First of all, let me wish all of my readers and fellow Forex Traders, a Merry Christmas and Happy New Year. To those who are not celebrating Christmas, wish all of you Happy Holidays.
Well, a note from me. I won't be writing any news starting from Monday, 25th December 2006 till Tuesday, 2nd January 2007. From Wednesday, 3rd January 2007 onwards, posting of news writing will start again as per normal :)
Once again, wish u a Merry Christmas, Happy New Year and Happy Holidays. See you guys in the trading arena next year :) Hopefully, 2007 will be an exciting and mind boggling year to trade.
Take care and warmest regards, sincerely from me.
Start your Binary Trading income NOW!!!
Saturday, December 23, 2006
Friday, December 22, 2006
EUR/USD: Spreads Narrow Further after Inflation Eases
Interest rate differentials continue to narrow between US and Eurozone bonds in the wake of tamer PCE deflator data. Three-month rate futures trade with a dwindling 139 bp advantage for the USD, while two-year differentials narrow to 87 bp. 10-year spreads are at 75 bp, their lowest since spring 2005.
All else being equal, the EUR should garner support on tightening spreads. EUR/USD edged up above 1.3200 in the wake of the data but ran into options-related selling, dealers report. Prices are easing to 1.3190 as we write. 1.3175 and 1.3150 are support on dips.
All else being equal, the EUR should garner support on tightening spreads. EUR/USD edged up above 1.3200 in the wake of the data but ran into options-related selling, dealers report. Prices are easing to 1.3190 as we write. 1.3175 and 1.3150 are support on dips.
GBP/USD: Spring in Its Step after Inflation Data
Cable is firming toward to top end of its intraday range, boosted by a dip in the core PCE deflator to 2.2% y/y, just marginally above the Fed's 2% comfort zone. With the inflation trajectory on a downward path, dealers believe the Fed will be able to react to sub-trend growth at some point in the first half of 2007, though the timing remains an open question.
A weak, two-touch hourly downtrend is eyed on the hourly charts in cable, sitting right near session highs of 1.9680. 1.9700, 1.9725 and 1.9750 are all resistance levels on rallies.
A weak, two-touch hourly downtrend is eyed on the hourly charts in cable, sitting right near session highs of 1.9680. 1.9700, 1.9725 and 1.9750 are all resistance levels on rallies.
USD/JPY: Pulls Back As Treasury Yields Slide on US Data
USD/JPY has had a steady rise through London to trade to highs of 118.50 but has pulled back quickly to 118.38 with the Nov PCE data coming in lower than expectations of 2.4%, at 2.2%. This has sent US bond yields lower, falling from 4.58% in the ten-year part of the curve to 4.56%.
However, USD/JPY was likely to be capped around the highs anyway with talk of option-related selling at these levels including Asian central bank sales, and exporter offers. Stops remain at higher levels of 118.65. On the downside, bids are eyed around 118.20/25, with further support at 118.00 and stops under 117.80.
However, USD/JPY was likely to be capped around the highs anyway with talk of option-related selling at these levels including Asian central bank sales, and exporter offers. Stops remain at higher levels of 118.65. On the downside, bids are eyed around 118.20/25, with further support at 118.00 and stops under 117.80.
EUR/USD: PCE Heading in Fed"s Direction
Core PCE dipped to 2.2% y/y, edging back toward the Fed's 2% target. Durable goods were a bit stronger at the headline level but were soft stripping out transportation. EUR/USD has shown little movement, jockeying around but ending up at 1.3190. A large 1.3200 expiry this morning should keep prices from straying too far. Michigan consumer sentiment is next up at 15:00 GMT.
US ECON: Durable Goods Orders +1.9% but Ex-Trans Weak Again
* Durable goods orders recover 1.9% of 8.2% loss in prior month
* Ex-trans orders off 2.7% in last two months
Total durable goods orders rose by more than expected in November but net of transportation equipment, orders suffered a second straight large decline. November's ex-trans drop (1.1%) followed a 1.6% sag in October (revised higher from -1.7%). It appears the malaise in manufacturing has spread beyond autos.
* Ex-trans orders off 2.7% in last two months
Total durable goods orders rose by more than expected in November but net of transportation equipment, orders suffered a second straight large decline. November's ex-trans drop (1.1%) followed a 1.6% sag in October (revised higher from -1.7%). It appears the malaise in manufacturing has spread beyond autos.
US ECON: Income Rises 0.3%, PCE Up 0.5%, Deflator Cools
* Nov nominal income Rises 0.3% for second straight month
* Nominal Spending Up 0.5% with 0.1 pp upward revision to October
* Core PCE price index cools to 2.2%
Income rose in line with expectations while spending growth was a touch slower than forecast. Nominal personal income increased by 0.3% between October and November, up from a 0.2% gain in the prior month. Income in the prior month was revised lower to a 0.3% gain versus the 0.4% increase previously reported.
Nominal spending rose by 0.5%, compared to an expected rise of 0.6%. Spending in the prior month was revised higher, however, neutralizing the disappointment in the November gain. IFR had expected the strong retail sales report to boost PCE by 0.8% so we'll have to throttle back our Q4 GDP estimate, working down from our baseline forecast of 2.8% AR.
* Nominal Spending Up 0.5% with 0.1 pp upward revision to October
* Core PCE price index cools to 2.2%
Income rose in line with expectations while spending growth was a touch slower than forecast. Nominal personal income increased by 0.3% between October and November, up from a 0.2% gain in the prior month. Income in the prior month was revised lower to a 0.3% gain versus the 0.4% increase previously reported.
Nominal spending rose by 0.5%, compared to an expected rise of 0.6%. Spending in the prior month was revised higher, however, neutralizing the disappointment in the November gain. IFR had expected the strong retail sales report to boost PCE by 0.8% so we'll have to throttle back our Q4 GDP estimate, working down from our baseline forecast of 2.8% AR.
EUR/USD: Large Expiry Seen Helping Keep Prices Contained
EUR/USD finds itself in a range either side of a large 1.3200 expiry this morning, and baring any surprises from the US economic data this morning will likely not stray too far. Durable goods orders are expected to rebound 1.0% after an 8.3% decline in October while core PCE, the Fed's preferred price measure, is seen holding steady at 2.4% y/y, above their comfort level of 2%.
European data was mixed this morning with France showing weakness in the Insee business confidence survey and Spain upping its GDP forecasts. Heavy offers are rumored on rallies to 1.3220/25 while bids are eyed in the 1.3130/40/50 region. Stops kick-in on a break below the 1.3125 level, the 61.8% retracement of the 1.3055/1.3245 rebound.
European data was mixed this morning with France showing weakness in the Insee business confidence survey and Spain upping its GDP forecasts. Heavy offers are rumored on rallies to 1.3220/25 while bids are eyed in the 1.3130/40/50 region. Stops kick-in on a break below the 1.3125 level, the 61.8% retracement of the 1.3055/1.3245 rebound.
FX OPTIONS: EUR/USD Fair Size 1-Week 1.3300 EUR Calls
I have been informed by one of my sources that 1-week 1.3300 EUR call options traded at 7.25 pct in fair size earlier today. There are also 1.3100, 1.3265, and 1.3400 expiries a week today (Dec 29).
USD/JPY: Well Supported Into The US Session
USD/JPY is well supported into the US session, with the pair trading just shy of the 118.50 level. Offers at 118.50 have capped throughout the European morning amid reports of option related offers and exporter interest. Bias remains on the topside, with the dollar ending the week on a stronger footing.
Background JPY weakness in the crosses has been a supportive factor and likely to see 118.60-118.75 offers come under pressure. Exporter interest is reportedly heavier into the 119.00 and should ensure any move higher remains restrictive. The market focus will turn to a slew of US data releases, which include US PCE, durable goods and Michigan sentiment.
Background JPY weakness in the crosses has been a supportive factor and likely to see 118.60-118.75 offers come under pressure. Exporter interest is reportedly heavier into the 119.00 and should ensure any move higher remains restrictive. The market focus will turn to a slew of US data releases, which include US PCE, durable goods and Michigan sentiment.
USD/CHF: 1.21/22 To Contain Afternoon Action
Into the North American session and London dealers have just about thrown in the towel and while USD/CHF remains inside a 1.21/22 range the market will see little longer-term significance in the short-term volatility. As a result, spot is pivoting 1.2150 at present with 1.2160/65 offers capping bounces ahead of the early US data.
Bids into 1.2115/20 prop for the moment while 1.2100 is seen as a downside trigger. Against the Euro only a break below 1.60 in EUR/CHF will add momentum to the charts. In other news, have a very merry Christmas and an even merrier New Year.
Bids into 1.2115/20 prop for the moment while 1.2100 is seen as a downside trigger. Against the Euro only a break below 1.60 in EUR/CHF will add momentum to the charts. In other news, have a very merry Christmas and an even merrier New Year.
FX OPTIONS: EUR/USD Raft of Expiries Next Wednesday
1.3000, 1.3100, 1.3125/35, 1.3300/10, 1.3350, 1.3400/10, 1.3450, and 1.3500 option strikes roll off next Wednesday (Dec 27). A E5mn payout 1.3500 exotic One Touch option is also due to expire next Wednesday.
FX OPTIONS: EUR/USD Large 1.3265 Expiry at Year-End
A large 1.3265 option strike reportedly rolls off at next Friday's year-end NY cut (Dec 29). A E350mn 1.3100 strike also expires a week today, as does a E350mn 1.3400 strike, and a 1.3950 exotic One Touch option carrying an estimated E12mn payout. Pre-1.3950 exotic barriers are located at 1.3400, 1.3425, 1.3450, 1.3500, 1.3550, 1.3600, 1.3630, 1.3700, 1.3800, and 1.3900. EUR/USD scaled a 21-month peak of 1.3370 at the start of this month (Dec 4). Spot notched its all-time peak of 1.3667 in late December 2004 (post-Xmas).
Swiss Outlook (22nd December 2006)
The rally seen yesterday corrected overnight and into European trading USD/CHF was back pivoting the 1.2150 mark. Trading has found it easy going near this level in recent days so spot should gravitate close to this level in the short-term. Sales in EUR/CHF are reported to have weighed on the Dollar pair in Europe, keeping spot near the 1.2125 lows.
EUR/CHF has drifted below its previous base at 1.6020 and the new session lows are said to have attracted some fresh supply. However, local players will see the price in the cross retaining its bullish bias while trading remains above 1.6000/05. Looking ahead, an early close for our North American colleges today but still we have the obstacle of US data to negotiate.
US Personal Income & Spending, Durable Goods (both November) and December Gallup Sentiment data are set for release at 13:30 GMT before the 15:00 GMT unveiling of Final December Michigan Sentiment. The event-risk posed by the latest US economic releases will keep the US Dollar underpinned in the short-run and USD/CHF will once more find key resistance in the form of 1.2200/10.
EUR/CHF has drifted below its previous base at 1.6020 and the new session lows are said to have attracted some fresh supply. However, local players will see the price in the cross retaining its bullish bias while trading remains above 1.6000/05. Looking ahead, an early close for our North American colleges today but still we have the obstacle of US data to negotiate.
US Personal Income & Spending, Durable Goods (both November) and December Gallup Sentiment data are set for release at 13:30 GMT before the 15:00 GMT unveiling of Final December Michigan Sentiment. The event-risk posed by the latest US economic releases will keep the US Dollar underpinned in the short-run and USD/CHF will once more find key resistance in the form of 1.2200/10.
