26.5%. Sales in the South were off 1.7%, the first decline in three months. The year-ago pace is down 15.4%. Sales in the West rose by 3.2% for the month but remained down 36.5% from October 2005.
Swiss Outlook (29th November 2006)
Into European trading and the Franc was already on the defensive as the option barriers at 1.2000 continued to be defended to leave the topside the only open path. Offers into 1.2050 initially attempted to limit the rebound but talk of a weak KoF forced the macro market to buy.
The release of the 1.73 Nov headline confirmed the Franc sales and spot rallied to 1.2075/80 offers. Offers trailing back to the 1.2090/2100 area are now trying to cap while cross sales are also said to weigh. Offers in [EUR/CHF] into 1.5900/05 cap the cross after the CHF was impacted by the domestic data but 1.5910+ stops are eyed by bulls.
Looking ahead, US Q3 GDP is due for its second outing at 13:30 GMT. Economists remain upbeat about the data and few are willing to rule out an upside surprise after the previous +1.6% reading. Following this, the 15:00 GMT unveiling of US New Home Sales and the 19:00 GMT Fed Beige Book will be in focus. Should any of the data of Fed comments dent the US unit then the attention will return to the 1.2000 option barriers.
The release of the 1.73 Nov headline confirmed the Franc sales and spot rallied to 1.2075/80 offers. Offers trailing back to the 1.2090/2100 area are now trying to cap while cross sales are also said to weigh. Offers in [EUR/CHF] into 1.5900/05 cap the cross after the CHF was impacted by the domestic data but 1.5910+ stops are eyed by bulls.
Looking ahead, US Q3 GDP is due for its second outing at 13:30 GMT. Economists remain upbeat about the data and few are willing to rule out an upside surprise after the previous +1.6% reading. Following this, the 15:00 GMT unveiling of US New Home Sales and the 19:00 GMT Fed Beige Book will be in focus. Should any of the data of Fed comments dent the US unit then the attention will return to the 1.2000 option barriers.
Sterling Outlook (29th November 2006)
Sell orders ahead of 1.9550 (Dec 2004, 12-year high) capped cable at a new 23-month peak of 1.9545 during today's Asian session. The sell orders may have included option-related interest, re: a rumoured decent size 1.9550 exotic option barrier.
Stops are pegged above 1.9550. Profit-taking on long positions was attributed as the cause of sterling's early Europe drop to lows just shy of touted bids at 1.9470 (Monday's high). 1.9512 was today's Asian session base. Further demand is tipped at 1.9460. Stops were previously flagged sub-1.9450, with more bids noted at 1.9425. UK consumer credit and mortgage lending data surprised on the upside in October.
This is good news for hawks forecasting another 25bp UK base rate hike to 5.25% in February. US annualized Q3 GDP is expected to be upwardly revised to 1.8%, from a 1.6% advance estimate, when the preliminary number is disclosed at 13:30GMT. US October new home sales will be revealed at 15:00GMT. Forecast: 1048k. The Fed's Beige Book ensues at 19:00GMT.
Stops are pegged above 1.9550. Profit-taking on long positions was attributed as the cause of sterling's early Europe drop to lows just shy of touted bids at 1.9470 (Monday's high). 1.9512 was today's Asian session base. Further demand is tipped at 1.9460. Stops were previously flagged sub-1.9450, with more bids noted at 1.9425. UK consumer credit and mortgage lending data surprised on the upside in October.
This is good news for hawks forecasting another 25bp UK base rate hike to 5.25% in February. US annualized Q3 GDP is expected to be upwardly revised to 1.8%, from a 1.6% advance estimate, when the preliminary number is disclosed at 13:30GMT. US October new home sales will be revealed at 15:00GMT. Forecast: 1048k. The Fed's Beige Book ensues at 19:00GMT.
Yen Outlook (29th NOvember 2006)
JPY consolidated at softer levels in the European morning. USD/JPY reversed the overnight losses recovering the 116.00 handle and extending to 116.30. Further JPY selling was noted by institutional investors and leverage accounts. Stops were filled at 116.10 and 116.30. Follow was lacking though amid ongoing option related selling linked to large size 116.00 strikes.
EUR/JPY pressed higher, moving off the 152.70/75 European opening levels. The pair briefly found levels above 153.00 but was unable to sustain these levels and spent a large part of the session hovering just below 153.00. Japanese lifers and option related offers were reportedly behind the price congestion above the 153.00 handle. Market attention has shifted towards the Fed Beige Book due to be released at 19:00GMT.
Data releases include the 2nd estimate for Q3 GDP and New home sales. The dollar has regained some poise largely due to exhausted dollar sellers. Many are still calling for a softer dollar into the year-end but are now looking for fresh impetus to fuel momentum.
EUR/JPY pressed higher, moving off the 152.70/75 European opening levels. The pair briefly found levels above 153.00 but was unable to sustain these levels and spent a large part of the session hovering just below 153.00. Japanese lifers and option related offers were reportedly behind the price congestion above the 153.00 handle. Market attention has shifted towards the Fed Beige Book due to be released at 19:00GMT.
Data releases include the 2nd estimate for Q3 GDP and New home sales. The dollar has regained some poise largely due to exhausted dollar sellers. Many are still calling for a softer dollar into the year-end but are now looking for fresh impetus to fuel momentum.
Euro Outlook (29th November 2006)
The failure to break 1.3220/25 left the Euro open to profit-taking into European trading and London dealers were only too happy to oblige ahead of the key US data later today. Trading was pushed back to 1.3150 as technicians talked of a clear divergence between the longer-term uptrend and the short-run bearish bias.
Looking ahead, US Q3 GDP is due for its second outing at 13:30 GMT. Economists remain upbeat about the data and few are willing to rule out an upside surprise after the previous +1.6% reading. Following this, the 15:00 GMT unveiling of New US Home Sales and the 19:00 GMT Fed Beige Book will be in focus but ECB and FOMC speakers are both on the roster to talk also. In other news, M&A has supported the USD intraday with the FT reporting that a USD 5Bn deal for the US firm Houghton Miffin is close.
Ireland's Riverdeep is the name in the frame with private equity the biggest benefactor. On the options front, 1.3220/25 & 1.3250 barriers look well protected while the 1.3100 expiries intraday should add some support to the price in the short- term with talk also now of renewed 1.30 exotics in play on the downside.
Looking ahead, US Q3 GDP is due for its second outing at 13:30 GMT. Economists remain upbeat about the data and few are willing to rule out an upside surprise after the previous +1.6% reading. Following this, the 15:00 GMT unveiling of New US Home Sales and the 19:00 GMT Fed Beige Book will be in focus but ECB and FOMC speakers are both on the roster to talk also. In other news, M&A has supported the USD intraday with the FT reporting that a USD 5Bn deal for the US firm Houghton Miffin is close.
Ireland's Riverdeep is the name in the frame with private equity the biggest benefactor. On the options front, 1.3220/25 & 1.3250 barriers look well protected while the 1.3100 expiries intraday should add some support to the price in the short- term with talk also now of renewed 1.30 exotics in play on the downside.
Tuesday, November 28, 2006
USD/JPY: Finding Good Support Ahead Of 116.00
USD/JPY is finding support in the low 116's. The pullback in the wake of weak US durable goods and orders failed to knock USD/JPY out of the range and interbank names have been keen buyers. Standing bids at 116.00 have been Japanese in the main and there has been some tentative option related interest, which has fueled the usual gamma related speculation ahead of the NY cut.
Bids are scattered from 116.00 down to 115.90, with light intra-day stops below. Larger size bids are seen from 115.80 and at 115.50, with importers and further regional interest noted. Offers of note lie from 116.40 up to 116.55/60, with stops above the latter.
Bids are scattered from 116.00 down to 115.90, with light intra-day stops below. Larger size bids are seen from 115.80 and at 115.50, with importers and further regional interest noted. Offers of note lie from 116.40 up to 116.55/60, with stops above the latter.
GBP/USD: Consolidating Gains pre-US Consumer Confidence
Cable is consolidating weak US durable goods order-fuelled gains to fresh 23-month highs just shy of 1.9490, as the market awaits the 15:00GMT disclosure of November's US consumer confidence index. This is forecast to rise to 106.0, from 105.4 in October. US October existing home sales will also be revealed at the top-of-the-hour.
Lots of large payout exotic option barriers reportedly reside at 1.9500, inclusive of a GBP 7mn trigger which is slated to expire a week today (Dec 5). Option-related sell interest is thus expected to emerge ahead of 1.9500. 1.9550 is a bull target north of 1.9500.
As well as being the December 2004 top, 1.9550 also marks the high water-mark since the 2.0100 peak scaled back in September 1992 (pre-Black Wednesday). GBP/USD support points include 1.9470 (yesterday's high), 1.9462 (today's London morning top), 1.9425 (approximate pullback low from 1.9462), and 1.9405 (today's Asian session top).
Lots of large payout exotic option barriers reportedly reside at 1.9500, inclusive of a GBP 7mn trigger which is slated to expire a week today (Dec 5). Option-related sell interest is thus expected to emerge ahead of 1.9500. 1.9550 is a bull target north of 1.9500.
As well as being the December 2004 top, 1.9550 also marks the high water-mark since the 2.0100 peak scaled back in September 1992 (pre-Black Wednesday). GBP/USD support points include 1.9470 (yesterday's high), 1.9462 (today's London morning top), 1.9425 (approximate pullback low from 1.9462), and 1.9405 (today's Asian session top).
EUR/USD: Paulson Upbeat on Economy, Advocates Strong USD
EUR/USD dipped momentarily on comments from Treasury Secretary Paulson that a strong USD is "clearly" in the US's interests and on comments about the economy moving toward a sustainable growth rate amid rising wages and growing payrolls. EUR/USD dipped to the 1.3155 area on the headline before drifting back up to the 1.3160s.
US housing data are next up for the market at 15:00 GMT. The market is aching for a poor figure to trash the USD further. A dip of 0.4% in existing home sales is expected.
US housing data are next up for the market at 15:00 GMT. The market is aching for a poor figure to trash the USD further. A dip of 0.4% in existing home sales is expected.
EUR/USD: Retest of Spike Highs but Rally Sputters
Despite a breakout in the bond market and rising odds of an early 2007 rate cut from the Fed, EUR/USD has been unable to sustain gains above the 1.3180 level. Rumored selling from the BIS has helped slow the advance, dealers report. Small stops are eyed just below 1.3150 now from intraday longs.
FOREX: ECB Reserves Virtually Unchanged in Nov 24 Week
ECB reserves are virtually unchanged for the week of Nov 24th at EUR152.3 bln. Gold reserves declined by EUR106 mln due to selling from three Eurosystem central banks. Gold reserves have now declined for 105 out of the last 111 weeks. EUR/USD is currently at 1.3159.
USD/JPY: Forced Back To 116.00 By Data, 115.85 Break Needed
The Dollar is taking a hit after the US data (Oct Durable goods fell 8.3%) and macro sellers of USD/JPY have combined with the usual interbank suspects to force USD/JPY back towards 116.00. 116.04 is the post-data low, down from the 116.42 into the release, but bids into 116.00 will attempt to offset further Yen strength.
Factor into the equation the continued EUR/JPY buying, as the market looks for a clean 153.00/05 break, and further JPY strength could be tough to hold. Both GBP/JPY & CHF/JPY are close to 8-year highs and showing little sign of reversing course. Therefore, buying into the USD/JPY dip could offer short-term accounts some value.
London players note that a break into the 115's will need to clear 115.90 bids before encountering stops, however, should these be triggered then the pair could start to get interesting.
Factor into the equation the continued EUR/JPY buying, as the market looks for a clean 153.00/05 break, and further JPY strength could be tough to hold. Both GBP/JPY & CHF/JPY are close to 8-year highs and showing little sign of reversing course. Therefore, buying into the USD/JPY dip could offer short-term accounts some value.
London players note that a break into the 115's will need to clear 115.90 bids before encountering stops, however, should these be triggered then the pair could start to get interesting.
GBP/USD: Rallies to New 23-Month Highs on US Durables Plunge
Cable has rallied through 1.9470 offers to new 23-month highs just shy of 1.9490 on the back of the much bigger-than-expected 8.3% decline in US October durable goods orders. Further sell interest is expected to emerge ahead of 1.9500, inclusive of option-related orders.
Exotic option barriers, carrying a cumulatively estimated payout of at least GBP 12mn, reside at 1.9500. Touted bull targets north of 1.9500 include 1.9550 (Dec 2004, 12-year high), and 1.9600. 1.9470 is now a pullback support point.
Exotic option barriers, carrying a cumulatively estimated payout of at least GBP 12mn, reside at 1.9500. Touted bull targets north of 1.9500 include 1.9550 (Dec 2004, 12-year high), and 1.9600. 1.9470 is now a pullback support point.
USD/CHF: Dollar Sold As Durables Plummet 8.3%
Durable goods data might be seen as a "highly volatile index" but even a fall of 8.3% cannot be overlooked and the Dollar has been sold in the wake of the data. The October fall has wiped out the initial September rise (8.3%) but a small revision higher (to 8.7%) means that the economy is still net up, even if only slightly. Propelled by big ticket falls the US unit has been forced back close to the early European low at 1.2033 and should further sellers emerge then 1.2020 support and 1.2000 option barriers will come into sight.
EUR/USD: Firms Toward Highs after Weak Durables
EUR/USD has pushed into the high 1.3150s in the wake of weak durable goods orders. Central bank sales have been spotted in the 1.3150/60 region the last few minutes, helping slow the advance.
Fresh lows in US bond yields for the move near 4.51 and tightening interest rate differentials between the US and the Eurozone should help limit dips. Sellers are seen all the way up the 1.3200 level where barrier options are spotted. Momentum players will be buyers nonetheless. EUR/USD trades at 1.3158.
Fresh lows in US bond yields for the move near 4.51 and tightening interest rate differentials between the US and the Eurozone should help limit dips. Sellers are seen all the way up the 1.3200 level where barrier options are spotted. Momentum players will be buyers nonetheless. EUR/USD trades at 1.3158.
US ECON: Durable Goods Orders Fall 8.3%, Ex-Trans -1.7%
Durable goods orders fell by more than expected in October, in both overall and core measures. Total orders fell by 8.3%, nearly erasing the 8.7% increase in September. The median estimate called for a 5.1% drop. Net of transportation equipment, orders fell by 1.7%, much more than the consensus expectation calling for a 0.1% advance. The low estimate from IFR's survey was -0.3%.