Sterling Outlook (22nd December 2006)
There are a raft of pre-Xmas data releases from the US today. November durable goods, personal income and spending, and the core PCE deflator will be unveiled at 13:30GMT. December's Michigan Sentiment index ensues at 15:00GMT. Durable goods are forecast +1.0% m/m. The core PCE deflator is forecast +2.4% y/y.
Michigan Sentiment index forecast: 90.2. GBP/USD sated sell interest at 1.9650 and 1.9660, and tripped stops above 1.9660, en route to an intra-day peak of 1.9681 circa 10:00GMT. 1.9606-1.9638 was today"s Asian session range. 1.9681+ obstacles include 1.9700, 1.9725, 1.9750, 1.9800, 1.9820, 1.9850, 1.9900, and 2.0000. 15-day highs just shy of 1.9750 were notched on Wednesday. A 14-year top a pip shy of 1.9850 was scaled at the start of this month (Dec 1). Helping underpin the pound is the risk of another 25bp UK base rate rise to 5.25% in February, and a further 25bp hike beyond.
News-wise: Vodafone has confirmed it is considering the acquisition of a controlling stake in Hutchison Essar (FT website).
Michigan Sentiment index forecast: 90.2. GBP/USD sated sell interest at 1.9650 and 1.9660, and tripped stops above 1.9660, en route to an intra-day peak of 1.9681 circa 10:00GMT. 1.9606-1.9638 was today"s Asian session range. 1.9681+ obstacles include 1.9700, 1.9725, 1.9750, 1.9800, 1.9820, 1.9850, 1.9900, and 2.0000. 15-day highs just shy of 1.9750 were notched on Wednesday. A 14-year top a pip shy of 1.9850 was scaled at the start of this month (Dec 1). Helping underpin the pound is the risk of another 25bp UK base rate rise to 5.25% in February, and a further 25bp hike beyond.
News-wise: Vodafone has confirmed it is considering the acquisition of a controlling stake in Hutchison Essar (FT website).
Yen Outlook (22nd December 2006)
JPY remained in holiday trading-mode with USD/JPY and JPY crosses confined to ranges. USD/JPY was confined to a range between 118.20 and 118.50. Orders continue to bracket the market with offers noted from the 118.50 level, some reportedly from central banks and option accounts.
Japanese exporters have offers trailing up to 119.00 and above. These offers are seen especially heavy above 119.00. An Asian central bank is tipped offering large at 119.20-30. Some stops are mixed in above 118.60 and 118.75, highs dating back to November 9 and October 27. On the downside, stops are tipped below 117.90 but more bids are seen below, especially towards 117.70, around 117.50 and then towards 117.00.
JPY crosses were relatively firm with EUR/JPY and GBP/JPY both rising from Asian lows on bargain hunting from funds. AUD/JPY and NZD/JPY were also steady, with the latter helped by more uridashi issues in the pipeline and turn-of-the-year carry trade demand on dips. Market also has US PCE, durable goods and Michigan sentiment to contend ahead of the Xmas break.
Japanese exporters have offers trailing up to 119.00 and above. These offers are seen especially heavy above 119.00. An Asian central bank is tipped offering large at 119.20-30. Some stops are mixed in above 118.60 and 118.75, highs dating back to November 9 and October 27. On the downside, stops are tipped below 117.90 but more bids are seen below, especially towards 117.70, around 117.50 and then towards 117.00.
JPY crosses were relatively firm with EUR/JPY and GBP/JPY both rising from Asian lows on bargain hunting from funds. AUD/JPY and NZD/JPY were also steady, with the latter helped by more uridashi issues in the pipeline and turn-of-the-year carry trade demand on dips. Market also has US PCE, durable goods and Michigan sentiment to contend ahead of the Xmas break.
Euro Outlook (22nd December 2006)
It must be Christmas; because the market definitely has a festive touch to it this morning. Lightened conditions have played a significant role in the recent volatility but the hard-core will continue to keep the prices pumping as long as they can. Into European trading and the Euro rallied slightly as the unit was supported by a slight bid-tone in Euro Zone rate futures.
Smaller buying amid the thinner conditions aided the move higher and EUR/USD soon worked back into the 1.3200's. Offers into the 1.3210/15 area, also the failed high from yesterday, stalled the move higher while option players noted the spot gravitation towards the EUR 500Mln 1.3200 strike set to expire at the NY cut-off at 15:00 GMT. Euro Zone data was generally overlooked while there remains talk of sizable sellers into the 1.3225 area.
Looking ahead, an early close for our North American colleges today but still we have the obstacle of US data to negotiate. US Personal Income & Spending, Durable Goods (both November) and December Gallup data are set for release at 13:30 GMT before the 15:00 GMT unveiling of Michigan Sentiment.
Smaller buying amid the thinner conditions aided the move higher and EUR/USD soon worked back into the 1.3200's. Offers into the 1.3210/15 area, also the failed high from yesterday, stalled the move higher while option players noted the spot gravitation towards the EUR 500Mln 1.3200 strike set to expire at the NY cut-off at 15:00 GMT. Euro Zone data was generally overlooked while there remains talk of sizable sellers into the 1.3225 area.
Looking ahead, an early close for our North American colleges today but still we have the obstacle of US data to negotiate. US Personal Income & Spending, Durable Goods (both November) and December Gallup data are set for release at 13:30 GMT before the 15:00 GMT unveiling of Michigan Sentiment.
GBP/USD: Pushing Recovery Envelope into London Fix
Cable has pushed its recovery envelope from earlier two-day lows circa 1.9560 to 1.9618 (yesterday's low) into the 16:00GMT London fix. 1.9618+ obstacles include 1.9637 (European morning low), 1.9647 (today's Asian session base), 1.9670 (today's Asian session peak), and 1.9700. Intra-day highs just shy of 1.9700 were notched in early European trade.
EUR/USD: Modest Drift Higher; 1.3170/75
EUR/USD is making a modest comeback, bouncing from lows near 1.3140/43. Offers lie in the 1.3170/75 area but small stops are seen toward 1.3180, just above the hourly downtrend in place from the 1.3215 highs in Europe. The market remains flow-driven as speculative interest is kept to a minimum as year-end approaches. EUR/USD trades at 1.3160. Support lies at 1.3130/40.
FX OPTIONS: EUR/USD Large 1.3200 Expiry Tomorrow
A large 1.3200 plain-vanilla option rolls off at tomorrow's pre-Xmas 10am EST NY cut (Friday, 15:00GMT), alongside a 1.3000 strike. Looking ahead to next week: 1.3000, 1.3100, 1.3125/35, 1.3300/10, 1.3350, 1.3400/10, 1.3450, and 1.3500 strikes expire on Wednesday (Dec 27), as does a E5mn payout 1.3500 exotic One Touch option. Large 1.3100 and 1.3400 strikes roll off at the year-end NY cut (Dec 29).
US TECHS: Commodities Outlook; Gold and Oil
[Gold] is now on its fifth session below its 50-day moving average but not exactly following through. The standoff between bearishly-developing weekly trend models and still-bullish monthlies does not look to be resolving itself quickly. Daily models are set to turn bullish at day's end if losses don't expand. ADX, one type of trending indicator, began to uptick on December 15 from good trend-ready levels, favoring the bears, but with not much to show for that signal yet. On intraday charts, tight range since yesterday keeps resistance close at $624.
In [oil], prices have fallen a little over a dollar from highs set in the aftermath of yesterday's peak levels. Intraday resistance in Feb is at $63.30-60 and falling. Another sort of standoff is apparent on these charts, too, with bullish weeklies at risk below $63.60 tomorrow but monthlies needing a $64.40 or better close at the end of 2006 to turn neutral from bearish.
In [oil], prices have fallen a little over a dollar from highs set in the aftermath of yesterday's peak levels. Intraday resistance in Feb is at $63.30-60 and falling. Another sort of standoff is apparent on these charts, too, with bullish weeklies at risk below $63.60 tomorrow but monthlies needing a $64.40 or better close at the end of 2006 to turn neutral from bearish.
USD/CHF: Dollar Eases After Weak Chicago Reading
US Leading Indicators rose slightly less than expected (up 0.1% Vs the consensus +0.2%) but the Chicago Fed activity survey remained weak in November. It is the latter that is cited as trigger for the latest Dollar dip but in reality with European players looking to square up and head out the move lower could be more to do with positioning than sentiment. 1.2210 remains intact on the topside with the stops seen above tipped to be eroding as flat becomes the norm.
US ECON: Leaders Up 0.1%, Lagging Index +0.5%
* Leaders Rise 0.1% in November, Same as October
* October leaders revised downward from 0.2%
* Lagging index rises 0.5%, coincident indicator up 0.2%
The Conference Board's index of leading economic indicators rose by 0.1% between October and November, the same growth in the prior month after a downward revision from 0.2%. From a year ago, the index is up 2.3%, the slowest 12-month increase in four months.
Growth in the M2 money supply was a key factor, adding four pips, in the growth of the leading index in October. Without M2 in the calculation, leaders would have fallen by 0.1% in October. In November, the composite index benefited from a large rise in vendor deliveries, which added two pips last month after subtracting three pips the month before.
* October leaders revised downward from 0.2%
* Lagging index rises 0.5%, coincident indicator up 0.2%
The Conference Board's index of leading economic indicators rose by 0.1% between October and November, the same growth in the prior month after a downward revision from 0.2%. From a year ago, the index is up 2.3%, the slowest 12-month increase in four months.
Growth in the M2 money supply was a key factor, adding four pips, in the growth of the leading index in October. Without M2 in the calculation, leaders would have fallen by 0.1% in October. In November, the composite index benefited from a large rise in vendor deliveries, which added two pips last month after subtracting three pips the month before.
US TECHS: S&P Continues to Resist Divergence Signals
March S&P has been in a one-way trade higher since the July low so there is clearly the feeling in the market that a significant correction is approaching. So far, however, price action has not provided any signal that the market is ready to pull back in any meaningful way.
Current trade over the past week has been mostly sideways but considering that this pattern is developing at the highs, it will likely be viewed as a bullish continuation pattern. This strong price action has resisted the bearish divergences that have developed on daily momentum studies. IFR still believes that the general public has to be more of a buyer into this strength before a confident topping call can be made.
Using the 20-day equity put/call ratio shows that optimism is growing but it's not quite at prior extremes that coincided with significant tops in the index. The first, serious warning sign would be a daily close below recent lows at 1416 for the March contract.
Current trade over the past week has been mostly sideways but considering that this pattern is developing at the highs, it will likely be viewed as a bullish continuation pattern. This strong price action has resisted the bearish divergences that have developed on daily momentum studies. IFR still believes that the general public has to be more of a buyer into this strength before a confident topping call can be made.
Using the 20-day equity put/call ratio shows that optimism is growing but it's not quite at prior extremes that coincided with significant tops in the index. The first, serious warning sign would be a daily close below recent lows at 1416 for the March contract.
EUR/USD: Rate Spreads Continue to Tighten
Interest rate differentials continue to tighten between US and EU bond markets. 2-year spreads are down to 92 bp from 100 late last week as firm Ifo data and upward revisions to German GDP forecasts are helping close the USD-supportive rate gap. 10-Year yields are at 77 bp, their tightest since the spring of 2005.
The tighter spreads are not lending EUR/USD much support this morning as profit-taking knocks the unit back below 1.3150. 1.3130, the Tuesday morning low is next support for EUR/USD which trades now at 1.3147.
The tighter spreads are not lending EUR/USD much support this morning as profit-taking knocks the unit back below 1.3150. 1.3130, the Tuesday morning low is next support for EUR/USD which trades now at 1.3147.
Thursday, December 21, 2006
GBP/USD: Stops Below 1.9580 Tripped, New Two-Day Lows Plumbed
Tripped stops below 1.9580 have helped depress cable to new two-day lows circa 1.9560. 1.9580 (Monday's approximate high) is now a rebound resistance level.
Swiss Outlook (21st December 2006)
Into European trading and USD/CHF was forced to trade on a par with EUR/USD as holiday conditions continued to impact short-term volatility. USD/CHF dipped to 1.2140, absorbing a few decent buyers around 1.2150/55 in the move, in early European trading. However, this move was soon corrected and the bounce found standing supply into 1.2180 ahead of the North American open.
More offers are seen into the failure high from yesterday at 1.2195, with 1.2200/10 then looked for. Dealers cite the slew of US data later today as further cause for short-term volatility. In other news, Swiss data today saw the latest Swiss trade data released. The November surplus narrowed to CHF 1.31Bln, from CHF 1.49Bln, as the rise in imports overpowered the rise in exports. Watch exports are up 13% on the year, seen hitting CHF 1.52Bln in November.
On the whole the data remains supportive to the robust outlook to the mountain economy and some remain optimistic that the SNB will again hike Swiss rates in Q1 07 by a further 25bps. However, with the CHF still cheap to carry, further weakness will be eyed into H1 2007.
More offers are seen into the failure high from yesterday at 1.2195, with 1.2200/10 then looked for. Dealers cite the slew of US data later today as further cause for short-term volatility. In other news, Swiss data today saw the latest Swiss trade data released. The November surplus narrowed to CHF 1.31Bln, from CHF 1.49Bln, as the rise in imports overpowered the rise in exports. Watch exports are up 13% on the year, seen hitting CHF 1.52Bln in November.
On the whole the data remains supportive to the robust outlook to the mountain economy and some remain optimistic that the SNB will again hike Swiss rates in Q1 07 by a further 25bps. However, with the CHF still cheap to carry, further weakness will be eyed into H1 2007.
Sterling Outlook (21st December 2006)
The 3rd and final US Q3 GDP estimate is due at 13:30GMT. Annualized growth forecast: 2.2%. US weekly jobless claims are also due at 13:30GMT. Forecast: 315k. December's Philly Fed survey ensues at 17:00GMT. GBP/USD ascended to intra-day highs just shy of 1.9700 in early European trade, ahead of the 09:30GMT release of mixed UK GDP and current account data.
The unexpected upward revision of annualized Q3 GDP to 2.9% is further good news for UK rate hawks touting a 25bp base rate rise to 5.25% in February, and a further 25bp hike beyond. By contrast, the Q3 C/A deficit blow-out to GBP 9.429bn, from an upwardly revised GBP 8.264bn in Q2, is GBP-negative. Cable dropped to an intra-day low of 1.9638 late in the European morning, with another bout of pre-Xmas profit-booking on long GBP/USD positions blamed.
A prior bout of pre-Xmas profit-booking helped depress sterling to a low of 1.9618 yesterday. Bids are tipped at 1.9630, with further demand noted at 1.9600. News-wise: Vodafone's board is set to meet to consider a proposed $13.5bn+ offer for India's Hutchison Essar (FT website).
The unexpected upward revision of annualized Q3 GDP to 2.9% is further good news for UK rate hawks touting a 25bp base rate rise to 5.25% in February, and a further 25bp hike beyond. By contrast, the Q3 C/A deficit blow-out to GBP 9.429bn, from an upwardly revised GBP 8.264bn in Q2, is GBP-negative. Cable dropped to an intra-day low of 1.9638 late in the European morning, with another bout of pre-Xmas profit-booking on long GBP/USD positions blamed.
A prior bout of pre-Xmas profit-booking helped depress sterling to a low of 1.9618 yesterday. Bids are tipped at 1.9630, with further demand noted at 1.9600. News-wise: Vodafone's board is set to meet to consider a proposed $13.5bn+ offer for India's Hutchison Essar (FT website).
Yen Outlook (21st December 2006)
JPY markets were in holiday trading-mode with USD/JPY and JPY crosses volatile in thin trade. The talk is Japanese investment flows into other currencies peaked yesterday around the time of the Tokyo fix and most are filled for the year. EUR/JPY saw some modest flows in late Asia/early European trade enabling the pair to record a fresh 156.45 high.
The pullback was swift, with option protection and speculative selling taking the pair down to 156.20 and then extending through 156.00/155.90 stops in the absence of decent support. The pair eventually printed a 155.61 low and then stabilised around 155.75 ahead of the North American open. USD/JPY rejected 118.50 in early Europe and hovered around 118.30 before accelerating to the downside in the wake of JPY demand.
Buyers emerged around 118.00 after recording a 117.96 low. The pair drifted around 118.15/20, with volumes and interest waning after the bout of speculative flows. The US session may get some influence from the US GDP number. Both USD/JPY and EUR/JPY are trying to retain their upward bias, yet both look vulnerable to speculative flows in thin trade.
The pullback was swift, with option protection and speculative selling taking the pair down to 156.20 and then extending through 156.00/155.90 stops in the absence of decent support. The pair eventually printed a 155.61 low and then stabilised around 155.75 ahead of the North American open. USD/JPY rejected 118.50 in early Europe and hovered around 118.30 before accelerating to the downside in the wake of JPY demand.
Buyers emerged around 118.00 after recording a 117.96 low. The pair drifted around 118.15/20, with volumes and interest waning after the bout of speculative flows. The US session may get some influence from the US GDP number. Both USD/JPY and EUR/JPY are trying to retain their upward bias, yet both look vulnerable to speculative flows in thin trade.
Euro Outlook (21th December 2006)
Into European trading and the Euro looked corrective against the Dollar as the fresh record highs in EUR/JPY supported the single currency once more. However, the subsequent cross failure & sell-off then weighed on spot. The run into the 1.32's eventually lost traction and spot eased back to 1.3195 support.
Bids into 1.3185 were then eventually absorbed as a host of sales impacted. 1.3165 has printed thus far with 1.3160 eyed. Looking ahead, many will trade the reaction to the US data into the North American session. US Q3 Final GDP is set for release at 13:30 GMT to provide the early risk for the Dollar. However, with November Leading Indicators & Chicago Fed data and December Philly Fed set to hit the screens at 15:00 GMT & 17:00 GMT respectively, the risk-profile will be little altered in the short-term.
Many cast an eye to the Philly release as the most recent data (therefore the most fresh and significant). 1.3150 is seen as a key level on the downside as the official buyers are touted into this level with these reinforced in the short-run by the 1.3155 expiry intraday (NY cut at 15:00 GMT).
Bids into 1.3185 were then eventually absorbed as a host of sales impacted. 1.3165 has printed thus far with 1.3160 eyed. Looking ahead, many will trade the reaction to the US data into the North American session. US Q3 Final GDP is set for release at 13:30 GMT to provide the early risk for the Dollar. However, with November Leading Indicators & Chicago Fed data and December Philly Fed set to hit the screens at 15:00 GMT & 17:00 GMT respectively, the risk-profile will be little altered in the short-term.
Many cast an eye to the Philly release as the most recent data (therefore the most fresh and significant). 1.3150 is seen as a key level on the downside as the official buyers are touted into this level with these reinforced in the short-run by the 1.3155 expiry intraday (NY cut at 15:00 GMT).
Wednesday, December 20, 2006
USD/CHF: 1.2050 Again Rejects As Markets Thicken
Intraday and the rate of "out of office" replies might be picking up but still there are those that are taking the "just in case" view. Flows from early NY traders may not be of massive sizes but according to one London source they have thickened USD/CHF by a noticeable amount on the machine. 1.2050 has again rejected as spot made a half-hearted run at the topside into early NorAm trading while 1.2125 props on the downside before 1.2100 hits.
USD/JPY: Profit Taking By JPY Shorts Influences Price Action
Profit taking by JPY shorts has influenced price action in USD/JPY. EUR/JPY's inability to recapture the 156.40 high and a good supply of offers in GBP/JPY has fueled speculative JPY demand. The names behind the interest are not very prominent, with a number of medium-sized accounts and interbank names driving sentiment. The interest has conspired against USD/JPY, which was already struggling to reassert itself on yesterday's 118.35 high.
In the absence of large flows option interest has reportedly had an impact, with 118.10 and 117.40 open interest noted. Japanese demand on dips remains a supportive factor, along with technical significance at 117.95. So far, prices have been unable to break back inside the Ichimoku cloud and this has encouraged long plays. 117.95 is the Ichimoku cloud top and 117.45 is daily support from December 15th low.
In the absence of large flows option interest has reportedly had an impact, with 118.10 and 117.40 open interest noted. Japanese demand on dips remains a supportive factor, along with technical significance at 117.95. So far, prices have been unable to break back inside the Ichimoku cloud and this has encouraged long plays. 117.95 is the Ichimoku cloud top and 117.45 is daily support from December 15th low.
UK ECON: CBI Nov Retail Sales Balance +25, Way Above Forecast
Minus 4 was the expected number, from minus 9 in November. +25 is a 2-year high.
GBP/USD: Bids Tipped at 1.9690, CBI Survey due at 11:00GMT
Cable is currently perched above touted bids at 1.9690, having ticked south since the 09:30GMT publication of "neutral" BoE MPC minutes. The noted bids reportedly originate from a "short-term" source, who is looking for a fresh run-up towards 1.9750. The source would reportedly close out the position pre-1.9750. GBP/USD notched 15-day highs just shy of 1.9750 in early European trade.
1.9688-1.9740 was today's Asian session range. Stops are flagged above 1.9750. December's CBI retail sales survey will be disclosed at 11:00GMT. The headline balance is expected to improve to minus 4, from minus 9 in November. It was minus 4 in October.
1.9688-1.9740 was today's Asian session range. Stops are flagged above 1.9750. December's CBI retail sales survey will be disclosed at 11:00GMT. The headline balance is expected to improve to minus 4, from minus 9 in November. It was minus 4 in October.
EUR/USD: Trichet Q&A In Focus
Euro watchers are looking to the Trichet Q&A session at present. They are looking for signals on future monetary policy, the higher EUR rates, in fact anything that might inject some short-term volatility. Thus far, the central bank President has talked of the use of the Euro as a reserve currency and the need for stability in the EUR rate.
Elsewhere, light Sterling sales have been noted since the UK data and the resulting cable dip has weighed slightly on EUR/USD. Offers into 1.3240/50 will continue to cap while 1.3200 is seen as the key downside level.
Elsewhere, light Sterling sales have been noted since the UK data and the resulting cable dip has weighed slightly on EUR/USD. Offers into 1.3240/50 will continue to cap while 1.3200 is seen as the key downside level.
Swiss Outlook (20th December 2006)
Into European trading and the Franc was being sold once more but the latest combined Import & Export price data has come to the rescue of the CHF. Expected down 0.1% on the month the data has come in flat in November and up 2.8% on an annualized basis. This comes against the previous +2.4% reading and economists cite oil as the key factor in the index volatility.