As expected, transportation equipment explained much of the October decline. These orders fell by 21.7% in October after jumping 29.9% in September. The other contributing factors were orders for computers and related products. Within this category, communication equipment orders sank by 16.9% and computer orders slumped by 25.6%.
Machinery orders, representing a larger share than computers and related products rose by 1.4%, following a 3.5% gain in September. Primary metals orders rose for the first time in three months and are up 15.6% in the last 12months. Orders for electrical equipment, appliances, and components have now risen 9.7% in the last two months.
Nondefense capital goods less aircraft orders fell by 5.1% in October, the biggest drop since an 8.1% plunge in January 2004. These orders had risen by 4.3% over the prior two months and are yet up 9.7% from the same month a year ago. Nondefense capital goods less aircraft shipments fell by 1.5% last month, adding to a 1.6%decline in the prior month. We don't come away from the durable goods report with the same feelings as in the rallying bond market. There are clues of manufacturing-led recession but these remain isolated to a limited number of industries. Friday's ISM number for November will give new insights on the extent of any factory slowdown.
As expected, transportation equipment explained much of the October decline. These orders fell by 21.7% in October after jumping 29.9% in September. The other contributing factors were orders for computers and related products. Within this category, communication equipment orders sank by 16.9% and computer orders slumped by 25.6%.
Machinery orders, representing a larger share than computers and related products rose by 1.4%, following a 3.5% gain in September. Primary metals orders rose for the first time in three months and are up 15.6% in the last 12months. Orders for electrical equipment, appliances, and components have now risen 9.7% in the last two months.
Nondefense capital goods less aircraft orders fell by 5.1% in October, the biggest drop since an 8.1% plunge in January 2004. These orders had risen by 4.3% over the prior two months and are yet up 9.7% from the same month a year ago. Nondefense capital goods less aircraft shipments fell by 1.5% last month, adding to a 1.6%decline in the prior month. We don't come away from the durable goods report with the same feelings as in the rallying bond market. There are clues of manufacturing-led recession but these remain isolated to a limited number of industries. Friday's ISM number for November will give new insights on the extent of any factory slowdown.
Swiss Outlook (28th November 2006)
Intraday and USD/CHF has remained a Dollar led pair but with flows in EUR/CHF finally increasing the price is beginning to show potential for Franc strength rather than pure-USD weakness. However, into NorAm trading and the US data & Bernanke and Greenspan comments will drive volatility.
Elsewhere, the latest publication of the Swiss Consumption Index by UBS has seen the index rise to 1.96 in October from the 1.83 in September. The data shows that the Swiss consumer is actively contributing to the current robust nature of the alpine economy. It also reinforces the need for the SNB to continue tightening into the year-end. Looking ahead, domestic players look to the release of the November CPI data, due Thursday at 06:45 GMT, to confirm the potential for Roth & Co to move rates in Q4.
CPI is expected to have risen 0.2% on the month and +0.7% on the year, compared to the 0.3% for both seen previously, as higher rents are offset by lower oil and energy prices. We at IFR still price in a further 25bp target LIBOR hike at the Q4 meeting in December.
Elsewhere, the latest publication of the Swiss Consumption Index by UBS has seen the index rise to 1.96 in October from the 1.83 in September. The data shows that the Swiss consumer is actively contributing to the current robust nature of the alpine economy. It also reinforces the need for the SNB to continue tightening into the year-end. Looking ahead, domestic players look to the release of the November CPI data, due Thursday at 06:45 GMT, to confirm the potential for Roth & Co to move rates in Q4.
CPI is expected to have risen 0.2% on the month and +0.7% on the year, compared to the 0.3% for both seen previously, as higher rents are offset by lower oil and energy prices. We at IFR still price in a further 25bp target LIBOR hike at the Q4 meeting in December.
Sterling Outlook (28th November 2006)
Cable soared to within a tenth-of-a-cent of yesterday's 23-month peak of 1.9470 from today's European open. Tripped stops above 1.9405 (today's Asian session top) aided the ascent, as did GBP demand on the crosses. Scottish Power's backing for a GBP 11.6bn takeover offer from Spain's Iberdrola (BBC website) helped weigh on EUR/GBP to intra-week lows just shy of noted bids at 0.6755.
Lots of GBP/JPY buying was also noted. GBP/USD offers are touted at 1.9470. Further sell interest is expected to emerge into 1.9500, inclusive of option-related orders re: a 1.9500 exotic barrier. This is the peak trigger of a Double No Touch option carrying an estimated GBP 3mn payout. The DNT is slated to expire next May.
1.9405 is now a pullback support point. Lower props include 1.9394 (yesterday's NY session top), 1.9369 (today's Asian session base), and 1.9350. US October durable goods orders will be disclosed at 13:30GMT, with November's US consumer confidence gauge ensuing at 15:00GMT. Forecast: 106.0. US October existing home sales are also due at 15:00GMT.
Lots of GBP/JPY buying was also noted. GBP/USD offers are touted at 1.9470. Further sell interest is expected to emerge into 1.9500, inclusive of option-related orders re: a 1.9500 exotic barrier. This is the peak trigger of a Double No Touch option carrying an estimated GBP 3mn payout. The DNT is slated to expire next May.
1.9405 is now a pullback support point. Lower props include 1.9394 (yesterday's NY session top), 1.9369 (today's Asian session base), and 1.9350. US October durable goods orders will be disclosed at 13:30GMT, with November's US consumer confidence gauge ensuing at 15:00GMT. Forecast: 106.0. US October existing home sales are also due at 15:00GMT.
Yen Outlook (28th November 2006)
JPY remained offered throughout the European morning. Bid interest was noted in USD/JPY, EUR/JPY and other JPY crosses. USD/JPY interest was healthy into the 116.00 region amid interest from institutional investors and talk of quasi-official name demand. In general, the dollar traded on a softer footing, which restricted USD/JPY"s ability to press higher.
The pair stalled ahead of yesterday's 116.39 high but retained a supportive tone amid aggressive cross-JPY interest. EUR/JPY traded from 152.30 up to the 153.00 area amid large demand from a US investment house and other leverage names. Selling was noted from European funds and option accounts but the weight of the demand overwhelmed. The US name reportedly bought EUR 1.5 billion and further momentum fund demand was seen. Dovish talk from BOJ Governor Fukui and MOF's Watanabe encouraged JPY selling vs high yielders, such as NZD, AUD and CHF.
Near-term momentum should take its lead from the Bernanke speech after the European close and could impact USD/JPY. While, the JPY crosses are looking overstretched, particularly after the EUR/JPY and GBP/JPY march higher.
The pair stalled ahead of yesterday's 116.39 high but retained a supportive tone amid aggressive cross-JPY interest. EUR/JPY traded from 152.30 up to the 153.00 area amid large demand from a US investment house and other leverage names. Selling was noted from European funds and option accounts but the weight of the demand overwhelmed. The US name reportedly bought EUR 1.5 billion and further momentum fund demand was seen. Dovish talk from BOJ Governor Fukui and MOF's Watanabe encouraged JPY selling vs high yielders, such as NZD, AUD and CHF.
Near-term momentum should take its lead from the Bernanke speech after the European close and could impact USD/JPY. While, the JPY crosses are looking overstretched, particularly after the EUR/JPY and GBP/JPY march higher.
Euro Outlook (28th November 2006)
North American dealers have argued that European dealers have had all the fun of late but intraday the static EUR/USD price has left little "fun" for the taking. Spot has held near the 1.3150 mark for the majority of the morning as the pair carves a 30-pip range either side.
Official offers into 1.3175 will cap should the session high at 1.3162 be bested while technical resistance at 1.3180 remains intact. On the downside interbank, fund and other assorted support into 1.3120 props before the Asian central bank & option related buyers into 1.3100/3095 are found.
Stops still reside sub-1.3075. Looking ahead, both Bernanke & Greenspan are set to comment later in the day while on the data front US Durable Goods at 13:30 GMT is followed by Consumer Confidence & Existing Housing data at 15:00 GMT. Elsewhere, jawboning on what rates constitute a "danger to the economy" continues, some suggest the move higher is already putting the brakes on the economy while others see EUR/USD in the 1.30"s as no problem. However, it is more than likely that all will cry if 1.40/50 rates begin to become a reality.
Official offers into 1.3175 will cap should the session high at 1.3162 be bested while technical resistance at 1.3180 remains intact. On the downside interbank, fund and other assorted support into 1.3120 props before the Asian central bank & option related buyers into 1.3100/3095 are found.
Stops still reside sub-1.3075. Looking ahead, both Bernanke & Greenspan are set to comment later in the day while on the data front US Durable Goods at 13:30 GMT is followed by Consumer Confidence & Existing Housing data at 15:00 GMT. Elsewhere, jawboning on what rates constitute a "danger to the economy" continues, some suggest the move higher is already putting the brakes on the economy while others see EUR/USD in the 1.30"s as no problem. However, it is more than likely that all will cry if 1.40/50 rates begin to become a reality.
Monday, November 27, 2006
USD/JPY, EUR/JPY: In Holding Pattern Ahead Of Europe, BoJ Fukui
USD/JPY and EUR/JPY have done little after the pre-Tokyo to-do when USD/JPY broke down to 115.40 and the cross shot up to 152.40/45. Both pairs have backtracked with USD/JPY rising to 115.82 and the cross down to the 151.80-90 area. USD/JPY has since come back off but remains well off its lows, a level seen to be jam-packed with bids from a variety of players.
Offers remain heavy towards 116.00, a level where specs look to put on fresh shorts. EUR/JPY, for its part, is holding in a 10-tick range both sides of 152.00. The downside looks well-supported at 151.75, the New York and London high Friday and where stops above were tripped on the way up earlier (stops were tripped above presumed option barriers at 152.00 as well).
Topside resistance is eyed at 152.40-45 and then around 152.75, the latter the top of the 1% moving average envelope. USD/JPY currently trades 115.69/72, EUR/JPY 151.94/98. Dealers in Tokyo seem to be awaiting direction from Europe later today as well as comments from BoJ Governor Fukui early this evening.
Offers remain heavy towards 116.00, a level where specs look to put on fresh shorts. EUR/JPY, for its part, is holding in a 10-tick range both sides of 152.00. The downside looks well-supported at 151.75, the New York and London high Friday and where stops above were tripped on the way up earlier (stops were tripped above presumed option barriers at 152.00 as well).
Topside resistance is eyed at 152.40-45 and then around 152.75, the latter the top of the 1% moving average envelope. USD/JPY currently trades 115.69/72, EUR/JPY 151.94/98. Dealers in Tokyo seem to be awaiting direction from Europe later today as well as comments from BoJ Governor Fukui early this evening.
USD/JPY: Still In A Limbo Of Sorts, Cross Demand Also Supports
USD/JPY looks to have fallen into a limbo of sorts between 115.40 on the downside and 116.00. Bids from Japanese and a bevy of other players remains down at 115.40 and below, and look to support the pair as the week progresses.
Buyers include Japanese importers for month-end settlements (including oil importers), institutional investors, private and semi-official, and a host of overseas funds to are looking to cover up short USD positions ahead of their fiscal year-ends. Topside resistance remains towards 116.00 where specs are ready to sell some more on expectations of further USD weakness. USD weakness looks to be greater in other pairs than USD/JPY, and the reasoning is that USD/JPY has to eventually play catch-up.
That said, JPY crosses remain in demand on carry trade considerations. This is especially so in EUR/JPY which looks to have found a base of sorts in the high-151 area if not around 152.00. This cross looks to be benefiting still from central bank diversification flows, real and expected. USD/JPY currently trades 115.68/70, EUR/JPY 152.03/07.
Buyers include Japanese importers for month-end settlements (including oil importers), institutional investors, private and semi-official, and a host of overseas funds to are looking to cover up short USD positions ahead of their fiscal year-ends. Topside resistance remains towards 116.00 where specs are ready to sell some more on expectations of further USD weakness. USD weakness looks to be greater in other pairs than USD/JPY, and the reasoning is that USD/JPY has to eventually play catch-up.
That said, JPY crosses remain in demand on carry trade considerations. This is especially so in EUR/JPY which looks to have found a base of sorts in the high-151 area if not around 152.00. This cross looks to be benefiting still from central bank diversification flows, real and expected. USD/JPY currently trades 115.68/70, EUR/JPY 152.03/07.
EUR/USD: Bouncing Off Of 1.3125 Support
The EUR/USD is making a healthy bounce off of support at 1.3125, as the EUR/JPY has moved back above the 152.00 level. Sellers of the EUR/USD are up around 1.3160 while there is talk of very heavy EUR/JPY selling orders ahead of 152.50. The EUR/USD trades 1.3140/45.
EUR/USD: Grinding Lower As USD/JPY Catches Bid
The EUR/USD is easing back a bit after the USD/JPY ran into very good buying interest around 115.40 and given the USD a broadly bid tone. Support for the EUR/USD is found at former resistance at 1.3125 and Friday's high around 1.3115. Key hourly support is found at 1.3050 and a break below that level should see the gap between 1.2980/1.3050 filled. The EUR/USD trades 1.3130/35.
USD/JPY: Bids At 115.40/Below Seen Very Firm, Fund Interest Too
USD/JPY bids from the 115.40 level are seen very firm with both Japanese and overseas funds tipped to be buying from this level. Japanese importers have not been able to buy at current levels since mid-August. The beginning of September did see a brief dip towards current levels but the bounce was fast and many unable to take advantage.
Japanese institutional investors also look to be more active here with a large semi-governmental name reported to have been buying Friday in the low-116 area. Dealers say more buys here would not surprise. This may account for the thick bids at 115.40 earlier this morning. Overseas funds are also seen on the bid, looking to buy back USD shorts ahead of their fiscal year-end.
Such position adjustments often take place towards the end of each November, and may not be limited to just USD/JPY. Topside resistance is still eyed towards 116.00 where plenty of offers remain. USD/JPY currently trades 115.56/59.
Japanese institutional investors also look to be more active here with a large semi-governmental name reported to have been buying Friday in the low-116 area. Dealers say more buys here would not surprise. This may account for the thick bids at 115.40 earlier this morning. Overseas funds are also seen on the bid, looking to buy back USD shorts ahead of their fiscal year-end.