The data is broadly inline with expectations but with inflation in the mountain economy seen as benign, if not negligible, the appearance of any sign of price pressure is to be cheered. EUR/CHF buyers were noted as the cross attempted to break above 1.6050 in the wake of the latest "dovish" SNB comments. This buying sparked USD/CHF buying. Standing offers into 1.2150 rebuffed the advance before Swiss economic data underpinned the CHF.
Bidding into the resistance turned support zone of 1.3125/30 now props. Looking ahead, there is little of real significance set for release in the North American session. As a result, 1.2100/50 will act as a short-term comfort zone with more sellers into 1.2175/80 & 1.2200/10.
The data is broadly inline with expectations but with inflation in the mountain economy seen as benign, if not negligible, the appearance of any sign of price pressure is to be cheered. EUR/CHF buyers were noted as the cross attempted to break above 1.6050 in the wake of the latest "dovish" SNB comments. This buying sparked USD/CHF buying. Standing offers into 1.2150 rebuffed the advance before Swiss economic data underpinned the CHF.
Bidding into the resistance turned support zone of 1.3125/30 now props. Looking ahead, there is little of real significance set for release in the North American session. As a result, 1.2100/50 will act as a short-term comfort zone with more sellers into 1.2175/80 & 1.2200/10.
Sterling Outlook (20th December 2006)
UK rate hawks touting another 25bp base rate hike to 5.25% in February have received a further boost from the 11:00GMT disclosure that December's CBI retail sales balance rocketed to a two-year high of +25, from minus 9 in November. Minus 4 was forecast.
GBP/USD rallied to 15-day highs just shy of 1.9750 in early European trade, as its M&A flow-assisted rally from Monday"s 19-day low of 1.9435 extended. Offers are tipped into 1.9750, inclusive of profit-take interest. Some stops are tipped above 1.9750. The above-mentioned stops could boost cable towards 1.9800 if tripped. 1.9800+ bull targets include 1.9820, 1.9849 (December 1, 14-year high), 1.9900, and 2.0000. Exotic option barriers reside at 1.9900 and 2.0000.
Bids are tipped at 1.9690--a couple of pips ahead of today's 1.9688 Asian session base. Further demand is noted pre-1.9665 (last Friday's top). Minutes from the December 6/7 BoE MPC meeting revealed that the UK base rate was held at 5.0% by a 9-0 vote.
GBP/USD rallied to 15-day highs just shy of 1.9750 in early European trade, as its M&A flow-assisted rally from Monday"s 19-day low of 1.9435 extended. Offers are tipped into 1.9750, inclusive of profit-take interest. Some stops are tipped above 1.9750. The above-mentioned stops could boost cable towards 1.9800 if tripped. 1.9800+ bull targets include 1.9820, 1.9849 (December 1, 14-year high), 1.9900, and 2.0000. Exotic option barriers reside at 1.9900 and 2.0000.
Bids are tipped at 1.9690--a couple of pips ahead of today's 1.9688 Asian session base. Further demand is noted pre-1.9665 (last Friday's top). Minutes from the December 6/7 BoE MPC meeting revealed that the UK base rate was held at 5.0% by a 9-0 vote.
Yen Outlook (20th December 2006)
USD/JPY held onto a tight range around 118.00, continuing the theme seen over the past three sessions. The downside is supported at 117.70-80, 117.73 where the base of the Ichimoku cloud comes in today and 117.95 where the Ichimoku top is. The topside is capped by offers between 118.30 and 118.50.
Stops are tipped above but more offers are noted above towards 119.00 from Japanese exporters. JPY cross demand is supportive. This helped USD/JPY but even these lost some of their lustre amid profit taking interest. EUR/JPY managed to break above 156.00 and stops above sent the cross as high as 156.35/40 in Asia. The cross failed to recapture these levels and selling from interbank names and small speculative accounts sent the pair back into 156.00, where Japanese investor demand supports.
Cross players continue to choose higher yielding currencies against the yen for turn-of-the-year carry plays. GBP/JPY, AUD/JPY and NZD/JPY are the main beneficiaries of such flows; all building on recent gains. We look for JPY to remain on the softer size amid limited top tier data into the Christmas holidays.
Stops are tipped above but more offers are noted above towards 119.00 from Japanese exporters. JPY cross demand is supportive. This helped USD/JPY but even these lost some of their lustre amid profit taking interest. EUR/JPY managed to break above 156.00 and stops above sent the cross as high as 156.35/40 in Asia. The cross failed to recapture these levels and selling from interbank names and small speculative accounts sent the pair back into 156.00, where Japanese investor demand supports.
Cross players continue to choose higher yielding currencies against the yen for turn-of-the-year carry plays. GBP/JPY, AUD/JPY and NZD/JPY are the main beneficiaries of such flows; all building on recent gains. We look for JPY to remain on the softer size amid limited top tier data into the Christmas holidays.
Euro Outlook (20th December 2006)
With the strong IFO consigned to history, but not quite forgotten, Euro watchers started the day awaiting the latest Trichet press conference. US hedge fund selling in EUR/USD into the 1.3240's, touted as profit-taking, helped cap the topside into early European trading and spot soon eased lower.
However, with the EUR remaining underpinned and the 1.3200 digital expiry today (At the NY cut-off at 15:00 GMT) keeping the downside intact the price bounced off 1.3207. The ECB President largely reiterated his last post-ECB hike statement with Trichet also borrowing from the G7 stance on FX volatility. As a result 1.3200/50 is seen as the short-term comfort band for EUR/USD with dealers noting official support for the pair into 1.3185/90 while central bank sell orders are also tipped on approach to 1.3260/65 should spot rally.
Looking ahead, there is little of significance set for unveiling into the North American session so many will sit and wait to see if those with the might have the propensity to move markets. Orders will again dictate short-term moves but dealers see any such moves as holding little long-term significance.
However, with the EUR remaining underpinned and the 1.3200 digital expiry today (At the NY cut-off at 15:00 GMT) keeping the downside intact the price bounced off 1.3207. The ECB President largely reiterated his last post-ECB hike statement with Trichet also borrowing from the G7 stance on FX volatility. As a result 1.3200/50 is seen as the short-term comfort band for EUR/USD with dealers noting official support for the pair into 1.3185/90 while central bank sell orders are also tipped on approach to 1.3260/65 should spot rally.
Looking ahead, there is little of significance set for unveiling into the North American session so many will sit and wait to see if those with the might have the propensity to move markets. Orders will again dictate short-term moves but dealers see any such moves as holding little long-term significance.
Tuesday, December 19, 2006
GBP/USD: Knee-Jerk US Data-Fuelled Losses Recouped
Cable dropped to lows circa 1.9580 in a knee-jerk reaction to the big jump in US PPI and housing starts, but has subsequently recouped those losses amid doubt as to the accuracy of the PPI. Sell interest pre-1.9580 had kept a temporary lid on GBP/USD early Europe, amid M&A-related buying of the pound.
Sterling resistance levels include 1.9654 (European morning peak), 1.9665 (last Friday's post-US CPI high), 1.9712 (last Thursday's post-UK retail sales data top), and 1.9730.
Sterling resistance levels include 1.9654 (European morning peak), 1.9665 (last Friday's post-US CPI high), 1.9712 (last Thursday's post-UK retail sales data top), and 1.9730.
EUR/USD: Back to Pre-Release Levels as PPI Dismissed
US PPI data is being dismissed as a statistical quirk and the EUR has rebounded close to pre-data levels in the mid-1.3150s. US interest rates are off their highs as the data is seen as an anomaly. 1.3175/85 offers remain on rallies while 1.3120 is solid support on dips. More selling is seen toward 1.3195/00.
FOREX: ECB Reserves Rise EUR200 mln in Dec 15 Week
ECB reserves have risen EUR200 mln in the week of Dec 15th with reserves at EUR152.8 bln, little changed from EUR152.9 bln at the end of September and the last revaluation of reserves. Gold reserves declined EUR410 mln due to sales from two Eurosystem central banks. Gold reserves have declined for 108 out of the last 114 weeks. EUR/USD is currently at 1.3159.
FX OPTIONS: GBP/USD 1-mth R/R Traded at 0.2% for GBP Calls
Based on information by one of my sources that the 1-mth 25 delta risk reversal traded at 0.2 pct for GBP calls earlier today. It is 0.05/0.35 GBP calls over last. On the exotic front: barriers are touted up at 1.9900, 2.0000, and 2.0200. The atter trigger is a knockout on a 1.8500 GBP put which is due to expire in June 2008.
That k/o has been set above the 2.0100 September 1992 high. Downside barriers are located at 1.8750 and 1.8600. The former trigger is the base of a Double No Touch option, carrying an estimated GBP 10mn payout, which is slated to expire in June 2008.
That k/o has been set above the 2.0100 September 1992 high. Downside barriers are located at 1.8750 and 1.8600. The former trigger is the base of a Double No Touch option, carrying an estimated GBP 10mn payout, which is slated to expire in June 2008.
FX OPTIONS: EUR/USD 1-mth 1.3400 EUR Call
One of my sources told me that a 1-mth 1.3400 option strike traded at 7.15 pct earlier today. The 1.3400 level also holds exotic exposure. Thursday January 18 is the current 1-mth expiry date, according to FENICS FX 2002. US December inflation figures will be disclosed on January 18.
ATM-wise: the 1-mth is 6.65/6.85 last, having been paid at 6.7 pct and 6.8 pct earlier today, post-IFO.
ATM-wise: the 1-mth is 6.65/6.85 last, having been paid at 6.7 pct and 6.8 pct earlier today, post-IFO.
US TECHS: S&P Slips Back into Ascending Channel Pattern
Daily charts show Mar S&P has been trading in an ascending channel pattern for the past two months. Strength late last week saw the contract break through the upper end of that pattern (top line is currently at 1438), which should have triggered a fairly sizable measured move higher.
That did not develop and the daily candlestick for Friday developed as shooting star, implying a near-term top. The combination of the false breakout and bearish candlestick does present a warning sign for the bullish camp and points to a short-term pullback. First support for the contract is a trendline off recent lows that comes in at 1430.
A break below there would likely challenge the recent lows at 1416 and bulls need to see that area hold. If it doesn't it would be the first sign of damage to the pattern of higher highs and higher lows in several months.
That did not develop and the daily candlestick for Friday developed as shooting star, implying a near-term top. The combination of the false breakout and bearish candlestick does present a warning sign for the bullish camp and points to a short-term pullback. First support for the contract is a trendline off recent lows that comes in at 1430.
A break below there would likely challenge the recent lows at 1416 and bulls need to see that area hold. If it doesn't it would be the first sign of damage to the pattern of higher highs and higher lows in several months.
Swiss Outlook (19th December 2006)
The Dollar bull run comes to an end and there are now real prospects for a late December retracement back towards the 1.20 level. Early Tuesday action has been dominated by M&A strength in Sterling, data strength in the EUR and a rhetoric weakened Yen.
This has led to a very mixed bag for the Franc, which has lost ground to the single currency but made significant gains vs the Dollar. There has been another factor supplying some direction for the Swiss unit. M&A news has drawn attention with New Zealand's Rank Group looking at a CHF 2.4 bln deal for Switzerland's SIG, topping a rival bid from Norway's Elopak by 14%. Countering this news were details of CHF 4.25 bln repurchase deal for 25% of Vodafone's SwissCom Mobile from Swisscom.
USD/CHF has the makings of a technical reversal with a 1.2268 spike high Monday, close back at the 1.2215 open and a strong bear move early this session. Lows so far of 1.2160 and scope to the double hourly lows of 1.2120 from last Friday's session. Only a break above this session's 1.2235 open will negate our bear view for the run into the turn.
This has led to a very mixed bag for the Franc, which has lost ground to the single currency but made significant gains vs the Dollar. There has been another factor supplying some direction for the Swiss unit. M&A news has drawn attention with New Zealand's Rank Group looking at a CHF 2.4 bln deal for Switzerland's SIG, topping a rival bid from Norway's Elopak by 14%. Countering this news were details of CHF 4.25 bln repurchase deal for 25% of Vodafone's SwissCom Mobile from Swisscom.
USD/CHF has the makings of a technical reversal with a 1.2268 spike high Monday, close back at the 1.2215 open and a strong bear move early this session. Lows so far of 1.2160 and scope to the double hourly lows of 1.2120 from last Friday's session. Only a break above this session's 1.2235 open will negate our bear view for the run into the turn.
Sterling Outlook (19th December 2006)
Good size Swiss and UK name buying of cable was noted from the European open. The buying was reportedly related to Vodafone's GBP 1.8bn sale of its 25% stake in Swisscom Mobile (FT website). The above-mentioned M&A-related demand, plus the instigation of fresh GBP/JPY carry trades on the back of dovish comments from BoJ Governor Fukui, and squeezed GBP/USD shorts, helped propel sterling to a high of 1.9654.
Today's Asian session range was 1.9467-1.9502. Sterling elicited support circa 1.9600 on its pullback from 1.9654. Sell interest at 1.9600 was sated en route to that high. Sub-1.9600 support points include 1.9582 (yesterday's top), and 1.9523 (yesterday's NY session peak). 1.9654+ resistance levels are located at 1.9665 (last Friday's post-US CPI high), 1.9712 (last Thursday's post-UK retail sales data top), and 1.9730.
Minutes from the December 6/7 MPC meeting will be published at 09:30GMT tomorrow. These are expected to reveal that the UK base rate was held at 5.0% by a 9-0 vote, following November's 25bp hike.
Today's Asian session range was 1.9467-1.9502. Sterling elicited support circa 1.9600 on its pullback from 1.9654. Sell interest at 1.9600 was sated en route to that high. Sub-1.9600 support points include 1.9582 (yesterday's top), and 1.9523 (yesterday's NY session peak). 1.9654+ resistance levels are located at 1.9665 (last Friday's post-US CPI high), 1.9712 (last Thursday's post-UK retail sales data top), and 1.9730.
Minutes from the December 6/7 MPC meeting will be published at 09:30GMT tomorrow. These are expected to reveal that the UK base rate was held at 5.0% by a 9-0 vote, following November's 25bp hike.
Yen Outlook (19th December 2006)
Dovish remarks from BOJ Governor Fukui were the catalyst for broader JPY losses against the high yielders. He cited weaker consumption and CPI and would not be drawn on the timing of the next hike, adding that they would need to take a close look in January.
EUR/JPY surged, rallying from 154.40 up to 155.50. Stops at 154.80 and 155.00 were taken out in the wake of speculative account and momentum fund demand. The pair remained bid throughout despite struggling to recapture the previous 155.60 all time high. GBP/JPY also saw good carry trade interest according to sources and AUD/JPY moved modestly higher. USD/JPY made an initial push higher, clearing offers at 118.20 on the way up to 118.31. The pair was undermined by a heavier dollar, which gathered pace after a stronger than expected German Ifo reading.
EUR/USD pushed higher and USD/JPY slipped back into 118.00, where option strikes reduced price action for the remainder of the European morning session. The attention is now turning towards US housing releases and PPI due at 1:30GMT, although JPY funded trading should continue to influence the broader market.
EUR/JPY surged, rallying from 154.40 up to 155.50. Stops at 154.80 and 155.00 were taken out in the wake of speculative account and momentum fund demand. The pair remained bid throughout despite struggling to recapture the previous 155.60 all time high. GBP/JPY also saw good carry trade interest according to sources and AUD/JPY moved modestly higher. USD/JPY made an initial push higher, clearing offers at 118.20 on the way up to 118.31. The pair was undermined by a heavier dollar, which gathered pace after a stronger than expected German Ifo reading.
EUR/USD pushed higher and USD/JPY slipped back into 118.00, where option strikes reduced price action for the remainder of the European morning session. The attention is now turning towards US housing releases and PPI due at 1:30GMT, although JPY funded trading should continue to influence the broader market.
Euro Outlook (19th December 2006)
The EUR turned a corner last session after laying down a base at 1.3054. Not a great deal of rhyme or reason for the Asia moves other than a good pick up in EUR/JPY following official rhetoric and fund book keeping, which kept the US players busy, both in New York and London.
A flat return for German Nov PPI had little impact on the market but attention was placed on the Dec IFO. A surprisingly strong return of 108.7 for the climate index and 115.3 for current conditions gave the EUR a boost to 1.3175. Currency concerns from the French had no impact and the market set about consolidating the early EUR strength. A 1.3160 to 1.3170 range played out into midday. EUR/USD has good European bids in the 1.3050-70 area and stops above 1.3200.
There is also talk of a 1/4-yard 1.3235 option expiry today. Resistance is seen at 1.3195-00, the 10-day MA line while Monday's 1.3055 low provides the support. The EUR is a buy but thin conditions could lead to quick profit takes and book tidying, which could bring about a quick and significant change in direction.
A flat return for German Nov PPI had little impact on the market but attention was placed on the Dec IFO. A surprisingly strong return of 108.7 for the climate index and 115.3 for current conditions gave the EUR a boost to 1.3175. Currency concerns from the French had no impact and the market set about consolidating the early EUR strength. A 1.3160 to 1.3170 range played out into midday. EUR/USD has good European bids in the 1.3050-70 area and stops above 1.3200.
There is also talk of a 1/4-yard 1.3235 option expiry today. Resistance is seen at 1.3195-00, the 10-day MA line while Monday's 1.3055 low provides the support. The EUR is a buy but thin conditions could lead to quick profit takes and book tidying, which could bring about a quick and significant change in direction.
Monday, December 18, 2006
EUR/USD: Models Turn Against EUR; Asian Buying Seen
Dealers are blaming model funds for the sudden jump in the greenback. Many are coming to the realization that a USD bottom for 2006 is likely in place and they are taking profits accordingly. Apparently some clients pay hedge funds larger percentages on realized versus unrealized profits, and that is one catalyst for the funds to harvest profits during December.
Also helping is talk that Goldman sees US rate cuts in 2007, but to the 4.50% from earlier forecasts of 4.0%, down from 5.25% today. An Asian central bank is rumored buying in the 1.3050/55 area, helping keep EUR/USD from sliding significantly below the 50% retracement of the 1.2765/1.3365 rally which comes in at 1.3066.
Also helping is talk that Goldman sees US rate cuts in 2007, but to the 4.50% from earlier forecasts of 4.0%, down from 5.25% today. An Asian central bank is rumored buying in the 1.3050/55 area, helping keep EUR/USD from sliding significantly below the 50% retracement of the 1.2765/1.3365 rally which comes in at 1.3066.
USD/JPY: Scaling 118.15/20 Offers Amid EUR/USD Down Turn
Stop loss selling in EUR/USD has seen USD/JPY scale 118.15/20 offers to hit a peak of 118.26 on the session. Momentum is limited though despite the modest size down turn in EUR/USD. Traders are citing good size 118.30 offers, which are increasing in size on the approach of 118.50. Technical resistance should also emerge at 118.35, which is also Friday's daily high.
Near-term bias remains on the topside but the 118.50/60 area will need to be cleared in order to sustain a move on the 119.90 region. The market appears to be positioned for the Japanese rate announcement, where steady policy is expected. The market is likely to trade on re-positioning into the Christmas break and sources already sight real money interest is last bout of dollar buying.
Near-term bias remains on the topside but the 118.50/60 area will need to be cleared in order to sustain a move on the 119.90 region. The market appears to be positioned for the Japanese rate announcement, where steady policy is expected. The market is likely to trade on re-positioning into the Christmas break and sources already sight real money interest is last bout of dollar buying.
GBP/USD: Stops Run Extends Through 1.9490 to 1.9455
The Dollar staged a brief dip following the US current account data but the short covering proved brief and thin trading conditions have since favoured the US unit. Bids in the 1.9495-00 area were cleared away at the fifth attempt and the resulting follow through, helped by stops under 1.9480, has now reached 1.9455-60.
Little in the way of support until the mid-1.93's but given the state of the market big figures can be taken out with ease. There are a couple daily lows at 1.9370 and 1.9335, but these are unlikely to offer much in the way of support once the Cable market gets moving.
Little in the way of support until the mid-1.93's but given the state of the market big figures can be taken out with ease. There are a couple daily lows at 1.9370 and 1.9335, but these are unlikely to offer much in the way of support once the Cable market gets moving.
EUR/USD: Fresh Cable Lows Drag EUR Down with It
EUR/USD has seen some long liquidation o the loss of 1.3080/85, dragged down in part by fresh cable losses and new highs for the move in USD/CHF. EUR/USD trades just above Friday afternoon's lows. Year-end position liquidation appears to be at play with some talk of macro funds looking to harvest profits while there is still a semblance of liquidity. 1.3030 is next support, followed by 1.2980.
USD/CHF: Stops Run As 1.2230 Finally Gives Way, 1.2290 Eyed
1.2230 has finally given way as the Dollar runs to session highs. EUR/USD broke lower and this action combined with the EUR/CHF break into the 1.60's has seen USD/CHF pressurize the 1.2230. Offers into this level have since crumbled and the stops above tripped. A run at 1.2250 should now unfold but bulls will eye a run at the 1.2290 level should EUR/USD edge below the 1.3050/60 area.
EUR/USD: Gravitating toward 1.3100 Strike as Expiry Approaches
EUR/USD trades in disinterested fashion, gravitating toward the 1.3100 level where vanilla strikes expire this morning. The US economic calendar is empty until 18:00 GMT when the National Association of Home Builders index will be released. Housing has appeared to stabilized in recent months, and the builders index is expected to rebound to 35 from 33, amplifying that point. EUR/USD bids are eyed at 1.3085 while offers reside at 1.3115/20.
Swiss Outlook (18th December 2006)
Into the new week and Swiss economic data was overlooked into early European trading. Swiss Industrial Orders data was released up 10.1% Y/Y in Q3, up from the previous 9.8% seen in Q2, but with speculative data showing an increase in Franc shorting the market remained of the opinion that using the CHF to fund carry trades was both beneficial and profitable.
USD/CHF teetered close to the 1.22 mark for the majority of the European morning with offers into the 1.2210/15 area limiting the topside. However, dealers see the 1.2230 as key to further topside action in the longer-term so we expect more meaningful price-action on approach to this level. Against the Euro, the CHF matched its Friday low as the single currency was underpinned.
1.6000 printed but the cross failed to break any higher and with EUR/USD sold in the wake of the EU Commission report the topside in EUR/CHF was artificially reinforced. Trading has since eased but a return & retest of the 1.60 level is eyed and should a break higher be seen then the yearly high at 1.6011 will come back into focus.
USD/CHF teetered close to the 1.22 mark for the majority of the European morning with offers into the 1.2210/15 area limiting the topside. However, dealers see the 1.2230 as key to further topside action in the longer-term so we expect more meaningful price-action on approach to this level. Against the Euro, the CHF matched its Friday low as the single currency was underpinned.