Such position adjustments often take place towards the end of each November, and may not be limited to just USD/JPY. Topside resistance is still eyed towards 116.00 where plenty of offers remain. USD/JPY currently trades 115.56/59.
JPN ECON: Oct Corporate Service Prices +0.2% m/m, +0.1% y/y
The market is showing little reaction to this relatively insignificant piece of economic data.
Swiss Outlook (27th November 2006)
The skeleton crews manning US trading rooms were a little surprised at this morning's levels, with most of them junior personnel who weren't carrying overnight positions, and were not prepared for the post-Thanksgiving Day price levels.
Sticker shock is the best way to describe it, and the US session was spent defensively pricing whatever "must do" business emanated from in house and commercial accounts. Spot USD/CHF opened at 1.2095 and closed at 1.2095, with the range 1.2079-1.2119. US markets "maintained parity" as old FX hands like to say, and US trading rooms were in no mood to take on new risk, "he who fights and runs away" was the motto of the day. Cross rate action was interesting, in a supposedly risk averse liquidation mode, the primary cross EUR/CHF ran up from 1.5825 to 1.5855, and closed at 1.5835.
CHF/JPY ran up from the US session low of 95.59 to 95.84 at the high, before closing at 95.75. GBP/CHF opened at 2.3350, traded to a high of 2.3400 and closed at 2.3360. US price action showed ambivalence in the crosses at these levels, and traders are looking for more proof that this is the real deal.
Sticker shock is the best way to describe it, and the US session was spent defensively pricing whatever "must do" business emanated from in house and commercial accounts. Spot USD/CHF opened at 1.2095 and closed at 1.2095, with the range 1.2079-1.2119. US markets "maintained parity" as old FX hands like to say, and US trading rooms were in no mood to take on new risk, "he who fights and runs away" was the motto of the day. Cross rate action was interesting, in a supposedly risk averse liquidation mode, the primary cross EUR/CHF ran up from 1.5825 to 1.5855, and closed at 1.5835.
CHF/JPY ran up from the US session low of 95.59 to 95.84 at the high, before closing at 95.75. GBP/CHF opened at 2.3350, traded to a high of 2.3400 and closed at 2.3360. US price action showed ambivalence in the crosses at these levels, and traders are looking for more proof that this is the real deal.
Sterling Outlook (27th November 2006)
The GBP/USD opened at 1.9330 after surging higher on Friday when the USD downmove accelerated in the wake of comments from a PBOC official regarding risks for Asian central bank assets posed by a weakening USD. It was a wild session in Asia for the GBP. GBP/JPY stops were triggered above 224.20 sending the GBP/USD up from 1.9330 to 194.70.
The GBP/JPY order was reversed for some reason and the cross fell back to 223.70 while the GBP/USD slumped to 1.9370. The GBP/JPY stop above 224.20 was triggered again late in the Tokyo morning and the cross went back to 224.55 while the GBP/USD hovered around 1.9390/1.9410. The volatile GBP/JPY resulted in the EUR/GBP whipping between 0.6760/85 before settling around 0.6770 for the balance of the session.
Major resistance for the GBP/USD is found at the December 2004 high 1.9550 and a break above that level will have the market eyeing a move towards 2.000, as some of the UK weekend press suggests it is heading. A break below 1.9370 could see a drift back to 1.9330 while key hourly support is found at 1.9285. A break below 1.9285 would relieve the upward pressure.
The GBP/JPY order was reversed for some reason and the cross fell back to 223.70 while the GBP/USD slumped to 1.9370. The GBP/JPY stop above 224.20 was triggered again late in the Tokyo morning and the cross went back to 224.55 while the GBP/USD hovered around 1.9390/1.9410. The volatile GBP/JPY resulted in the EUR/GBP whipping between 0.6760/85 before settling around 0.6770 for the balance of the session.
Major resistance for the GBP/USD is found at the December 2004 high 1.9550 and a break above that level will have the market eyeing a move towards 2.000, as some of the UK weekend press suggests it is heading. A break below 1.9370 could see a drift back to 1.9330 while key hourly support is found at 1.9285. A break below 1.9285 would relieve the upward pressure.
Yen Outlook (27th November 2006)
USD/JPY and JPY crosses looked relatively bid in Asia despite general USD weakness Friday following more comments relating to reserve diversification from China Friday and talk in some quarters of paring of JPY carry trades. USD/JPY did move down to a fresh low of 115.40 in early Sydney trading but has since bounced towards 116.00.
Bids at 115.40 were thick and more were tipped from a variety of players below including Japanese importers, institutional investors (private and semi-official) and US hedge funds looking to pare down outstanding USD-short positions before their fiscal year-ends. Option players are probably part of this mix, especially towards large barriers tipped at 115.00. Offering interest remain at and above 116.00 from specs still eyeing more downside.
EUR/JPY shot up above its New York/London high of 151.75 and through presumed option barriers at 152.00 early in Sydney, trading up to as high as 152.40/45 before retracing lower. CB reserve diversification and surging EZ bond markets should keep this cross moving higher. Position adjustments in AUD/JPY and NZD/JPY look to be over for now.
Bids at 115.40 were thick and more were tipped from a variety of players below including Japanese importers, institutional investors (private and semi-official) and US hedge funds looking to pare down outstanding USD-short positions before their fiscal year-ends. Option players are probably part of this mix, especially towards large barriers tipped at 115.00. Offering interest remain at and above 116.00 from specs still eyeing more downside.
EUR/JPY shot up above its New York/London high of 151.75 and through presumed option barriers at 152.00 early in Sydney, trading up to as high as 152.40/45 before retracing lower. CB reserve diversification and surging EZ bond markets should keep this cross moving higher. Position adjustments in AUD/JPY and NZD/JPY look to be over for now.
Euro Outlook (27th November 2006)
The EUR/USD opened around 1.3100 in early Asia after the pairing surged higher on Friday in the wake of comments regarding central bank reserves by a PBOC official. The EUR/USD flew higher in early Asia initially on the back of EUR/JPY stops above 152.00 followed by stops in the EUR/USD getting triggered above 1.3125.
The EUR/USD traded up to 1.3180 before Japanese selling of EUR/JPY helped to cap the EUR/USD rise. The USD firmed later in the morning session led by USD/JPY and the EUR/USD drifted back to former resistance at 1.3125 before setting between 1.3130/45 for the balance of the active session. Sentiment towards the EUR/USD has turned decidedly bullish after the break and close above 1.3000 on Friday. There is speculation that a number of specs are short option vols in the EUR/USD and this could help fuel moves higher, as those positions go into stop loss mode.
Traders are still wary of the possibility that regional central banks might try and cap the move higher, but only a move back below 1.3050 will take the pressure off of the topside. There might be some consolidation ahead of key US data this week, but the bias is for higher.
The EUR/USD traded up to 1.3180 before Japanese selling of EUR/JPY helped to cap the EUR/USD rise. The USD firmed later in the morning session led by USD/JPY and the EUR/USD drifted back to former resistance at 1.3125 before setting between 1.3130/45 for the balance of the active session. Sentiment towards the EUR/USD has turned decidedly bullish after the break and close above 1.3000 on Friday. There is speculation that a number of specs are short option vols in the EUR/USD and this could help fuel moves higher, as those positions go into stop loss mode.
Traders are still wary of the possibility that regional central banks might try and cap the move higher, but only a move back below 1.3050 will take the pressure off of the topside. There might be some consolidation ahead of key US data this week, but the bias is for higher.
Friday, November 24, 2006
USD/JPY: Talk That Large USD/CNY Maturity May Influence USD/JPY
There is talk in Asia this morning that the USD/JPY moves today might be influenced by a maturity of a huge USD/CNY outright forward that was dealt in November, 2005 and settles today or Monday.
The talk in the market is that the PBOC sold a huge amount of USD/CNY at an outright forward price of 7.8500 one year ago and will try and engineer the price of the USD/CNY to settle at that level today/Monday. Some market analysts say that a USD/JPY trading around 116.20/25 would help the PBOC in achieving their objective of setting the USD/CNY at 7.8500.
These analysts feel that there could be a strong effort to keep the USD/JPY hemmed in between 116.10/50 for the remainder of the trading day. The USD/JPY trades 116.24/26.
The talk in the market is that the PBOC sold a huge amount of USD/CNY at an outright forward price of 7.8500 one year ago and will try and engineer the price of the USD/CNY to settle at that level today/Monday. Some market analysts say that a USD/JPY trading around 116.20/25 would help the PBOC in achieving their objective of setting the USD/CNY at 7.8500.
These analysts feel that there could be a strong effort to keep the USD/JPY hemmed in between 116.10/50 for the remainder of the trading day. The USD/JPY trades 116.24/26.
FX OPTIONS: EUR/USD E1bn of 1.3100 EUR Calls Expire Next Week
An estimated yard of 1.3100 EUR call options roll off next week, inclusive of month-end expiries (Nov 30).
FX OPTIONS: EUR/USD Exotic Barriers at 1.3200, 1.3250 & 1.3300+]
Exotic option barriers are located at 1.3200, 1.3250, 1.3300, 1.3400, 1.3450, 1.3500, and 1.3600. Many of these triggers are the peaks of Double No Touch options. All of them reside ahead of the EUR/USD 1.3667 all-time peak scaled in late December 2004 (post-Xmas/pre-New Year). A batch of exotic barriers from 1.3000 up to 1.3100 was erased during today's European morning.
USD INDEX: Back At June Levels Having Dropped Under Key Support
Support at 84.40 gave way and lows of 83.71 indicated. The bear pressure was increased last session with another good support point at 83.70 giving way. The index is now back at levels not seen since June this year and is targeting the 83.60 low from the week ending June 21. Below this point a gap opens up to 81.30 (March 2005 lows), which could translate into a Cable level in the 1.95-1.96's. On the pullback the 84.40 level will now provide a ceiling.
EUR/USD: Pausing For Breath After Volatility Peak
A slightly softer tone as New York traders appear reluctant to join in the Dollar bashing. Having traded at levels not seen since April 2005 the EUR is now consolidating just off the 1.3109 high. Consolidation within a 1.3060 to 1.3100 range is the early North American theme.
A jittery London market is now asking whether the intraday trend can extend or if the best for the EUR has been seen. There is a feeling that the move was overdone and that if the US market fails to record a new high the EUR will slip back to the low 1.30"s before the session is out.
A jittery London market is now asking whether the intraday trend can extend or if the best for the EUR has been seen. There is a feeling that the move was overdone and that if the US market fails to record a new high the EUR will slip back to the low 1.30"s before the session is out.
USD/JPY: Japanese Support Continues To Limit Price Action
Japanese support continues to limit price action, with spot hovering around 115.70 after recording a 115.59 session low. US traders returning from their Thanksgiving holiday have been forced to sell the dollar, with spot trading below key levels.
Decent Japanese bid interest has soaked up the steady dollar supply, with importers, retail investors and option accounts noted. There have been a few rumours of quasi-official interest like there was in yesterday's session as spot ran into support on dips. Japanese names have been notable but there is little evidence to suggest an official presence.
The near-term picture suggests further downside but oversold hourly studies, along with technical support at 115.55 should add to the supportive tone. Offers are expected to come in between 116.00 and the 116.20 200-day moving average.
Decent Japanese bid interest has soaked up the steady dollar supply, with importers, retail investors and option accounts noted. There have been a few rumours of quasi-official interest like there was in yesterday's session as spot ran into support on dips. Japanese names have been notable but there is little evidence to suggest an official presence.
The near-term picture suggests further downside but oversold hourly studies, along with technical support at 115.55 should add to the supportive tone. Offers are expected to come in between 116.00 and the 116.20 200-day moving average.
GBP/USD: Runs into Resistance at 1.9350
Cable ran into resistance at 1.9350 after the most recent bout of USD selling. 1.9350 marks a new 23-month peak. 1.9400, 1.9485, 1.9500, 1.9550 (Dec 2004, 12-year high), and 1.9600 are touted obstacles north of 1.9350. Sterling support points include 1.9300, 1.9290, 1.9275, 1.9200, and 1.9180 (Nov 10 peak). Lows just under 1.9290 were notched after the 09:30GMT UK annualized Q3 GDP downward revision.
Swiss Outlook (24th November 2006)
With US traders punishing the Dollar for ruining early pre-Thanksgiving departures a usually calm, steady, holiday market turned into a rout for the US unit. Talk of further carry trade unwinding has heavily favoured the Swiss Franc and both USD/CHF and EUR/CHF have extended their Wednesday slide. Indeed EUR/CHF has recorded new 7-week lows at 1.5840.
Strong Swiss non-farm payroll data added further to the swissy's shine. The employment in Switzerland climbed to its highest in 14-years during the third quarter and the market is assuming that more good news on the jobs front will be forthcoming. USD/CHF fell from 1.2415 to 1.2256 last session and the move has been extended to 1.2222 during a thinned European session. Talk of profit take bids in the 1.2220's and stops above 1.2310.
For the cross a similar story with new lows of 1.5839 and profit taking preventing a drop to 1.5800. Both CHF pairings are oversold and corrective rebounds will now be the risk into the weekend, which for many will be at close of business today.
Strong Swiss non-farm payroll data added further to the swissy's shine. The employment in Switzerland climbed to its highest in 14-years during the third quarter and the market is assuming that more good news on the jobs front will be forthcoming. USD/CHF fell from 1.2415 to 1.2256 last session and the move has been extended to 1.2222 during a thinned European session. Talk of profit take bids in the 1.2220's and stops above 1.2310.
For the cross a similar story with new lows of 1.5839 and profit taking preventing a drop to 1.5800. Both CHF pairings are oversold and corrective rebounds will now be the risk into the weekend, which for many will be at close of business today.
Sterling Outlook (24th November 2006)
Cable surged to a 23-month peak of 1.9350 during the European morning, on "massive" selling of the USD. System and model-driven types were tipped as the prime movers. 1.9147-1.9166 was today's Asian session range. 1.9169 was yesterday's high. 1.9400, 1.9485, 1.9500, 1.9550 (Dec 2004, 12-year high) and 1.9600 are touted resistance levels north of 1.9350.
Sterling support points include 1.9300, 1.9290, 1.9275, 1.9200, and 1.9180 (Nov 10 high). Lows just under 1.9290 were notched following the 09:30GMT UK annualized Q3 GDP downward revision to 2.7%. At the start of this week, a 1.9300 GBP call option was bought at 6.125% for a February 8 MPC expiry date in GBP 250mn. Over half-a-yard of 1.9600 GBP calls roll off on February 2.
Exotic barriers reside at 1.9500, inclusive of the peak trigger of a Double No Touch option which is slated to expire next May. 1.9100 GBP call options expire a week today (Dec 1), as does an estimated GBP 500mn 2.0100 GBP call.
Sterling support points include 1.9300, 1.9290, 1.9275, 1.9200, and 1.9180 (Nov 10 high). Lows just under 1.9290 were notched following the 09:30GMT UK annualized Q3 GDP downward revision to 2.7%. At the start of this week, a 1.9300 GBP call option was bought at 6.125% for a February 8 MPC expiry date in GBP 250mn. Over half-a-yard of 1.9600 GBP calls roll off on February 2.
Exotic barriers reside at 1.9500, inclusive of the peak trigger of a Double No Touch option which is slated to expire next May. 1.9100 GBP call options expire a week today (Dec 1), as does an estimated GBP 500mn 2.0100 GBP call.
Yen Outlook (24th November 2006)
Heavy dollar selling was the leading influence. European interbank names immediately pressurised the dollar downside. USD/JPY easily filled in 116.20 bids, with a French, Swiss and UK name in the frame as the pair pushed through 116.00/115.85 options. Brief support came from Japanese names but was unable to stop further losses as aggressive stop loss buying via EUR/USD forced USD/JPY down to 115.65.
Japanese names were the only notable buyers on dips, with a trust bank, securities house and a couple of clearers working interest for importers and retails investors. Options activity increased as the pair traded lower, with defensive bids seen ahead of 115.50 positions, along with general gamma activity. EUR/JPY surged as EUR/USD led action. Japanese name support in USD/JPY saw EUR/USD as the main influence on the cross and the pair managed to clear 150.80 and 151.20 stops.
A 151.62 high was noted before turning lower, with selling noted by exporters, model funds and real money names. Focus is expected to remain on the USD/JPY downside, with US traders returning from their Thanksgiving holiday, although liquidity will remain thin though.
Japanese names were the only notable buyers on dips, with a trust bank, securities house and a couple of clearers working interest for importers and retails investors. Options activity increased as the pair traded lower, with defensive bids seen ahead of 115.50 positions, along with general gamma activity. EUR/JPY surged as EUR/USD led action. Japanese name support in USD/JPY saw EUR/USD as the main influence on the cross and the pair managed to clear 150.80 and 151.20 stops.
A 151.62 high was noted before turning lower, with selling noted by exporters, model funds and real money names. Focus is expected to remain on the USD/JPY downside, with US traders returning from their Thanksgiving holiday, although liquidity will remain thin though.
Euro Outlook (24th November 2006)
Post Thanksgiving trade has done little for the holiday mood and certainly nothing for the US Dollar. A steady Asian session with price contained within a 1.2945 to 1.2965 range and clearly signs that EUR longs were getting twitchy. Into Europe and the market took on a different personality.
Cracks appeared in the Dollar recovery following Thursday's tight, almost corrective, session and a number of factors were cited as the market tried to put a definitive handle on the Dollar rout. German import prices for October and French business climate numbers failed to inspire and were eventually lost in the mire of Dollar selling, which dominated the bulk of the European morning. Hawkish overtones to the Leibscher remarks only served to reinforce a EUR rally that was already well underway.
EUR/USD opened in London at 1.2960, rose to 1.30 and then the fireworks were lit. Option stops, carry trade unwinding and fund squaring ahead of month-end were blamed for the rally to 19-month highs of 1.3109, a 164-point bounce from the Asian lows. Resistance is now at 1.3125, April 21 highs from 2005.
Cracks appeared in the Dollar recovery following Thursday's tight, almost corrective, session and a number of factors were cited as the market tried to put a definitive handle on the Dollar rout. German import prices for October and French business climate numbers failed to inspire and were eventually lost in the mire of Dollar selling, which dominated the bulk of the European morning. Hawkish overtones to the Leibscher remarks only served to reinforce a EUR rally that was already well underway.
EUR/USD opened in London at 1.2960, rose to 1.30 and then the fireworks were lit. Option stops, carry trade unwinding and fund squaring ahead of month-end were blamed for the rally to 19-month highs of 1.3109, a 164-point bounce from the Asian lows. Resistance is now at 1.3125, April 21 highs from 2005.
Thursday, November 23, 2006
USD/JPY: Held To The Lows, Japanese Bids Provide Good Support
USD/JPY is held to the 116.20 area, with all the focus now skewed toward 116.00 handle, where sizeable option positions are noted. A large Japanese bid at 116.20 has underpinned since midway in the European morning. Sources are noting regular bids on the EBS machine at 116.21/22, fueling vague talk of quasi-official interest.
Real money based activity and importer bids have been confirmed at higher levels and good sized protective bids from the options market appear to be slowing the pace of the decline. Modest size stops are noted below 116.20 and a congestion of buyers is anticipated into 116.00.
Technically, 116.20 represents the 200-day moving average and a 61.8% fibo support. In this respect, proprietary names, system accounts and CTAs should also emerge around this pivot.
Real money based activity and importer bids have been confirmed at higher levels and good sized protective bids from the options market appear to be slowing the pace of the decline. Modest size stops are noted below 116.20 and a congestion of buyers is anticipated into 116.00.
Technically, 116.20 represents the 200-day moving average and a 61.8% fibo support. In this respect, proprietary names, system accounts and CTAs should also emerge around this pivot.
NEWS: Nationwide November UK House Price Survey Next Thursday
The Nationwide building society will publish its monthly UK housing market survey a week today (November 30, 07:00GMT).
FX OPTIONS: EUR/USD R/R Bias for EUR Calls Widens
The risk reversal curve's topside strike premium has been subject to inflation on the back of EUR call demand to accompany this morning's EUR/USD rise to fresh five-month highs five pips shy of 1.2980 (June 5 top). 1-mth through 1-year 25 delta R/R's are now 0.4/0.6 EUR calls over, having been 0.5 pct offered at today's European open. The R/R curve was 0.4 pct offered for EUR calls at Tuesday's European close.
EUR/USD: Choppy Action Just Below 1.2975 Tops
Thin conditions are already taking their toll on market depth. EUR/USD topped out at 1.2975 following the stronger than expected German IFO and has backtracked to 1.2955. Choppy trade as intraday accounts book profits and those who missed the early move higher attempt to join the Thursday bias. Still looking at a 1.2925 to 1.2975 range with downside risk.
FX OPTIONS: USD/JPY Vols Underpinned In The Front End
USD/JPY vols are underpinned in the front end of the curve, with the 1-wk at 7.15/7.90 and the 1-mth at 7.05/7.35. The curve has continued to build on yesterday's gains as spot traded down to a fresh session low of 116.22. Profit taking and standing Japanese bids have alleviated some of the downside pressure.
However, sentiment is clearly skewed toward 116.00 barriers and this has left a nervous tone in the curve. A break of 116.00 would see prices gap higher as players look to take in more vol on their books. Risk reversals retain a bid tone at 0.80/0.95% JPY calls over in the 1-mth 25-d contract.
However, sentiment is clearly skewed toward 116.00 barriers and this has left a nervous tone in the curve. A break of 116.00 would see prices gap higher as players look to take in more vol on their books. Risk reversals retain a bid tone at 0.80/0.95% JPY calls over in the 1-mth 25-d contract.
Swiss Outlook (23rd November 2006)
With US traders punishing the Dollar for ruining early pre-Thanksgiving departures a usually calm, steady, holiday market turned into a rout for the US unit. Talk of further carry trade unwinding has heavily favoured the Swiss Franc and both USD/CHF and EUR/CHF have extended their Wednesday slide.
Indeed EUR/CHF has recorded new 7-week lows at 1.5840. Strong Swiss non-farm payroll data added further to the swissy's shine. The employment in Switzerland climbed to its highest in 14-years during the third quarter and the market is assuming that more good news on the jobs front will be forthcoming. USD/CHF fell from 1.2415 to 1.2256 last session and the move has been extended to 1.2222 during a thinned European session.
Talk of profit take bids in the 1.2220's and stops above 1.2310. For the cross a similar story with new lows of 1.5839 and profit taking preventing a drop to 1.5800. Both CHF pairings are oversold and corrective rebounds will now be the risk into the weekend, which for many will be at close of business today.
Indeed EUR/CHF has recorded new 7-week lows at 1.5840. Strong Swiss non-farm payroll data added further to the swissy's shine. The employment in Switzerland climbed to its highest in 14-years during the third quarter and the market is assuming that more good news on the jobs front will be forthcoming. USD/CHF fell from 1.2415 to 1.2256 last session and the move has been extended to 1.2222 during a thinned European session.
Talk of profit take bids in the 1.2220's and stops above 1.2310. For the cross a similar story with new lows of 1.5839 and profit taking preventing a drop to 1.5800. Both CHF pairings are oversold and corrective rebounds will now be the risk into the weekend, which for many will be at close of business today.
Sterling Outlook (23rd November 2006)
Cable revisited yesterday's 12-day peak of 1.9168 during the European morning, on the back of German IFO-spurred EUR/USD gains to fresh five-month highs five pips shy of 1.2980 (June 5 top). EUR/GBP also rose to a three-day peak just shy of 0.6775, post-IFO. GBP/USD offers are touted towards 1.9180 (Nov 10, 19-month high), with some stops tipped above 1.9180.
These could inflate the rate towards 1.9200, a previously noted exotic option barrier level, if tripped. Another exotic option barrier resides up at 1.9300. This is the peak of a slated January expiry DNT. Sterling support points include 1.9130 (today's Asian session base), 1.9100, 1.9085 (yesterday's NY session low), 1.9066, 1.9050, 1.9025, and 1.9000.
News-wise: CBI director general Richard Lambert says UK firms have no intention of offering big pay rises in the New Year wage round (Reuters). Lambert also says that US protectionism is a concern for UK companies (DJ). The second estimate of Q3 UK GDP will be disclosed at 09:30GMT tomorrow (Friday). Forecast: +0.7% q/q, +2.8% y/y.
These could inflate the rate towards 1.9200, a previously noted exotic option barrier level, if tripped. Another exotic option barrier resides up at 1.9300. This is the peak of a slated January expiry DNT. Sterling support points include 1.9130 (today's Asian session base), 1.9100, 1.9085 (yesterday's NY session low), 1.9066, 1.9050, 1.9025, and 1.9000.
News-wise: CBI director general Richard Lambert says UK firms have no intention of offering big pay rises in the New Year wage round (Reuters). Lambert also says that US protectionism is a concern for UK companies (DJ). The second estimate of Q3 UK GDP will be disclosed at 09:30GMT tomorrow (Friday). Forecast: +0.7% q/q, +2.8% y/y.
Yen Outlook (23rd November 2006)
JPY extended gains in a holiday thin European session. USD/JPY remainder under pressure, with interbank names following yesterday's theme. The 117.40 level came under pressure in the wake of a stronger than expected German Ifo. Standing bids from Japanese clearers at 117.40 and 117.30 gave way and the pair traded down to 117.22.
Real money demand was behind the flows, while vague rumours of quasi-official demand also did the rounds. USD/JPY managed to find support ahead of 117.20, where option related interest and further Japanese name bids were noted. EUR/JPY traded on the heavy side but was helped by a firmer EUR/USD in the wake of the German sentiment data. Proprietary name bids emerged ahead of the 150.55 support, along with light bids from Asian names. Over the holiday period bother pairs are expected to remain corrective.
Some feel this is the start of a trend that could see the JPY strengthen across the board as the huge build up of JPY carry trades are pared back ahead of year-end. However, long-term JPY bears see the move as corrective claiming that the environment that contributed to JPY weakness has not changed.
Real money demand was behind the flows, while vague rumours of quasi-official demand also did the rounds. USD/JPY managed to find support ahead of 117.20, where option related interest and further Japanese name bids were noted. EUR/JPY traded on the heavy side but was helped by a firmer EUR/USD in the wake of the German sentiment data. Proprietary name bids emerged ahead of the 150.55 support, along with light bids from Asian names. Over the holiday period bother pairs are expected to remain corrective.
Some feel this is the start of a trend that could see the JPY strengthen across the board as the huge build up of JPY carry trades are pared back ahead of year-end. However, long-term JPY bears see the move as corrective claiming that the environment that contributed to JPY weakness has not changed.
Euro Outlook (23rd November 2006)
Steady action through Asia with a 25-pip range containing the better bid EUR. All the carry trade talk and supposed activity last session looks a bit overdone and there is a risk that the Dollar might stage a modest comeback despite the US holiday. Price has stalled at the 1.2975 level and looks set to trade tight around a 1.2955 pivot into the session close.
The German IFO for November came in stronger than expected at 106.8 from 105.3 and helped lift the EUR from 1.2940 to the 1.2975 top. The EUR appears to be drawing additional support from further carry trade unwinding. Softer USD/CHF and a fall in USD/JPY have filtered through to EUR/USD. The big option barriers and vanilla expiries are at 1.30 but the battle to trigger stops and protect the exotics will probably be on hold until next week.
Big picture dynamics still favour a 1.30 test near-term. Only a drop under 1.2800 is likely to trigger sizeable stops. For today 1.2925-1.2975 on the wide with downside risk.
The German IFO for November came in stronger than expected at 106.8 from 105.3 and helped lift the EUR from 1.2940 to the 1.2975 top. The EUR appears to be drawing additional support from further carry trade unwinding. Softer USD/CHF and a fall in USD/JPY have filtered through to EUR/USD. The big option barriers and vanilla expiries are at 1.30 but the battle to trigger stops and protect the exotics will probably be on hold until next week.
Big picture dynamics still favour a 1.30 test near-term. Only a drop under 1.2800 is likely to trigger sizeable stops. For today 1.2925-1.2975 on the wide with downside risk.
Wednesday, November 22, 2006
Japan Econ: October Trade Surplus Down 24.8% Y/Y
Against expectations of a 5.4% fall. The unadjusted surplus was Y614.7bln. The September All Industry Activity Index fell 0.4%.
EUR/USD: Consolidating Fresh Gains; 1.2940/50 Key
EUR/USD is consolidating not far from session highs as 1.2900 and 1.2925 barriers were overcome in one fell swoop. 1.2950s remain to be overcome and protection of that level helped stall EUR/USD at 1.2940 earlier in the year.