1.6000 printed but the cross failed to break any higher and with EUR/USD sold in the wake of the EU Commission report the topside in EUR/CHF was artificially reinforced. Trading has since eased but a return & retest of the 1.60 level is eyed and should a break higher be seen then the yearly high at 1.6011 will come back into focus.
Sterling Outlook (18th December 2006)
Little on the domestic front for the London market and indeed factors are thin on the ground until Wednesday's release of MPC minutes from the December meeting. The Pound started on a firm note vs both the Dollar and the EUR, continuing to enjoy a strong data, firm rate, environment.
The consensus for UK rate is for a hike at the February meeting but there remains enough uncertainty to keep Cable and EUR/GBP choppy through the turn. Early action suggested scope to 1.9600 but progress was held at 1.9580 and Sterling lost all of its advantage and more. Support is seen at 1.9495 area with initial resistance at 1.9580. Offers are touted between 1.9580 and 1.9600 with stops above 1.9625. To the downside the stops reportedly run in at 1.9490 through 1.9460.
The Dollar side of the equation shows a market adding to last week's gains. Interest rate uncertainty to keep the majors active into the turn although Yen factors could dominate early in the week. US c/a data provides the only interest this session. A rise in the deficit expected for the Q3.
The consensus for UK rate is for a hike at the February meeting but there remains enough uncertainty to keep Cable and EUR/GBP choppy through the turn. Early action suggested scope to 1.9600 but progress was held at 1.9580 and Sterling lost all of its advantage and more. Support is seen at 1.9495 area with initial resistance at 1.9580. Offers are touted between 1.9580 and 1.9600 with stops above 1.9625. To the downside the stops reportedly run in at 1.9490 through 1.9460.
The Dollar side of the equation shows a market adding to last week's gains. Interest rate uncertainty to keep the majors active into the turn although Yen factors could dominate early in the week. US c/a data provides the only interest this session. A rise in the deficit expected for the Q3.
Yen Outlook (18th December 2006)
JPY consolidated after the moves seen late last week. Focus is turned to tomorrow's BOJ policy announcement, leaving prices range bound. USD/JPY was unable to sustain a move higher overnight and this left a defensive tone in European trade. USD/JPY tested the downside but never extended beyond 117.70, where good size bid interest was noted out of Asia.
Importer demand and light institutional investor demand was seen. The pair spent the remainder of the session hovering around 117.80. EUR/JPY traded on a supportive footing after recovering from Friday's 153.80 lows. The pair struggled to trade beyond 154.70 amid reports of light selling from leverage funds and speculative accounts looking to pare back exposure ahead of tomorrow's BOJ meeting.
No change in BoJ policy is eyed when the Policy Board makes its decision tomorrow, the majority of Tokyo pundits still see action in January, and this may help to temper further JPY selling. USD/JPY sees Japanese exporters offers from 118.15/20 increasing in size from 118.30 up to 118.50. EUR/JPY is underpinned ahead of 154.00, yet offers are noted from 154.70/75 and ahead of 155.00.
Importer demand and light institutional investor demand was seen. The pair spent the remainder of the session hovering around 117.80. EUR/JPY traded on a supportive footing after recovering from Friday's 153.80 lows. The pair struggled to trade beyond 154.70 amid reports of light selling from leverage funds and speculative accounts looking to pare back exposure ahead of tomorrow's BOJ meeting.
No change in BoJ policy is eyed when the Policy Board makes its decision tomorrow, the majority of Tokyo pundits still see action in January, and this may help to temper further JPY selling. USD/JPY sees Japanese exporters offers from 118.15/20 increasing in size from 118.30 up to 118.50. EUR/JPY is underpinned ahead of 154.00, yet offers are noted from 154.70/75 and ahead of 155.00.
Euro Outlook (18th December 2006)
Into the new week and volumes looked muted from the out-set as dealers talked of the market moving into pre-X-Mas mood. Bids into 1.3090 propped EUR/USD for the majority of the European morning while cumulative supply into 1.3110/15 capped the topside. More sellers 1.3125 & 1.3135.
Looking ahead, US Q3 Current Account data is set for release into the North American session (13:30 GMT). A widening to USD 225Bln is looked for and the data still holds the propensity to hurt the US unit despite its fight-back in the wake of the soft CPI headline. Dealers' see 1.3050/60 bids as being fortified by reserve managers while 1.3030 is seen as the key downside trigger where the bulk of the model market will begin flipping to the short-side.
Add to this, the solid technical support at this level and 1.3000/30 remains key. Into tomorrow and the markets focus will return to Germany with the unveiling of the latest IFO report. In the wake of the upward trajectory of the ZEW some have suggested that a fresh 15-Year high will be seen in the index while many economists still opt for a degree of consolidation.
Looking ahead, US Q3 Current Account data is set for release into the North American session (13:30 GMT). A widening to USD 225Bln is looked for and the data still holds the propensity to hurt the US unit despite its fight-back in the wake of the soft CPI headline. Dealers' see 1.3050/60 bids as being fortified by reserve managers while 1.3030 is seen as the key downside trigger where the bulk of the model market will begin flipping to the short-side.
Add to this, the solid technical support at this level and 1.3000/30 remains key. Into tomorrow and the markets focus will return to Germany with the unveiling of the latest IFO report. In the wake of the upward trajectory of the ZEW some have suggested that a fresh 15-Year high will be seen in the index while many economists still opt for a degree of consolidation.
Friday, December 15, 2006
EUR/USD: Intraday Longs Running for Exits
Tales of woe are making the rounds as many dealers who exited long EUR/USD positions below 1.3130 this morning jumped back in to the market in the 1.3170s only to see EUR/USD fall all the way back into the 1.3120s. Year-end illiquidity has not been much of an issue until now, but dealers expect that we could begin to see players drop by the wayside into year-end as the near-term trend becomes increasingly less clear.
US yields continue to drop but traders look to be more inclined to trim longs into strength than add to them today. 1.3100 support is now more crucial than ever, with more stops building from newly added-to positions eyed below that level. 1.3065 is modest support below the market, the 50% retracement of the rally from 1.2765.
US yields continue to drop but traders look to be more inclined to trim longs into strength than add to them today. 1.3100 support is now more crucial than ever, with more stops building from newly added-to positions eyed below that level. 1.3065 is modest support below the market, the 50% retracement of the rally from 1.2765.
FX OPTIONS: USD/JPY Vols Edge Lower In The Front End
USD/JPY vols edge lower in the front end of the curve, with the 1-mth indicating 6.45/6.75 vs 6.60/6.90 in the European. The negative dollar reaction to the US data has not changed vol sentiment, with spot still in familiar territory. Currently spot sits in the middle of the weekly range, where the market is heavily congestion with strikes.
Expiries are noted between 117.00 and 117.45 today and a number strikes changed hands between 117.60 and 118.00 for next week's trade. As a result of this interest vols are expected to drift lower unless spot can revert to levels below the 117.00 handle. Risk reversals remain stable, with the 1-mth still indicating a modest skew for JPY calls over at 0.60/0.90.
Expiries are noted between 117.00 and 117.45 today and a number strikes changed hands between 117.60 and 118.00 for next week's trade. As a result of this interest vols are expected to drift lower unless spot can revert to levels below the 117.00 handle. Risk reversals remain stable, with the 1-mth still indicating a modest skew for JPY calls over at 0.60/0.90.
USD/CHF: So-Called "Technical" EUR/USD Sales Add Support
Those scouring the bottom of the pan for reasons behind the latest EUR/USD sales have come up with "technical sales". The slightly upbeat US IP data combined with orders linked to the week-end onset are cited behind USD/CHF volatility but it is the Euro sales that are supporting the USD once more. USD/CHF has traded back through 1.2150 with the North American 1.2190 comfort-zone now eyed above.
US TECHS: S&P Breaking Out of Bull-Flag Pattern
Daily charts for Mar S&P had been developing a bull-flag pattern for the past few weeks and Thursday saw solid follow through on upside of that pattern. With this morning's high of 1444 the pattern's measured-move objective has been achieved but the larger point is that the pattern of higher highs and higher lows is firmly intact and price action is giving no indications that the rally from the summer lows is coming to an end.
The bullish signal from Trend Intensity has been reestablished on this recent strength although this is not an ideal level from which to start a new signal. This one-way move in the market for the past few months is most clearly seen on longer-term charts as the weekly time frame shows a straight shot higher with very few signs of weakness. In looking at the monthly chart of the cash index the move from early 2005 could be viewed as a breakout from a bullish pattern that has the possibility of reaching the all time highs. That's a longer time frame than IFR's usual focus but it should be kept in mind as a supportive element.
The bullish signal from Trend Intensity has been reestablished on this recent strength although this is not an ideal level from which to start a new signal. This one-way move in the market for the past few months is most clearly seen on longer-term charts as the weekly time frame shows a straight shot higher with very few signs of weakness. In looking at the monthly chart of the cash index the move from early 2005 could be viewed as a breakout from a bullish pattern that has the possibility of reaching the all time highs. That's a longer time frame than IFR's usual focus but it should be kept in mind as a supportive element.
EUR/USD: Cross Sales Prompt Set-Back
EUR/USD slipped back to 1.3150 with very heavy sales of EUR/JPY getting the blame from dealers. Upbeat TIC data and a slight improvement in industrial production are contributing a bit to the USD recovery. 1.3130 should contain dips near-term while resistance lies at 1.3185/95.
GBP/USD: November Industrial Data Aids US Unit
November US Industrial Production data has come to the rescue of the US Dollar as the +0.2% monthly headline (Vs the pvs Unch) sends cable heading lower once more. Trading has hit 1.9630 in the pullback as trading works back into the previous intraday range as the USD elicits a modicum more support. A run back at the highs is expected by London players while US dealers eye a return to the 1.9557 lows and a run at the sub-1.9550 stops.
US ECON: Industrial Output Rises 0.2% but Oct Revised Lower
* IP Rises 0.2% but October's 0.2% revised lower to no change; a wash
* Cap U falls to 81.8% from 82.2%, disinflationary
* Factory use rate lower as autos production slows dramatically
* Cap U falls to 81.8% from 82.2%, disinflationary
* Factory use rate lower as autos production slows dramatically
Swiss Outlook (15th December 2006)
Into European trading and Swiss rates at the mid-point of 2.0% were still seen as an attractive level to fund carry interest. Add to this the Swiss player talking of renewed appetite for risk (their in-house index hit -0.91 from a previous -0.46) and the Dollar was always likely to find fresh support.
However, it was EUR/USD that triggered the USD/CHF break higher and spot was forced back to 1.2200 as the Euro pair nudged back towards 1.3100. Swiss data was overlooked as Retail Sales resulted in a robust outcome of +0.6% Y/Y in October. Looking ahead, the focus remains on inflation, with US CPI set for release at 13:30 GMT. Economists expect the November headline to come in at +0.2% with core also seen +0.2%.
Following this, October Capital Inflow data and November Industrial Production are set for unveiling at 14:00 & 14:15 GMT. Should the data support the Dollar then a break into the 1.22's will eye the stops above 1.2205/10 with bulls then tipped to eye a run at 1.2215 technical resistance and the standing supply tipped on approach to 1.2280/60. 1.2215 represents the 50.0% Fibo of the sell-off from 1.2541 to 1.1883.