A break above the 1.2950 and especially 1.3000 levels would likely spark a big rebound in volatility as the market is structurally short of vols. It could be a much more interesting holiday period than most had bargained for ahead. EUR/USD trades at 1.2920; bids are eyed at 1.2900 on dips, offers from 1.2930 on up through 1.2950, above which stops take over.
A break above the 1.2950 and especially 1.3000 levels would likely spark a big rebound in volatility as the market is structurally short of vols. It could be a much more interesting holiday period than most had bargained for ahead. EUR/USD trades at 1.2920; bids are eyed at 1.2900 on dips, offers from 1.2930 on up through 1.2950, above which stops take over.
USD/JPY: Hedge Funds Join The Dollar Rout
Hedge funds are the latest names being thrown around as the dollar rout pushes USD/JPY to a 116.70 low. Selling has come from a variety of sources today, with CTAs, model funds and speculative account cited in the European morning. The US session has seen a number of prime names, with a couple of reasonable sized funds pushing through good amounts.
A large Swiss name was also among the sellers reportedly filling in a very good Asian bid at 116.80. It is difficult to point towards a concrete reason why the pullback has been so pronounced. Yesterday's downward revision in US growth forecasts have been cited, along with late Asian talk that the MOF was encouraging exporters to buy JPY. The Japanese government's downward revision in the November economic assessment had a muted impact, while we doubt the efficacy of the MOF talk.
Historically, the Thanksgiving holiday has been the time for some hedge funds/leverage accounts to trim up exposure before volumes thin into the year-end. Notably, USD/JPY fell from 119.56-117.82 on Thanksgiving week last year. It then posted a rally up to 121.39 into the second week of December before slumping to 115.29 in the week preceding Christmas as hedge funds exited carry trades.
A large Swiss name was also among the sellers reportedly filling in a very good Asian bid at 116.80. It is difficult to point towards a concrete reason why the pullback has been so pronounced. Yesterday's downward revision in US growth forecasts have been cited, along with late Asian talk that the MOF was encouraging exporters to buy JPY. The Japanese government's downward revision in the November economic assessment had a muted impact, while we doubt the efficacy of the MOF talk.
Historically, the Thanksgiving holiday has been the time for some hedge funds/leverage accounts to trim up exposure before volumes thin into the year-end. Notably, USD/JPY fell from 119.56-117.82 on Thanksgiving week last year. It then posted a rally up to 121.39 into the second week of December before slumping to 115.29 in the week preceding Christmas as hedge funds exited carry trades.
FX OPTIONS: EUR/USD Vols Extend North on 1.2900 Break
Implied option volatilities have extended north on the back of spot's rally through 1.2900 to three-month highs. The 1-mth was last seen indicated at 5.85/6.05, having been 5.7 pct offered at today's European open. In the mid-dates: the Monday expiry date 2-mth was last seen indicated at 5.8/6.0.
The 2-mth was also 5.7 pct offered at today's European open. Exotic barriers reside at 1.2950. These are the peak triggers of Double No Touch options, carrying a cumulatively chunky payout, which are slated to roll off in the week before Xmas. 1.2700 is the base trigger of the DNT's. An Asian player is the name-in-the-frame re: the exotic options. Another batch of exotic barriers are located at 1.3000.
EUR/USD has not traded at 1.3000 since April 2005. 1.2980 (June 5 top) marks the traded peak through the intervening period.
The 2-mth was also 5.7 pct offered at today's European open. Exotic barriers reside at 1.2950. These are the peak triggers of Double No Touch options, carrying a cumulatively chunky payout, which are slated to roll off in the week before Xmas. 1.2700 is the base trigger of the DNT's. An Asian player is the name-in-the-frame re: the exotic options. Another batch of exotic barriers are located at 1.3000.
EUR/USD has not traded at 1.3000 since April 2005. 1.2980 (June 5 top) marks the traded peak through the intervening period.
Swiss Outlook (22nd November 2006)
A bad session for the growth challenged Dollar and with carry trade unwinds, a good session for the Swissy. The US administration has accepted that growth may have come off the tracks by revising down both this year and next year's growth forecasts. For 2006 the pace has been dropped to 3.1% from 3.6% and for next year growth is now forecast at 2.9% from 3.35 before.
USD/CHF opened in London at 1.2397 and slipped to 1.2360 as Europe reacted to the White House news. Sideways action into mid-morning Europe and then the carry trade issue surfaced once again. Fairly aggressive squaring of yield plays put a bid into the Swiss Franc and both USD/CHF and EUR/CHF fell sharply through support points.
Pre-US holiday position squaring is likely to dominate action into the European close with the Dollar losing more ground. USD/CHF has a support point at 1.2290, which might attract profit taking while EUR/CHF has a prop at 1.5860, a little off the pace.
USD/CHF opened in London at 1.2397 and slipped to 1.2360 as Europe reacted to the White House news. Sideways action into mid-morning Europe and then the carry trade issue surfaced once again. Fairly aggressive squaring of yield plays put a bid into the Swiss Franc and both USD/CHF and EUR/CHF fell sharply through support points.
Pre-US holiday position squaring is likely to dominate action into the European close with the Dollar losing more ground. USD/CHF has a support point at 1.2290, which might attract profit taking while EUR/CHF has a prop at 1.5860, a little off the pace.
Sterling Outlook (22nd November 2006)
The pound has shrugged off the surprise MPC minutes revelation that BoE Deputy Governor Lomax joined ultra-dove Blanchflower in voting against this month's 25bp base rate hike to 5.0%. GBP/USD posted knee-jerk losses to lows just shy of 1.9025 on the 09:30GMT release but is now trading over half-a-cent higher.
1.9066 was the pre-MPC minutes high. M&A news is helping underpin the pound, with ICI's Quest sale to Switzerland's Givaudan for CHF 2.8bn cash (FT website) being the latest example. Spain's Iberdrola could present a GBP 12bn bid for Scottish Power next week, according to Expansion (DJ). India's Tata Steel, meanwhile, is in talks with its bankers about the need for more funds to stave off Brazilian CSN's GBP 4.3bn takeover offer for Anglo-Dutch Corus, according to the Economic Times (DJ).
GBP/USD resistance levels include 1.9100, 1.9150, 1.9180 (Nov 10, 19-month peak), and 1.9200. Pre-1.9025 support points: 1.9066, 1.9050, and 1.9038. November's final November Michigan Sentiment index will be disclosed at 15:00GMT. Forecast: 93.1.
1.9066 was the pre-MPC minutes high. M&A news is helping underpin the pound, with ICI's Quest sale to Switzerland's Givaudan for CHF 2.8bn cash (FT website) being the latest example. Spain's Iberdrola could present a GBP 12bn bid for Scottish Power next week, according to Expansion (DJ). India's Tata Steel, meanwhile, is in talks with its bankers about the need for more funds to stave off Brazilian CSN's GBP 4.3bn takeover offer for Anglo-Dutch Corus, according to the Economic Times (DJ).
GBP/USD resistance levels include 1.9100, 1.9150, 1.9180 (Nov 10, 19-month peak), and 1.9200. Pre-1.9025 support points: 1.9066, 1.9050, and 1.9038. November's final November Michigan Sentiment index will be disclosed at 15:00GMT. Forecast: 93.1.
Yen Outlook (22nd November 2006)
JPY made up ground ahead of tomorrow's Thanksgiving holidays in Japan and the US. USD/JPY fell from 117.94 in Asia and extended to the 117.20 area in the European morning. Selling was noted from CTAs and model funds encouraged by the move below 117.50 overnight. Good size Japanese bids underpinned for a time at 117.40 but the interest eventually gave way, triggering stops.
EUR/JPY traded on a similar footing, with the JPY broadly higher in the main. Speculative accounts and exporters were noted as sellers reportedly reducing positioning. Euro Group's Juncker added fuel to the move after he said the JPY move over the last few months has been rough. The market showed a muted reaction to the Japanese government monthly report. The government downgraded its assessment on the economy, which was largely inline with expectations.
A slowdown in the economy has historically seen some Japanese money repatriated and may have contributed to the JPY move. Yesterday's downward revision in the US growth forecast may also have had a knock effect given Japan's reliance on exports, the impact on the Japan and inturn JPY.
EUR/JPY traded on a similar footing, with the JPY broadly higher in the main. Speculative accounts and exporters were noted as sellers reportedly reducing positioning. Euro Group's Juncker added fuel to the move after he said the JPY move over the last few months has been rough. The market showed a muted reaction to the Japanese government monthly report. The government downgraded its assessment on the economy, which was largely inline with expectations.
A slowdown in the economy has historically seen some Japanese money repatriated and may have contributed to the JPY move. Yesterday's downward revision in the US growth forecast may also have had a knock effect given Japan's reliance on exports, the impact on the Japan and inturn JPY.
Euro Outlook (22nd November 2006)
The Dollar was on the back foot early in the session following the US growth downgrade for 2006/2007 and a bout of pre-Thanksgiving position adjusting. A better than expected return for Italian November consumer confidence added to the EUR/USD bid feel.
The Italian data showed 109.2 from 108.6, the market was looking for a milder increase to 108.9. This came from the dip in October following the 2007 budget which increased taxes on mid & high level earners. November's rebound comes amid a pick up in wages and lower inflation (fall in gasoline prices), however the breakdown reveal that consumers are still concerned about the overall economic climate.
The tentative bull bias has put a positive tone to the charts and a break above recent daily tops. Option expiries with 1.2875 strikes are said to be large, in excess of 250 mln, and barriers are reportedly camped at 1.2900 and 1.2950. Option related interest could provide volatility this afternoon within a 1.2850 to 1.2890 range. On balance a buy but price action remains subdued.
The Italian data showed 109.2 from 108.6, the market was looking for a milder increase to 108.9. This came from the dip in October following the 2007 budget which increased taxes on mid & high level earners. November's rebound comes amid a pick up in wages and lower inflation (fall in gasoline prices), however the breakdown reveal that consumers are still concerned about the overall economic climate.
The tentative bull bias has put a positive tone to the charts and a break above recent daily tops. Option expiries with 1.2875 strikes are said to be large, in excess of 250 mln, and barriers are reportedly camped at 1.2900 and 1.2950. Option related interest could provide volatility this afternoon within a 1.2850 to 1.2890 range. On balance a buy but price action remains subdued.
Tuesday, November 21, 2006
US FED: Warsh--Yield Curve Not Suggesting Economic Weakness
Fed Governor Kevin M. Warsh (voter) said the shape of the yield curve did not economic weakness. He said the stability of long-term market interest rates as measured by the 10-year Treasury yield remains an "important issue for policymakers." He said that if this reflects increased demand from foreign investors, "the decline should be reflected in a decline in term premiums."
US FED: Warsh--Upside Risks to Inflation Outlook
Speaking at the New York Stock Exchange on "Financial Markets and the Federal Reserve," Fed Governor Kevin M. Warsh (voter) was hawkish. He noted concern about the inflation outlook and said that inflation "remains uncomfortably elevated" and said that there are "clear upside risks" to the outlook.
He also indicated that his forecast includes a wider range of options than the markets, which expects inflation to gradually ease and the Fed to cut rates by 50 bps next year. In this respect he echoes recent remarks by Fed Vice Chairman Donald Kohn. With regards to the economy, Warsh indicated that he sees the economy moving closer to its long-run potential (the Fed's staff estimate is in the 2.5% to 3.0% range for 2007).
He said that the drop in the housing sector will restrain growth into the coming year. The complete text of Warsh's remarks is available on the Board's website at: http://www.federalreserve.gov/boarddocs/
speeches/2006/20061121/default.htm
He also indicated that his forecast includes a wider range of options than the markets, which expects inflation to gradually ease and the Fed to cut rates by 50 bps next year. In this respect he echoes recent remarks by Fed Vice Chairman Donald Kohn. With regards to the economy, Warsh indicated that he sees the economy moving closer to its long-run potential (the Fed's staff estimate is in the 2.5% to 3.0% range for 2007).
He said that the drop in the housing sector will restrain growth into the coming year. The complete text of Warsh's remarks is available on the Board's website at: http://www.federalreserve.gov/boarddocs/
speeches/2006/20061121/default.htm
FX OPTIONS: USD/JPY Vols At 10-Year Lows, Holiday Dates Impact
USD/JPY vols trade at 10-year lows, with the curve suffering from continued spot paralysis and the impact from forthcoming holiday trading dates. The 1-wk has been undermined by Thanksgiving holidays in Japan and the US on Thursday, while 1-mth vols are beginning to capture the run up to the Christmas holidays. The 1-mth expiry falls on the last trading day before Christmas and is expected to see very thin volumes and as a result liquidity has suffered in this contract.
Thursday 21st December expiries in USD/JPY have held a bid on market maker quotes, with business expected to be healthy as players execute their last bit of business ahead of the year-end. Elsewhere, the 3-mth contract shows 6.40/6.55, 6-mth is at 6.75/6.90 and the 1-yr is steady at the 7.10/7.20 lows.
Thursday 21st December expiries in USD/JPY have held a bid on market maker quotes, with business expected to be healthy as players execute their last bit of business ahead of the year-end. Elsewhere, the 3-mth contract shows 6.40/6.55, 6-mth is at 6.75/6.90 and the 1-yr is steady at the 7.10/7.20 lows.
FOREX: ECB Reserves Increase EUR300 mln in Nov 17 Week
ECB reserves have increased by EUR300 mln in the week to Nov 17 to EUR152.4 bln. Gold reserves declined by EUR97 mln due to sales from three Eurosystem central banks. Gold reserves have declined for 104 out of the last 110 weeks. EUR/USD currently trades at 1.2802.
EUR/USD: Warsh Hawkish But Sees Housing Slowdown Impacting
The Fed's Warsh is on the tape with some quite hawkish remarks. He says there are clear upside risks to the inflation outlook and that inflation remains uncomfortably elevated. He does say that the sharp housing slowdown will impact the economy into 2007 but he sees it moving closer to its long-run potential. EUR/USD is edging to fresh session lows around 1.2800/03. EUR/USD was unable to overcome similar levels yesterday afternoon in New York. Small stops are seen just below 1.2800 but 1.2775 is expected to easily contain any downside today.
Swiss Outlook (21st November 2006)
A narrowing of the Swiss trade surplus in October but a record reached for exports. A healthy set of trade numbers despite a slight narrowing of the surplus. Exports rose nearly 18% on the year with imports up 4%. The Customs Office reported that exports were broad based and demand from key markets showed an increase of between 20 and 30%.
The softer tone to the CHF has clearly boosted Switzerland's trade position and this trend looks set to extend into the New Year. This said we have seen EUR/CHF back away from its 6 1/2-year highs, recorded last Friday and trade nearly a big figure lower at 1.5919 last session. For the Swiss trade position much now depends on the global economy and most importantly how the local economy faces a slowdown in Europe.
The SNB has already warned that Swiss growth could drop from 3.0% to 2.0% inn 2007 if the global economy cools. Cross action has seen EUR/CHF and edge lower, GBP/CHF climb further and CHF/JPY drift lower. USD/CHF remains tight between 1.2400 and 1.2450 with bids in the 1.2420's and stops above 1.2450-55.
The softer tone to the CHF has clearly boosted Switzerland's trade position and this trend looks set to extend into the New Year. This said we have seen EUR/CHF back away from its 6 1/2-year highs, recorded last Friday and trade nearly a big figure lower at 1.5919 last session. For the Swiss trade position much now depends on the global economy and most importantly how the local economy faces a slowdown in Europe.
The SNB has already warned that Swiss growth could drop from 3.0% to 2.0% inn 2007 if the global economy cools. Cross action has seen EUR/CHF and edge lower, GBP/CHF climb further and CHF/JPY drift lower. USD/CHF remains tight between 1.2400 and 1.2450 with bids in the 1.2420's and stops above 1.2450-55.
Sterling Outlook (21st November 2006)
UK rate hawks touting another 25bp base rate hike to 5.25% next February have elicited a boost from October's CBI industrial orders balance. This leapt to minus 6, from minus 20 in September. GBP/USD rose to test 1.9000 offers after the 11:00GMT disclosure of the much better-than-expected number.
1.8996 was today's Asian session peak, scaled on the back of decent size USD selling from a US investment bank. The bid battle for Anglo-Dutch Corus is also lending support to the pound. According to The Independent, Brazilian steel maker CSN may be in a position to table a formal GBP 4.5bn offer for Corus as early as the middle of next week. Last Friday, CSN announced that it might trump a 455p-a-share offer for Corus from Tata of India with a bid worth 475p-a-share.
This week's key UK event risk is tomorrow's 09:30GMT publication of minutes from the November 8/9 BoE MPC meeting. These are expected to reveal that the UK base rate was hiked by 25bp to 5.0% by an 8-1 vote, with ultra-dove David Blanchflower the likely dissenter.
1.8996 was today's Asian session peak, scaled on the back of decent size USD selling from a US investment bank. The bid battle for Anglo-Dutch Corus is also lending support to the pound. According to The Independent, Brazilian steel maker CSN may be in a position to table a formal GBP 4.5bn offer for Corus as early as the middle of next week. Last Friday, CSN announced that it might trump a 455p-a-share offer for Corus from Tata of India with a bid worth 475p-a-share.
This week's key UK event risk is tomorrow's 09:30GMT publication of minutes from the November 8/9 BoE MPC meeting. These are expected to reveal that the UK base rate was hiked by 25bp to 5.0% by an 8-1 vote, with ultra-dove David Blanchflower the likely dissenter.
Yen Outlook (21st November 2006)
JPY experienced sideways movement in the European session. USD/JPY drifted close to the 118.00 area for a large part of a quiet session. EUR/JPY consolidated around 151.25 after struggling to recapture yesterday's 151.68 high. JPY retains a mild heavy tone, with the background influence still coming from investor interest for yield and carry trade activity.
Traders are expecting quieter trading conditions to continue in the near-term, with Thanksgiving holidays in Japan and the US on Thursday. USD/JPY is capped by offers from 118.25 reportedly from option players and exporters. Large size 118.00 strikes are drawing significance in quiet trade, with gamma related flow picking up over the last 24 hours. Stops will come into play if spot moves through the 117.90 Asian low or manages to press through 118.25 offers. EUR/JPY is supported by proprietary name activity ahead of the 151.10 10-day moving average.
JPY funded trades also provide support but the topside is suffering from options supply amid good size 151.50 and 151.75 strikes. Offers are tipped from 151.70/75 from exporters and model funds.
Traders are expecting quieter trading conditions to continue in the near-term, with Thanksgiving holidays in Japan and the US on Thursday. USD/JPY is capped by offers from 118.25 reportedly from option players and exporters. Large size 118.00 strikes are drawing significance in quiet trade, with gamma related flow picking up over the last 24 hours. Stops will come into play if spot moves through the 117.90 Asian low or manages to press through 118.25 offers. EUR/JPY is supported by proprietary name activity ahead of the 151.10 10-day moving average.
JPY funded trades also provide support but the topside is suffering from options supply amid good size 151.50 and 151.75 strikes. Offers are tipped from 151.70/75 from exporters and model funds.
Euro Outlook (21st November 2006)
Extremely tight price action through early Europe and with orders reportedly camped at 1.2810 and 1.2840 the range is likely to remain tight for a while yet. French Quarter 3 GDP numbers failed to get the market moving with a slowing to 0.0% from 1.2% in the Q2. As expected the drag came from de-stocking and the external trade balance. Inventories deducted -0.3% from growth while the sharp fall in exports (-0.7%) trimmed -0.2%.
Domestic demand however, remained healthy at 0.5% driven by private consumption and investment although the latter slowed from 1.6% in the quarter before thanks to the contraction in government spending. The breakdown is not as bad as the headline suggests as domestic consumption is holding firm and taking the last two quarters together suggest that growth remains healthy.
Looking ahead, wholesale inventories and Chicago Fed data to provide scope for trade but early action suggests a steady session. Support is at 1.2765 and initial resistance at 1.2850. A close call but on balance just a EUR sell but the lack of interest is clouding near-term direction.
Domestic demand however, remained healthy at 0.5% driven by private consumption and investment although the latter slowed from 1.6% in the quarter before thanks to the contraction in government spending. The breakdown is not as bad as the headline suggests as domestic consumption is holding firm and taking the last two quarters together suggest that growth remains healthy.
Looking ahead, wholesale inventories and Chicago Fed data to provide scope for trade but early action suggests a steady session. Support is at 1.2765 and initial resistance at 1.2850. A close call but on balance just a EUR sell but the lack of interest is clouding near-term direction.
Monday, November 20, 2006
USD/CHF: Elicits Support at 1.2400, Resistance at 1.2421
USD/CHF has elicited support circa 1.2400, following its earlier break below 1.2421 on general demand for the CHF. 1.2421 was Friday's low, plumbed amid talk of a hedge fund liquidating positions. A 10-day peak of 1.2537 was scaled Friday, prior to the slump to 1.2421. 1.2421 is now a rebound resistance level. Upper obstacles: 1.2430 (today's Asian session base), and 1.2447 (today's Asian session high). 1.2386 (last Tuesday's low) is a sub-1.2400 support point.
EUR ECON: Rates Still Exceptionally Low, Longer Term Infl Risks
The Bundesbank monthly report includes the views that interest rates are still exceptionally low and that that the economy no longer needs monetary policy support. The bank also feels that the strong money supply expansion signals longer-term inflation risks. Overall a hawkish slant on things but given that the ECB chief has adopted a similar line on current views the market has reacted. EUR/USD continues to trade tight just under 1.2854 session highs.
FX OPTIONS: EUR/USD 1-Week Vol Given at 5.0% Earlier
Dealers report that 1-week ATM option strikes traded at 5.0 pct earlier this morning. The 1-week is 4.8/5.15 last. On the exotic front: a barrier is touted up at 1.2950. This is the peak of a Double No Touch option, whose base is 1.2700, which is slated to expire on December 18. The DNT carries an estimated E2mn payout. 1.2950+ exotic barriers are tipped at 1.3000 and 1.3010. EUR/USD last traded at 1.3000 in April 2005.
FX OPTIONS: USD/JPY Vols Trade On A Heavy Footing
USD/JPY vols continue to trade on a heavy footing, with spot hovering across the 118.00 handle. The move from 117.80 up towards 118.20 overnight had a limited impact on the curve, with spot still well within the recent 117.10-118.60 trading range. The 1-wk is pressured by the forthcoming US Thanksgiving holiday and currently indicates 5.40/6.15 and the 1-mth trades at 6.35/6.65.
The 1-mth has picked up a little, with the pre-weekend theta pressure behind us. As the 1-mth approaches Christmas trading dates there is likely to be an adjustment in prices, which will influence as we enter the latter part of the week. Elsewhere, the 2-mth contract indicates 6.30/6.60, 3-mth is at 6.55/6.80, 6-mth trades at 6.85/7.10 and the 1-yr is stable at 7.20/7.40.
The risk reversal strip is little changed, with the 1-mth 25-d showing a modest premium for JPY calls over at 0.40/0.70 and the 3-mth is at 0.55/0.85. The back end of the strip is holding around 0.85-0.90% over ATM straddles.
The 1-mth has picked up a little, with the pre-weekend theta pressure behind us. As the 1-mth approaches Christmas trading dates there is likely to be an adjustment in prices, which will influence as we enter the latter part of the week. Elsewhere, the 2-mth contract indicates 6.30/6.60, 3-mth is at 6.55/6.80, 6-mth trades at 6.85/7.10 and the 1-yr is stable at 7.20/7.40.
The risk reversal strip is little changed, with the 1-mth 25-d showing a modest premium for JPY calls over at 0.40/0.70 and the 3-mth is at 0.55/0.85. The back end of the strip is holding around 0.85-0.90% over ATM straddles.
FX OPTIONS: GBP/USD 1-Mth Vol Trades at 5.75% & 5.7%
Dealers report that 1-mth ATM option strikes have traded at 5.75 pct and 5.7 pct since the European open. The 5.7 pct transaction was reportedly in fair size. Expiry-wise: the size of the 1.9000 option strike rolling off at today's 10am EST NY cut (15:00GMT) is estimated at a quarter-yard. The cumulative size of the 1.9040-50 and 1.9075 strikes expiring at the same cut is estimated at getting on for three-quarters-of-a-yard.
USD/JPY: Holding Steady, Market Cites Japanese Economic Report
USD/JPY is holding comfortably above the 118.00 handle after making modest gains from the 117.80 area in the Asian session. JPY has experienced a broad based sell-off since the early Asian hours, with traders speculating on a possible downgrade in the November Japanese government report.
A government source claimed that the downgrade in the economy is due to sluggishness in personal consumption and will be the first backward step in the government's economic assessment for two years. A shift in economic conditions will be a boost for carry trades. EUR/JPY has already pressed higher, trading through the previous high to record a 151.67 high.
USD/JPY is underpinned, although well within the recent 117.10/118.60 range that has dominated for the last two weeks. Offers are noted at 118.20 and 118.45/50, while stops are seen through the range top at 118.60.
A government source claimed that the downgrade in the economy is due to sluggishness in personal consumption and will be the first backward step in the government's economic assessment for two years. A shift in economic conditions will be a boost for carry trades. EUR/JPY has already pressed higher, trading through the previous high to record a 151.67 high.
USD/JPY is underpinned, although well within the recent 117.10/118.60 range that has dominated for the last two weeks. Offers are noted at 118.20 and 118.45/50, while stops are seen through the range top at 118.60.
Swiss Outlook (20th November 2006)
The US market was rife with talk ahead of this weekend's G20 meeting, speculating that China would be singled out for manipulating major currency markets, due to their habit of leveraging their reserves via option plays.
This had already brought carry plays into focus, when another rumour hit, this one that a Chicago based hedge fund had got whacked in the energy markets to the tune of $4bn, and that they were liquidating carry trades to pay for either A) The losses, B) The margin call or C) Fund redemptions. The hedge fund later denied the rumour (but declined to discuss specific performance). However there was a lot of smoke, and most guess at least a little fire.
Two other hedge fund names were also in the mix. The result of all this was USD/CHF opened at 1.2535, dropped to 1.2423, bounced back to 1.2460, and closed at 1.2445. EUR/CHF dropped from 1.6010 to 1.5950, closed at 1.5960. GBP/CHF dropped from 2.3635 to 2.3550, closed at 2.3575. CHF/JPY ran up from 94.40 to 94.68 where it closed. CAD/CHF closed at 1.0850 a 3-mth low. Eyes on G20 comments.
This had already brought carry plays into focus, when another rumour hit, this one that a Chicago based hedge fund had got whacked in the energy markets to the tune of $4bn, and that they were liquidating carry trades to pay for either A) The losses, B) The margin call or C) Fund redemptions. The hedge fund later denied the rumour (but declined to discuss specific performance). However there was a lot of smoke, and most guess at least a little fire.
Two other hedge fund names were also in the mix. The result of all this was USD/CHF opened at 1.2535, dropped to 1.2423, bounced back to 1.2460, and closed at 1.2445. EUR/CHF dropped from 1.6010 to 1.5950, closed at 1.5960. GBP/CHF dropped from 2.3635 to 2.3550, closed at 2.3575. CHF/JPY ran up from 94.40 to 94.68 where it closed. CAD/CHF closed at 1.0850 a 3-mth low. Eyes on G20 comments.
Sterling Outlook (20th November 2006)
This week's key UK event risk is Wednesday's publication of minutes from the November 9/10 BoE MPC meeting. These are expected to reveal that the UK base rate was raised by 25bp to 5.0% by an 8-1 vote, with ultra-dove David Blanchflower likely to have been the lone dissenter.
GBP/USD tripped stops above 1.8968 (Friday's top) en route to a six-day high of 1.8986 during the European morning, as the pound elicited benefit from news that Nasdaq has launched a fresh GBP 2.7bn cash bid for the LSE (FT website). Touted offers at 1.9000 are an appreciation obstacle north of 1.8986. The figure sell orders might include option-related interest, re: an estimated quarter-yard 1.9000 expiry at today's 10am EST NY cut. Further sell orders are tipped at 1.9025. Large 1.9040-50 and 1.9075 option strikes also roll off today.
News-wise: Saudi Arabia is threatening to suspend diplomatic ties with Britain re: an investigation into an alleged "slush fund" (Sunday Times). GBP/USD bids are tipped at 1.8930 and 1.8900. Intra-day lows just shy of 1.8930 were plumbed in early European trade.