However, it was EUR/USD that triggered the USD/CHF break higher and spot was forced back to 1.2200 as the Euro pair nudged back towards 1.3100. Swiss data was overlooked as Retail Sales resulted in a robust outcome of +0.6% Y/Y in October. Looking ahead, the focus remains on inflation, with US CPI set for release at 13:30 GMT. Economists expect the November headline to come in at +0.2% with core also seen +0.2%.
Following this, October Capital Inflow data and November Industrial Production are set for unveiling at 14:00 & 14:15 GMT. Should the data support the Dollar then a break into the 1.22's will eye the stops above 1.2205/10 with bulls then tipped to eye a run at 1.2215 technical resistance and the standing supply tipped on approach to 1.2280/60. 1.2215 represents the 50.0% Fibo of the sell-off from 1.2541 to 1.1883.
Sterling Outlook (15th December 2006)
UK names saw value from the open and squeezed Cable to 1.9640 from 1.9600 and there was also talk of sizeable US bids just under the figure, running down to the 1.9580 Thursday low. Early direction proved to be a slight of hand with the real move of the session waiting in the wings.
EUR/USD had a run for stops under 1.3100 and the resulting drop to 1.3100 helped drag Cable through a mixture of bids and stops at 1.9600. Lows of 1.9557 recorded before small bids emerged. Stops are touted under 1.9540 and 1.9520 with some London accounts seeing near-term risk to 1.9475. Offers are reportedly stacking up from 1.9650 through 1.9680 with topside stops not emerging until 1.9730. M&A activity still an issue but through GBP/JPY only as the Japan Tobacco-Gallahar deal was announced to be a cash only affair.
News that the SFO were dropping the 2-year investigation into BAE's GBP 10 yard Saudi fighter deal also provided a degree of Sterling support but Dollar pep has been the dominant theme through Europe. GBP/USD Support is now at 1.9560 with a minor resistance at 1.9590. Still feel that Stg is building for another significant rally.
EUR/USD had a run for stops under 1.3100 and the resulting drop to 1.3100 helped drag Cable through a mixture of bids and stops at 1.9600. Lows of 1.9557 recorded before small bids emerged. Stops are touted under 1.9540 and 1.9520 with some London accounts seeing near-term risk to 1.9475. Offers are reportedly stacking up from 1.9650 through 1.9680 with topside stops not emerging until 1.9730. M&A activity still an issue but through GBP/JPY only as the Japan Tobacco-Gallahar deal was announced to be a cash only affair.
News that the SFO were dropping the 2-year investigation into BAE's GBP 10 yard Saudi fighter deal also provided a degree of Sterling support but Dollar pep has been the dominant theme through Europe. GBP/USD Support is now at 1.9560 with a minor resistance at 1.9590. Still feel that Stg is building for another significant rally.
Yen Outlook (15th December 2006)
JPY was mixed in the European morning after the Tankan report came in as expected. The Asian market felt there was enough in the Tankan report to increase the chances of a January hike in rates. The market reaction was muted and the European morning saw currency pairs retain the recent themes.
The JPY crosses saw good Japanese buying, with investment managers out of Asia reportedly buying CAD/JPY, ZAR/JPY, PLN/JPY and NOK/JPY. The interest helped to underpin EUR/JPY, while GBP/JPY benefited on Japan Tobacco's bid for UK's Gallaher. USD/JPY was helped higher amid the cross flows, yet also maintained the supportive tone amid positive dollar sentiment. The pair cleared 118.15/20 offers and stops at 118.25 gave way. There was no follow through but the pair stayed bid around 118.20 after EUR/USD broke down to challenge the low 1.31's.
The afternoon focus will remain on the dollar amid a slew of US data. US CPI is due, along with industrial production and TIC data. The data will offer a snapshot of where the US is in the business cycle and whether inflation is under control. The dollar looks like it wants to go higher still into the weekend.
The JPY crosses saw good Japanese buying, with investment managers out of Asia reportedly buying CAD/JPY, ZAR/JPY, PLN/JPY and NOK/JPY. The interest helped to underpin EUR/JPY, while GBP/JPY benefited on Japan Tobacco's bid for UK's Gallaher. USD/JPY was helped higher amid the cross flows, yet also maintained the supportive tone amid positive dollar sentiment. The pair cleared 118.15/20 offers and stops at 118.25 gave way. There was no follow through but the pair stayed bid around 118.20 after EUR/USD broke down to challenge the low 1.31's.
The afternoon focus will remain on the dollar amid a slew of US data. US CPI is due, along with industrial production and TIC data. The data will offer a snapshot of where the US is in the business cycle and whether inflation is under control. The dollar looks like it wants to go higher still into the weekend.
Euro Outlook (15th December 2006)
Into European trading and EUR/USD had managed to stabilize above 1.3130. However, the muted Asian action may not have been a fair reflection as Japan awaited its Tankan results & the US delegation visit to China kept interest muted and pricing tight. Europe had a peak at the topside but the push to 1.3174 failed to be sustained and the move back down saw sales increase.
Technical support into 1.3130 and bids into this level were then quickly absorbed and lumpy model stops were tripped in the break lower as bears eyed a run at 1.3090. However, central bank & assorted regional interest into 1.3105 propped before the release of EZ HICP underpinned the Euro. Looking ahead, with core inflation in the Euro Zone seen as "under control" the support for the Euro may not last and the Dollar rally could continue as some eye a run at 1.30 ahead of the turn.
Staying on inflation, US CPI is set for release at 13:30 GMT with the November headline expected at +0.2% with core also seen +0.2%. Following this, October Capital Inflow data and November Industrial Production are set for unveiling at 14:00 & 14:15 GMT.
Technical support into 1.3130 and bids into this level were then quickly absorbed and lumpy model stops were tripped in the break lower as bears eyed a run at 1.3090. However, central bank & assorted regional interest into 1.3105 propped before the release of EZ HICP underpinned the Euro. Looking ahead, with core inflation in the Euro Zone seen as "under control" the support for the Euro may not last and the Dollar rally could continue as some eye a run at 1.30 ahead of the turn.
Staying on inflation, US CPI is set for release at 13:30 GMT with the November headline expected at +0.2% with core also seen +0.2%. Following this, October Capital Inflow data and November Industrial Production are set for unveiling at 14:00 & 14:15 GMT.
Thursday, December 14, 2006
USD/JPY: Holds Firm In The Wake Of EUR/USD's Down Turn
USD/JPY holds firm in the wake of EUR/USD's down turn. USD/JPY recovered from the 117.30 area and moved back towards 117.60 but has been unable to overcome 117.65 offers. These have capped since the Asian afternoon, with Japanese exporters reportedly on the top.
Further selling interest is noted at 117.75 and towards the 117.90/00 region. The heavier EUR/USD tone could signal further dollar adjustment in the European afternoon. Import prices and claims data is on the data slate for markets to focus on but it will be tomorrow's US CPI and US TIC data which will drive action into the holiday period.
USD/JPY has the Tankan report to contend with at the start of the Asian session. Recent Japanese press reports suggest that rates will remain steady in Japan regardless of the Tankan headline. A market driven by yield should support prices in the near-term, with focus still on 118.50 especially with US rates on hold for the foreseeable future and Japan favouring steady near-term policy.
Further selling interest is noted at 117.75 and towards the 117.90/00 region. The heavier EUR/USD tone could signal further dollar adjustment in the European afternoon. Import prices and claims data is on the data slate for markets to focus on but it will be tomorrow's US CPI and US TIC data which will drive action into the holiday period.
USD/JPY has the Tankan report to contend with at the start of the Asian session. Recent Japanese press reports suggest that rates will remain steady in Japan regardless of the Tankan headline. A market driven by yield should support prices in the near-term, with focus still on 118.50 especially with US rates on hold for the foreseeable future and Japan favouring steady near-term policy.
US ECON: Data on Tap - Import Prices and Claims
[Import Prices (Nov)] Even after back-to-back declines of 2.0% in September and October, IFR estimates import prices declined a further 0.5% in November. Look for a fall in prices for imported capital goods (mostly autos, parts and engines) to more than offset a small rise in the fuels index. Net of petroleum, the import price index fell by 0.6% in October though net of fuels (a subtle but important distinction) import prices fell only 0.1% in October. Representing 78% of all commodities, the ex-fuels index is supposed to rise by 0.2% in November, keeping the year-ago gain at 2.5% and providing enough imported inflation to wave the Fed off from a nearby rate cut.
[Jobless Claims (Dec 9)] IFR anticipates further consolidation in initial claims to 320k in the December 9 week. A week earlier, claims posted a 34k drop to 324k, merely pulling back from their anomalous rise of 35k in the prior week. There was a 1k upward revision to 358k in the prior week. Of mild concern though likely due to the same seasonal distortion that goosed first-time filers, the number of repeat filers in the November 25 week rose 57k to 2.524 mln, the highest level since January.
[Jobless Claims (Dec 9)] IFR anticipates further consolidation in initial claims to 320k in the December 9 week. A week earlier, claims posted a 34k drop to 324k, merely pulling back from their anomalous rise of 35k in the prior week. There was a 1k upward revision to 358k in the prior week. Of mild concern though likely due to the same seasonal distortion that goosed first-time filers, the number of repeat filers in the November 25 week rose 57k to 2.524 mln, the highest level since January.
UK ECON: BoE's Sentence Sees Temporary Rise In CPI-Reuters
A temporary rise in inflation but then a move down to 2.5% in the second half of 2007, this the view expressed by the Bank's Sentence within a paper, according to the Reuters newsier.
GBP/USD: Overshoots Support At 1.9630 Then Lifts
The UK market was looking for an excuse to book profits and failure in the Pound to rise on better than expected data gave the nod. Tired longs have bailed out, which has sent Cable down through support points at 1.9650 and 1.9630.
The 1.9650 break looks to have tripped stops and brought about a spike to 1.9625. Bids have emerged but there is feeling that sub-1.96 levels will be seen and possibly this afternoon. There is talk of small bids at 1.9620, which might slow further weakness.
The 1.9650 break looks to have tripped stops and brought about a spike to 1.9625. Bids have emerged but there is feeling that sub-1.96 levels will be seen and possibly this afternoon. There is talk of small bids at 1.9620, which might slow further weakness.
EUR/USD: Stops Run In Break Into 1.3190's
Sell-stops in EUR/USD have been in the push below 1.3200 and as these fuel the drop below 1.3190, selling has accelerated. However, Hong Kong interest into the 1.3185 lows continues to support dips and the earlier talk of reserve manager interest on dips should help support the Euro.
USD/CHF: Breaks Into 1.21's, Stops Seen Into 1.2120's
Standing offers into the 1.2110 have capped the initial pop into the 1.21's after spot finally managed to break above 1.2090. Stops are said to have been rinsed in the move but better sized orders are said to be in place should a break of 1.2115 be seen.
Swiss Outlook (14th December 2006)
Today the SNB hiked their target 3-Month LIBOR bands but downwardly revised their inflation targets. Markets had priced in a 25bp hike in Q4 but those who had looked for a more aggressive 50bp move looked disappointed in the wake more "gradual" move.
The Franc had looked supported into the release but in the wake of the more moderate increase and the cutting of the 2007 outlook from +1.1%, to just +0.4%, the CHF was sold. USD/CHF rallied into the 1.21's to remove stops all the way up to the 1.2131 intraday high while EUR/CHF finally broke its recent range top. Bulls here now cast an eye on the 1.6000 level after the SNB Vice-Chairman, Hildebrand, noted that carry trades play little part in the EUR/CHF rates.