GBP/USD tripped stops above 1.8968 (Friday's top) en route to a six-day high of 1.8986 during the European morning, as the pound elicited benefit from news that Nasdaq has launched a fresh GBP 2.7bn cash bid for the LSE (FT website). Touted offers at 1.9000 are an appreciation obstacle north of 1.8986. The figure sell orders might include option-related interest, re: an estimated quarter-yard 1.9000 expiry at today's 10am EST NY cut. Further sell orders are tipped at 1.9025. Large 1.9040-50 and 1.9075 option strikes also roll off today.
News-wise: Saudi Arabia is threatening to suspend diplomatic ties with Britain re: an investigation into an alleged "slush fund" (Sunday Times). GBP/USD bids are tipped at 1.8930 and 1.8900. Intra-day lows just shy of 1.8930 were plumbed in early European trade.
Yen Outlook (20th November 2006)
JPY traded on a heavier footing in a lacklustre European morning session. The weekend G20 offered little for the market and traders focused on speculation that the Japanese government's economic report may been downgraded due to sluggish personal consumption. EUR/JPY pressed higher and managed to take out 151.50 barriers to record a 151.68 record high.
ECB Chief Trichet, cited continued vigilance on inflation, which helped the EUR/JPY bid tone. Although, JPY was already in the decline due to decent Japanese real money interest for overseas assets and reports of carry trade interest in general. USD/JPY pushed on the upside but was unable to overcome 118.20 offers. This left light 118.25 stops intact and kept spot well within the recent 117.10-118.60 ranges. We expect carry trade flows to influence in the afternoon session, with only US leading indicators on the data schedule.
As we approach the US Thanksgiving holiday US money managers and hedge funds may lighten up positions, which could work against the USD/JPY and EUR/JPY upside. EUR/JPY has already been subjected to model fund profit taking and this activity may increase.
ECB Chief Trichet, cited continued vigilance on inflation, which helped the EUR/JPY bid tone. Although, JPY was already in the decline due to decent Japanese real money interest for overseas assets and reports of carry trade interest in general. USD/JPY pushed on the upside but was unable to overcome 118.20 offers. This left light 118.25 stops intact and kept spot well within the recent 117.10-118.60 ranges. We expect carry trade flows to influence in the afternoon session, with only US leading indicators on the data schedule.
As we approach the US Thanksgiving holiday US money managers and hedge funds may lighten up positions, which could work against the USD/JPY and EUR/JPY upside. EUR/JPY has already been subjected to model fund profit taking and this activity may increase.
Euro Outlook (20th November 2006)
Another G-meeting and the market is again left wanting more. The market had to find trade scope from what the G-20 left out rather than what was included. There had been speculation that the strength of the EUR vs the Yen would draw comment but officials failed to react.
It has been a feature of these meetings that officials steer clear of criticizing other countries policies and currency positions, possibly for fear of drawing flack themselves. More calls for forex flexibility but nothing tangible for the market to draw firm conclusion from. While the carry trade ticking bomb was left alone the interest rate issue was a factor. ECB's Trichet said the bank would be strongly vigilant on inflation risks. The lack of Yen concern and hawkish ECB stance gave the EUR room to climb to new record highs vs the Yen and this gave EUR/USD a push to 1.2854. Price action is tight and the session slow to get going.
EUR/USD is well balanced with little advantage shown. On balance the EUR should have the edge but failure to drive home the G-20 advantage will see EUR/USD drop from the mid-1.28's. Price is looking like 1.2810 to 1.2850 ahead of the US open.
It has been a feature of these meetings that officials steer clear of criticizing other countries policies and currency positions, possibly for fear of drawing flack themselves. More calls for forex flexibility but nothing tangible for the market to draw firm conclusion from. While the carry trade ticking bomb was left alone the interest rate issue was a factor. ECB's Trichet said the bank would be strongly vigilant on inflation risks. The lack of Yen concern and hawkish ECB stance gave the EUR room to climb to new record highs vs the Yen and this gave EUR/USD a push to 1.2854. Price action is tight and the session slow to get going.
EUR/USD is well balanced with little advantage shown. On balance the EUR should have the edge but failure to drive home the G-20 advantage will see EUR/USD drop from the mid-1.28's. Price is looking like 1.2810 to 1.2850 ahead of the US open.
Friday, November 17, 2006
USD/JPY: Relatively Bid, EUR/JPY Still Factor, Order Mix Above
USD/JPY held up relatively well overnight despite a weak US CPI report. Other data including the Philly Fed index proved to be on the strong side and firmer US bond yields lent the pair support. Also lending support was a continuing up bias in EUR/JPY. Specs here still eye a pop above option barriers at 151.50.
Aggressive defense of these positions continued but many see a break as only a matter of time. Should a break not occur over the course of today's trading range, the cross and USD/JPY could see dips, maybe large. The order situation in USD/JPY remains relatively similar to yesterday with offers eyed up to 118.35, the high in New York overnight.
Some stops are tipped at 118.40 but more offers are seen around 118.50. More stops are tipped above 118.60. Downside support is still eyed from the 117.70-80 level, 117.78 the low overnight. Bids are seen trailing down to 117.50. Some stops are eyed below but more Japanese bids are seen trailing down to 117.00.
Ichimoku levels remain close to where they were yesterday with the tenkan line at 118.25 and the kijun line at 117.86. The top of the cloud has moved up to 118.32. USD/JPY currently trades 118.23/26.
Aggressive defense of these positions continued but many see a break as only a matter of time. Should a break not occur over the course of today's trading range, the cross and USD/JPY could see dips, maybe large. The order situation in USD/JPY remains relatively similar to yesterday with offers eyed up to 118.35, the high in New York overnight.
Some stops are tipped at 118.40 but more offers are seen around 118.50. More stops are tipped above 118.60. Downside support is still eyed from the 117.70-80 level, 117.78 the low overnight. Bids are seen trailing down to 117.50. Some stops are eyed below but more Japanese bids are seen trailing down to 117.00.
Ichimoku levels remain close to where they were yesterday with the tenkan line at 118.25 and the kijun line at 117.86. The top of the cloud has moved up to 118.32. USD/JPY currently trades 118.23/26.
USD/CHF: Data Drop To 1.2510 Finds Fresh Buyers
The US data linked drop from 1.2535 to 1.2510 has only served to offer bulls lower levels to buy the pair. As a result fresh demand has been found and more bids are seen into 1.2500. The dip in USD/CHF has also been supported by the buying of EUR/CHF on the slight dip back below 1.60. With USD/CHF falling the Franc managed to gain a slight amount of traction over the Euro and EUR/CHF eased away from the 1.6011 intraday high. However, the lower levels have quickly attracted fresh buyers here also and the cross is looking to bounce.
US TECHS: Option Expiration May Limit Range for S&P
Today's option expiration for equities and indexes has a chance to limit the current rally in the S&P at least for the day. The S&P 100 (OEX) is trading right against the 650 strike and there is solid open interest there, which is normally a hurdle for the day. The bigger picture continues to build a pattern of higher highs and higher lows and it would take a significant pullback to damage that pattern. We'd also need to see more optimism in some of the put/call measures before looking for any kind of top.
FX OPTIONS: EUR/USD 1-Year Vol At New All-Time Low
1-year implied volatility is currently 6.8/7.0--a new all-time low, according to our records. This follows a pre-weekend "slashing" of vols from today's European open. The current 1-year expiry date falls on a Monday (19 Nov 2007), according to FENICS FX 2002.
Trade-wise: The 1-year 10 delta R/R was transacted at 0.65% in an estimated E150mn a leg earlier today. The 1-year 25 delta R/R is 0.25/0.45 EUR calls over last.
Trade-wise: The 1-year 10 delta R/R was transacted at 0.65% in an estimated E150mn a leg earlier today. The 1-year 25 delta R/R is 0.25/0.45 EUR calls over last.
EUR/USD: Only Modest Reaction to Poor Housing Reports
EUR/USD has firmed a bit in the wake of poor US housing data. Hawkish comments from the ECB's Papademos have been released on Dow Jones that more tightening is necessary if their outlook is confirmed. The Fed's Fisher welcomed EUR reserve diversification, saying it is not unhealthy. He also said a large shock is unlikely to displace the USD"s reserve role. EUR/USD trades quietly at 1.2778 after a rally to 1.2788.
US ECON: Starts and Permits Fall Hard in October
The Fed has already turned a deaf ear to the cacophony of weak housing data but the October numbers are distinctly negative. Housing starts fell by 14.6% and building permits dropped by 6.3%. The formation of the housing stock has slowed dramatically but household operations and personal consumption expenditures have not. Mortgage resets have not been as unwieldy as predicted since, despite 425 bps of higher monetary policy, fixed rates have been very attractive.
Swiss Outlook (17th November 2006)
The Swissie has finally succumbed to the weight of selling and both EUR/CHF & USD/CHF have rallied into the North American open. As a result, the combination of buying in both has forced USD/CHF to a new session high while EUR/CHF has been pushed to a fresh 6 1/2 year high, with 1.6008 printing.
Talk of 1.6005 options is now historic while the EUR 250Mln 1.6000 expiry at the NY cut-off at 15:00 GMT should weigh on cross in the short-term. Above 1.6020 is the next barrier level while several European names call for the cross appreciation to continue should a close above the figure be seen. Against the Dollar, the CHF fell to 1.2535 amid the move and bulls are now looking for 1.2550 in USD/CHF should further US unit strength be seen.
Technicals suggest that a break above 1.2575 will act as a trigger for a rally towards the 1.2700's in the longer-term. Looking ahead, US housing data is set for release at 13:30 GMT, economists look for small drop in the headline but dealers expect the USD to remain underpinned.
Talk of 1.6005 options is now historic while the EUR 250Mln 1.6000 expiry at the NY cut-off at 15:00 GMT should weigh on cross in the short-term. Above 1.6020 is the next barrier level while several European names call for the cross appreciation to continue should a close above the figure be seen. Against the Dollar, the CHF fell to 1.2535 amid the move and bulls are now looking for 1.2550 in USD/CHF should further US unit strength be seen.
Technicals suggest that a break above 1.2575 will act as a trigger for a rally towards the 1.2700's in the longer-term. Looking ahead, US housing data is set for release at 13:30 GMT, economists look for small drop in the headline but dealers expect the USD to remain underpinned.
Sterling Outlook (17th November 2006)
Cable remains on the back-foot, having revisited Wednesday's 20-day low of 1.8838 in early European trade. Some stops are tipped below 1.8830. These could spur fresh downward pressure towards 1.8800/10 if hit. A UK clearer put out a sell recommendation earlier this week--ahead of the release of the less hawkish-than-expected BoE inflation report, targeting 1.8410.
Interim objectives include 1.8770, a 61.8% Fibo retracement point of the ascent from 1.8520 (last month's low) to last Friday's 19-month high of 1.9180. GBP/USD resistance levels reside at 1.8870 (yesterday's NY session base), 1.8888 (today's Asian session top), 1.8900, 1.28920, 1.8935 (yesterday's post-US CPI high), 1.8950, and 1.8969 (Wednesday's pre-UK U/E & earnings data peak). EUR/GBP offers are touted from 0.6785 back to 0.6795. Seven-week highs just shy of 0.6795 were notched yesterday, pre-strong UK retail sales.
US October housing starts and building permits will be disclosed at 13:30GMT. Housing starts forecast: 1.68mn. Building permits forecast: 1.63mn. Pianalto is slated to speak at 13:45GMT.
Interim objectives include 1.8770, a 61.8% Fibo retracement point of the ascent from 1.8520 (last month's low) to last Friday's 19-month high of 1.9180. GBP/USD resistance levels reside at 1.8870 (yesterday's NY session base), 1.8888 (today's Asian session top), 1.8900, 1.28920, 1.8935 (yesterday's post-US CPI high), 1.8950, and 1.8969 (Wednesday's pre-UK U/E & earnings data peak). EUR/GBP offers are touted from 0.6785 back to 0.6795. Seven-week highs just shy of 0.6795 were notched yesterday, pre-strong UK retail sales.
US October housing starts and building permits will be disclosed at 13:30GMT. Housing starts forecast: 1.68mn. Building permits forecast: 1.63mn. Pianalto is slated to speak at 13:45GMT.
Yen Outlook (17th November 2006)
The Yen has been on the back foot for the majority of this week and early Friday has been no exception. Apart from a Yuan fuelled spike to 118.12 from 118.47 the market has been bid from the European open. It is not too clear whether the Yen took a hit from the UAE view that the Japanese unit was not attractive for reserve diversification as it was already on the run vs Dollar when the statement was made.
The Dollar is around 150-points higher on the week vs the Yen as doubts over the path for Japanese interest rates dent the Yen's performance. With the US situation leaning more towards stability rather than a hard landing the focus has switched to the less hawkish stance currently being adopted by the BOJ's Fukui. USD/JPY could return to the 118.60 Nov highs but there is one last data run from the US and the housing starts could unsettle the order.
The other risk to the Buck could come from pre-weekend profit taking. G-20 will provide the Monday headlines, Japan, high yield and emerging ccys could be on the agenda.
The Dollar is around 150-points higher on the week vs the Yen as doubts over the path for Japanese interest rates dent the Yen's performance. With the US situation leaning more towards stability rather than a hard landing the focus has switched to the less hawkish stance currently being adopted by the BOJ's Fukui. USD/JPY could return to the 118.60 Nov highs but there is one last data run from the US and the housing starts could unsettle the order.
The other risk to the Buck could come from pre-weekend profit taking. G-20 will provide the Monday headlines, Japan, high yield and emerging ccys could be on the agenda.
Euro Outlook (17th November 2006)
The late Asian USD rally was forced to reverse in European trading as hedge funds bought back longs. EUR/USD rallied but offers into 1.2790/2800 capped the rebound as Euro Zone trade data disappointed. Into early NorAm, spot pivots 1.2775, after rejecting moves in both directions. Offers into 1.2790/2800 cap while option related demand around 1.2760 will look to base dips (linked to a decent 1.2750 expiry).
Stops are seen below 1.2745.Looking ahead, US housing data is set for release at 13:30 GMT, economists look for small drop in the headline but dealers expect the USD to remain underpinned. Concluding the event-risk for the week are the Pianalto comments. Elsewhere, the central bank diversification argument rumbles on and the UAE central bank head has been the latest to have his say on the subject.
Suweidi said "the shift to a 10% holding in Euro & Gold has not yet been completed" while he also felt the single currency would be the global currency of international trade in around 10-years time. In contrast, the Fed's own Fisher suggest the role of the US unit will not change in the long-term.
Stops are seen below 1.2745.Looking ahead, US housing data is set for release at 13:30 GMT, economists look for small drop in the headline but dealers expect the USD to remain underpinned. Concluding the event-risk for the week are the Pianalto comments. Elsewhere, the central bank diversification argument rumbles on and the UAE central bank head has been the latest to have his say on the subject.
Suweidi said "the shift to a 10% holding in Euro & Gold has not yet been completed" while he also felt the single currency would be the global currency of international trade in around 10-years time. In contrast, the Fed's own Fisher suggest the role of the US unit will not change in the long-term.
Thursday, November 16, 2006
FX OPTIONS: EUR/USD 1-Mth Vol Offered sub-6.0%, post-US CPI
1-mth implied option volatility has eased to a one-week low of 5.8/5.95 since the passing of US CPI event risk. The 1-mth opened in Europe 6.1 pct bid, and was subsequently given at 6.0 pct. The current 1-mth expiry date falls on a Monday (Dec 18), according to FENICS FX 2002. At the start of last week, the 1-mth plumbed a 10-day low of 5.45/5.6 (Nov 6). Late last month, the period was offered at an all-time low of 5.5 pct. The 1-mth started this week 6.75 pct bid.
EUR/USD: Ramps Higher on Tame Core
The market is getting a bid as core CPI rise only 0.1%. It's not like the Fed is going to react much to one benign reading after months of strength in the core. Prices jumped to 1.2840 before settling back to the 1.2825 area. At the margin, this gives takes some of the sting out of the Fed's hawkish talk, but it will take more than one number to materially shift their view.
Next up for the market is the September TIC data, another figure the market tends to over-react to. Options-related offers remain eyed on rallies toward 1.2850, dealers report.
Next up for the market is the September TIC data, another figure the market tends to over-react to. Options-related offers remain eyed on rallies toward 1.2850, dealers report.
GBP/USD: Soars to 1.8930 Offers on Softer-Than-Expected US CPI
Cable has rallied by nearly half-a-cent to 1.8930 offers on the back of October's softer-than-expected US inflation data. Headline CPI fell by a bigger-than expected 0.5% m/m, against a forecast 0.3% drop. Core CPI rose by just 0.1% m/m, against a forecast 0.2% increase.
Additionally noted offers at 1.8960 are a bull target north of 1.8930. The upper orders reside ahead of 1.8969, a 38.2% Fibo retracement point of the fall from last Friday's 19-month high of 1.9180 to yesterday's 20-day low of 1.8838. 1.8900/10 is now a pullback support window. 1.8910 was today's Asian session peak.
1.8900 offers kept a lid on London morning GBP/USD gains spurred by October's much better-than-expected UK retail sales. Lows just shy of 1.8850 were plumbed pre-UK retail sales.
Additionally noted offers at 1.8960 are a bull target north of 1.8930. The upper orders reside ahead of 1.8969, a 38.2% Fibo retracement point of the fall from last Friday's 19-month high of 1.9180 to yesterday's 20-day low of 1.8838. 1.8900/10 is now a pullback support window. 1.8910 was today's Asian session peak.
1.8900 offers kept a lid on London morning GBP/USD gains spurred by October's much better-than-expected UK retail sales. Lows just shy of 1.8850 were plumbed pre-UK retail sales.
USD/JPY: A Move Down Ahead Of The CPI Release
It looks like some in the market either took a flyer or had wind of the US CPI release. USD/JPY was already moving lower into the release having topped out at 118.15. The 0.5% fall in US prices for the period to October compares with market expectations of a 0.3% drop.
The October fall follows a similar drop in September. US TIC data up next on the hour and the forecast is for a USD 75 bln figure for September vs USD 116.08 bln in August. USD/JPY support remains at 117.75 and with a series of falling hourly tops the risk is increasing for a test.
The October fall follows a similar drop in September. US TIC data up next on the hour and the forecast is for a USD 75 bln figure for September vs USD 116.08 bln in August. USD/JPY support remains at 117.75 and with a series of falling hourly tops the risk is increasing for a test.
Swiss Outlook (16th NOvember 2006)
US CPI data is seen as the big event-risk into the North American session (13:30 GMT). With the FOMC showing yesterday that the Fed is waiting for fresh data, the market is doing likewise before considering altering their 2007 projections. Economists look for a -0.3% M/M headline with core seen up 0.2%. Also set for release is the weekly data before Pianalto speaks in Ohio.
Later in the day September inflow data and the industrial production release for October are due at 14:00 GMT & 14:15 GMT respectively. Offers into 1.25 protect a return to the 1.2525 failed high from yesterday. Domestically, Swiss investor confidence plummeted in November with the ZEW index fall to -21.3. However, with the index coming from a previous -14.1 headline the data is seen as highlighting the worries over an economic slowdown into H1 2007.
On a more positive note the current conditions index continued to stabilize in the 90's with the latest reading printing 93.4 from the previous 94.7. The data is unlikely to alter the view that the SNB will hike target LIBOR bands by a further 25bps at their Q4 meeting in December.
Later in the day September inflow data and the industrial production release for October are due at 14:00 GMT & 14:15 GMT respectively. Offers into 1.25 protect a return to the 1.2525 failed high from yesterday. Domestically, Swiss investor confidence plummeted in November with the ZEW index fall to -21.3. However, with the index coming from a previous -14.1 headline the data is seen as highlighting the worries over an economic slowdown into H1 2007.
On a more positive note the current conditions index continued to stabilize in the 90's with the latest reading printing 93.4 from the previous 94.7. The data is unlikely to alter the view that the SNB will hike target LIBOR bands by a further 25bps at their Q4 meeting in December.
Sterling Outlook (16th November 2006)
Good size offers at 1.8900 kept a lid on cable following half-cent gains spurred by October's way above-forecast UK retail sales. These came in +0.9% m/m, +3.9% y/y. Increases of 0.3% m/m and 3.0% y/y were expected.
The strong numbers are a welcome boost for hawks touting another 25bp UK rate hike in February. Their case had been damaged by Tuesday's sub-forecast UK CPI, and yesterday's less hawkish-than-expected BoE inflation report. 1.8900+ resistance levels include 1.8910 (today's Asian session peak), 1.8925 (Tuesday's low), and 1.8969. As well as being yesterday's pre-UK data high, 1.8969 is also a 38.2% Fibo retracement point of the fall from last Friday's 19-month high of 1.9180 to yesterday's 20-day low of 1.8838.
Yesterday's recovery from 1.8838 was reportedly aided by Central Bank demand. Fresh reserve manager buy interest is tipped at 1.8840. Some stops are touted below 1.8830. These could depress GBP/USD towards 1.8810 if tripped. US October inflation data is due at 13:30GMT. Headline CPI is forecast down 0.3% m/m. Core CPI is forecast +0.2% m/m.
The strong numbers are a welcome boost for hawks touting another 25bp UK rate hike in February. Their case had been damaged by Tuesday's sub-forecast UK CPI, and yesterday's less hawkish-than-expected BoE inflation report. 1.8900+ resistance levels include 1.8910 (today's Asian session peak), 1.8925 (Tuesday's low), and 1.8969. As well as being yesterday's pre-UK data high, 1.8969 is also a 38.2% Fibo retracement point of the fall from last Friday's 19-month high of 1.9180 to yesterday's 20-day low of 1.8838.
Yesterday's recovery from 1.8838 was reportedly aided by Central Bank demand. Fresh reserve manager buy interest is tipped at 1.8840. Some stops are touted below 1.8830. These could depress GBP/USD towards 1.8810 if tripped. US October inflation data is due at 13:30GMT. Headline CPI is forecast down 0.3% m/m. Core CPI is forecast +0.2% m/m.
Sterling Outlook (16th November 2006)
Good size offers at 1.8900 kept a lid on cable following half-cent gains spurred by October's way above-forecast UK retail sales. These came in +0.9% m/m, +3.9% y/y. Increases of 0.3% m/m and 3.0% y/y were expected.
The strong numbers are a welcome boost for hawks touting another 25bp UK rate hike in February. Their case had been damaged by Tuesday's sub-forecast UK CPI, and yesterday's less hawkish-than-expected BoE inflation report. 1.8900+ resistance levels include 1.8910 (today's Asian session peak), 1.8925 (Tuesday's low), and 1.8969. As well as being yesterday's pre-UK data high, 1.8969 is also a 38.2% Fibo retracement point of the fall from last Friday's 19-month high of 1.9180 to yesterday's 20-day low of 1.8838.
Yesterday's recovery from 1.8838 was reportedly aided by Central Bank demand. Fresh reserve manager buy interest is tipped at 1.8840. Some stops are touted below 1.8830. These could depress GBP/USD towards 1.8810 if tripped. US October inflation data is due at 13:30GMT. Headline CPI is forecast down 0.3% m/m. Core CPI is forecast +0.2% m/m.
The strong numbers are a welcome boost for hawks touting another 25bp UK rate hike in February. Their case had been damaged by Tuesday's sub-forecast UK CPI, and yesterday's less hawkish-than-expected BoE inflation report. 1.8900+ resistance levels include 1.8910 (today's Asian session peak), 1.8925 (Tuesday's low), and 1.8969. As well as being yesterday's pre-UK data high, 1.8969 is also a 38.2% Fibo retracement point of the fall from last Friday's 19-month high of 1.9180 to yesterday's 20-day low of 1.8838.
Yesterday's recovery from 1.8838 was reportedly aided by Central Bank demand. Fresh reserve manager buy interest is tipped at 1.8840. Some stops are touted below 1.8830. These could depress GBP/USD towards 1.8810 if tripped. US October inflation data is due at 13:30GMT. Headline CPI is forecast down 0.3% m/m. Core CPI is forecast +0.2% m/m.
Yen Outlook (16th November 2006)
Two distinct moves overnight and into Europe with more reserve talk out of China boosting the Yen to 117.75 vs the Dollar and then a short covering in USD/JPY once the BOJ news had worked its way through the market. Early Asian highs of 118.10, a drop to 117.75 and then a rebound to 118.15 as Europe picks up the reins.
A squeeze to 118.30 tested China and option related offers and the resulting pullback took the USD back under 118.00. No change from the BOJ, as expected and slightly less hawkish than expected tone from the bank's Governor, Fukui. The BoJ Governor reiterated his recent stance that the BoJ will continue to act accordingly in line with economic and inflation data and that he has no pre-set schedule for hiking interest rates.
With the market already discounting a rate hike in either December or January, the point seems a bit moot to some Tokyo players. The China news on closer inspection is nothing new but their Yen purchases will no doubt stall any topside runs in USD/JPY this session. The Offers in the 118.30-50 area are rumoured to be Chinese.
A squeeze to 118.30 tested China and option related offers and the resulting pullback took the USD back under 118.00. No change from the BOJ, as expected and slightly less hawkish than expected tone from the bank's Governor, Fukui. The BoJ Governor reiterated his recent stance that the BoJ will continue to act accordingly in line with economic and inflation data and that he has no pre-set schedule for hiking interest rates.
With the market already discounting a rate hike in either December or January, the point seems a bit moot to some Tokyo players. The China news on closer inspection is nothing new but their Yen purchases will no doubt stall any topside runs in USD/JPY this session. The Offers in the 118.30-50 area are rumoured to be Chinese.
Euro Outlook (16th November 2006)
EUR/USD gridlock continued intraday with the pre-Euro Zone data stab at 1.2800 failing as dealers see the continued 1.28/29 band showing little sign of being broken dealers have been wary taking on excessive positions near the range-periphery. Offers from 1.2830 to 1.2850 cap initial stabs higher while on the downside stops are seen below 1.2795 & 1.2770.
On the options front the expiries intraday at 1.2830 & 1.2850 are said to have brought gamma related supply to the table should the Dollar be in decline ahead of the 15:00 GMT NY cut-off. US CPI data is seen as the big event-risk into the North American session (13:30 GMT). With the FOMC showing yesterday that the Fed is waiting for fresh data, the market is doing likewise before considering altering their 2007 projections.
Economists look for a -0.3% M/M headline with core seen up 0.2%. Also set for release is the weekly data before Pianalto speaks in Ohio. Later in the day September inflow data and the industrial production release for October are due at 14:00 GMT & 14:15 GMT respectively.
On the options front the expiries intraday at 1.2830 & 1.2850 are said to have brought gamma related supply to the table should the Dollar be in decline ahead of the 15:00 GMT NY cut-off. US CPI data is seen as the big event-risk into the North American session (13:30 GMT). With the FOMC showing yesterday that the Fed is waiting for fresh data, the market is doing likewise before considering altering their 2007 projections.
Economists look for a -0.3% M/M headline with core seen up 0.2%. Also set for release is the weekly data before Pianalto speaks in Ohio. Later in the day September inflow data and the industrial production release for October are due at 14:00 GMT & 14:15 GMT respectively.
Euro Outlook (15th November 2006)
USD bid interest opened the order of play today in the London market as the EUR tracked Cable in giving back recently gained territory. Most notable for the European linchpin was a significant pull on Sterling pushing the boundaries just short of touching EUR/GBP O.6800.
With Industrial Production numbers dipping lower in Europe and despite U.K. employment numbers faring better than expected, EUR losses were much less in percentage terms than Sterling. Empire State numbers later this afternoon from the U.S. are not expected to bode particularly well for the Greenback, although any recovery for the pound is unlikely to be as strong as that of its European neighbour.
In the event that USD demand increases in afternoon trading further stops are likely to be tripped in EUR/USD at 1.2760 and 1.2740 with similar interest in Cable pushing through GBP/USD at 1.8830. Little evidence of a rally against the USD is seen thus far, with price gaps being reported by several traders.
With Industrial Production numbers dipping lower in Europe and despite U.K. employment numbers faring better than expected, EUR losses were much less in percentage terms than Sterling. Empire State numbers later this afternoon from the U.S. are not expected to bode particularly well for the Greenback, although any recovery for the pound is unlikely to be as strong as that of its European neighbour.
In the event that USD demand increases in afternoon trading further stops are likely to be tripped in EUR/USD at 1.2760 and 1.2740 with similar interest in Cable pushing through GBP/USD at 1.8830. Little evidence of a rally against the USD is seen thus far, with price gaps being reported by several traders.
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