Roth, however, was more reflective on FX; suggesting real exchange rates remain at close to their 2000 level. The CHF may be in for a torrid ending to 2006 but some remain upbeat on the potential for one last rate hike (Q1 2007) before the Swiss central bank moves into a pause period.
The Franc had looked supported into the release but in the wake of the more moderate increase and the cutting of the 2007 outlook from +1.1%, to just +0.4%, the CHF was sold. USD/CHF rallied into the 1.21's to remove stops all the way up to the 1.2131 intraday high while EUR/CHF finally broke its recent range top. Bulls here now cast an eye on the 1.6000 level after the SNB Vice-Chairman, Hildebrand, noted that carry trades play little part in the EUR/CHF rates.
Roth, however, was more reflective on FX; suggesting real exchange rates remain at close to their 2000 level. The CHF may be in for a torrid ending to 2006 but some remain upbeat on the potential for one last rate hike (Q1 2007) before the Swiss central bank moves into a pause period.
Sterling Outlook (14th December 2006)
A fairly busy morning for the Sterling market with data releases and BoE reports for traders to digest. At the onset there was talk in London of a bull market that was displaying signs of fatigue and that it would not take much for the profit takers to alter the landscape. Cable opened in London at 1.9655 having bumped along sideways overnight within a 1.9650 to 1.9680 range.
Sellers were primed but data releases needed to be negotiated first. November retail sales came in above forecast at +0.3% on the month and +3.2% on the year, and this despite fears that the November rate hike might stifle consumer activity. Sterling climbed to 1.9692 from 1.9665 but soon lost its hold and fell quickly back to 1.9665. Sideways to slightly firmer action then seen into the 11:00 GMT CBI numbers.
Orders surprised with an improvement to -5 from -6 but export orders fell to -5 from +3 as the high Pound impacted activity. The market fell quickly through support and stops at 1.9650, took out further support at 1.9630 to reach 1.9625. Risk seen of sub-1.96 levels but small bids are touted in the 1.9620-1.9630 area.
Sellers were primed but data releases needed to be negotiated first. November retail sales came in above forecast at +0.3% on the month and +3.2% on the year, and this despite fears that the November rate hike might stifle consumer activity. Sterling climbed to 1.9692 from 1.9665 but soon lost its hold and fell quickly back to 1.9665. Sideways to slightly firmer action then seen into the 11:00 GMT CBI numbers.
Orders surprised with an improvement to -5 from -6 but export orders fell to -5 from +3 as the high Pound impacted activity. The market fell quickly through support and stops at 1.9650, took out further support at 1.9630 to reach 1.9625. Risk seen of sub-1.96 levels but small bids are touted in the 1.9620-1.9630 area.
Yen Outlook (14th December 2006)
A quiet European session and a reluctance to extend JPY shorts ahead of the Tankan report clipped JPY losses. USD/JPY drifted lower early amid good selling from a Japanese securities house and a clearer. The pair fell from 117.65 but was supported around 117.25/30 due to options support and standing bid interest from real money names and importers.
Upside momentum waned due to corrective price action in the JPY crosses. AUD/JPY experienced profit taking and EUR/JPY also saw decent selling after two failed attempts on 155.50. The cross drifted inside the 155.00-50 range, while USD/JPY hovered around the mid 117's. Option strikes may influence amid a slew of 155.00 interest in EUR/JPY and 116.80-117.45 USD/JPY strikes over the next couple of sessions.
Investment trust demand should provide a supportive backdrop for USD/JPY and EUR/JPY going forward, with a wave of launches due over the next week and into the New Year. A strong Tankan release could offer the potential for a correction before the uptrend gathers fresh momentum. However, it is widely expected that Japanese rates will remain on hold even with a strong reading.
Upside momentum waned due to corrective price action in the JPY crosses. AUD/JPY experienced profit taking and EUR/JPY also saw decent selling after two failed attempts on 155.50. The cross drifted inside the 155.00-50 range, while USD/JPY hovered around the mid 117's. Option strikes may influence amid a slew of 155.00 interest in EUR/JPY and 116.80-117.45 USD/JPY strikes over the next couple of sessions.
Investment trust demand should provide a supportive backdrop for USD/JPY and EUR/JPY going forward, with a wave of launches due over the next week and into the New Year. A strong Tankan release could offer the potential for a correction before the uptrend gathers fresh momentum. However, it is widely expected that Japanese rates will remain on hold even with a strong reading.
Euro Outlook (14th December 2006)
Option strikes at 1.3200 & 1.3250 have been noted every day so far this week. Today is no exception but it is the larger 1.3290 digital expiry that dominated early mutterings as the EUR 15Mln payout kept many wary that spot could be forced higher later in the day (into the NY cut at 15:00 GMT).
However, it was the 1.3200's that were in focus into the North American open as spot looked to break lower. Stops were removed in the push below 1.3190 (1.3182 the low) but large buying from Hong Kong & other reserve interest has stalled any deeper sell-off. As a result the price is now consolidating around 1.3190/95 with London dealers seeing 1.3130 support as key to the downside. Looking ahead, Import & Export numbers from the US form the early North American event-risk.
The November index is expected to produce a flat import figure on the month with exports set to increase by +0.2% M/M. Weekly jobs data is also set for release at 13:30 GMT, however, at present the increased short- term demand for the US unit is said to have been generated from the oil price rally from the OPEC cut & the futures market investigation.
However, it was the 1.3200's that were in focus into the North American open as spot looked to break lower. Stops were removed in the push below 1.3190 (1.3182 the low) but large buying from Hong Kong & other reserve interest has stalled any deeper sell-off. As a result the price is now consolidating around 1.3190/95 with London dealers seeing 1.3130 support as key to the downside. Looking ahead, Import & Export numbers from the US form the early North American event-risk.
The November index is expected to produce a flat import figure on the month with exports set to increase by +0.2% M/M. Weekly jobs data is also set for release at 13:30 GMT, however, at present the increased short- term demand for the US unit is said to have been generated from the oil price rally from the OPEC cut & the futures market investigation.
Wednesday, December 13, 2006
USD/JPY: Breaks 117.20 On US Data, 117.50 Eyed
Option selling linked to the 117.00 & 117.30 expiries has been negated in the wake of the US data. November Retail Sales have aided the Dollar and USD/JPY has broken above the previous 117.20 cap. 117.50 is now eyed for the move higher before the next batch of decent sellers will be found. Stops are noted above 117.55 that will fuel the rally should these be removed.
GBP/USD: Move Above 1.97 Ended By US Sales Pick Up
A brief return to levels above 1.9700 with a 1.9730 high recorded earlier in the session and a couple of dips and bounces through the figure ahead of the US data. A better than expected return for the retail sales number has knocked the Pound back to 1.9675 and profit taking looks to be shaping up a deeper pullback. A drop to 1.9580 possible as the move gathers pace.
EUR/USD: Greenback Rallies as Retail Sales Surprise on Topside
EUR/USD has come lower in its range as US retail sales rose strongly in November and October sales were revised higher. Sovereign bids have helped temper dips the last several sessions and dealers will be very tentative about selling EUR/USD aggressively. Stops are eyed in the 1.3210 level with longs hoping for protection from Russia, China and OPEC nations. EUR/USD trades at 1.3215 as US yields rise.
USD/CHF: 1.2050 Finally Hit As Retails Beat Expectations
US Retail Sales beat expectations in November, hitting +1.0% Vs the previous -0.1% reading (revised from -0.4%). The Dollar has popped higher in the wake of the data and USD/CHF has finally hit 1.2050. Short-term & spec players looked to have bailed in the wake of the move higher and this profit taking should now weigh on the pair in the short-term.
US ECON: Nov Retail Sales Strong +1.0%, Ex-Autos +1.1%
Retail sales in November far exceeded expectations, easily topping the high forecast in IFR's weekly economist survey. Sales at retail and food stores rose by 1.0% in November, while excluding autos, sales rose by 1.1%. That's the highest headline sales growth since July (+1.4%) but the highest ex-autos rate since January (2.7%).
GBP/USD: Consolidates Near The Highs, EUR/GBP Also Steady
Large stops remain noted above the 1.9730 level where cable failed following the post-UK data rally. GBP/USD continues to hold in the 1.9700's with bidding into the figure propping pullbacks while Sterling meditates and looks for the momentum to make another run at the stops.
US data is set for release at 13:30 GMT and the retail data is expected to generate the next short-term bias for the North American morning. Technicians may talk of 35-Year trend-line breaks but into the year-end and the focus will remain on a run at 2.0000. UK Clearers see a break above 1.9730 as a topside trigger for a return to 1.9850 but in the medium-term the selling into the 2.00 area will prove significant.
Against the Euro, the Pound has managed to sustain its strength following the earlier UK data. EUR/GBP dropped to 0.6725 in the wake of the release but support into this level is yet to capitulate with sellers preferring to take on shorts into the 0.6730's.
US data is set for release at 13:30 GMT and the retail data is expected to generate the next short-term bias for the North American morning. Technicians may talk of 35-Year trend-line breaks but into the year-end and the focus will remain on a run at 2.0000. UK Clearers see a break above 1.9730 as a topside trigger for a return to 1.9850 but in the medium-term the selling into the 2.00 area will prove significant.
Against the Euro, the Pound has managed to sustain its strength following the earlier UK data. EUR/GBP dropped to 0.6725 in the wake of the release but support into this level is yet to capitulate with sellers preferring to take on shorts into the 0.6730's.
GBP/USD TECHS: Break Of 34-Year Trendline Key For L/T Bulls
Given the recent strength seen in GBP/USD it is worth noting that price action has broken a 34-year trendline on the yearly charts. This line is drawn from the 1972 high at 2.6440 touching 1980 (2.4540), 1981 (2.4270), 2004 (1.9550) and 2005 highs at 1.9325.
Longer term technical charts are always slightly more ambigous but the break and monthly close above this line in November at 1.8955 and 1.9661 respectively should be an encouraging signal for longer-term bull players who continue to favor a move back above the 2.00 mark.
Longer term technical charts are always slightly more ambigous but the break and monthly close above this line in November at 1.8955 and 1.9661 respectively should be an encouraging signal for longer-term bull players who continue to favor a move back above the 2.00 mark.
EUR/USD: Hopes High that Retail Sales will Provide Catalyst
After injecting some subtle dovish modifiers (and acknowledging the blindingly obvious) into yesterday's FOMC statement, the market will be particularly attuned to a weak retail sales figure today and once again rush to price in rate cuts from the Fed if it disappoints.
Economists expect a headline rise of 0.2% with ex-autos rising 0.3%. Gasoline prices have stabilized so should not be much of a factor this month. Sovereign sellers remain rumored on rallies toward 1.3290/1.3300 while buyers of the same ilk are expected once again in the 1.3220/30. EUR/USD trades at 1.3263.
Economists expect a headline rise of 0.2% with ex-autos rising 0.3%. Gasoline prices have stabilized so should not be much of a factor this month. Sovereign sellers remain rumored on rallies toward 1.3290/1.3300 while buyers of the same ilk are expected once again in the 1.3220/30. EUR/USD trades at 1.3263.
USD/CHF: Highs Again Prove Unsustainable, EUR/CHF Break 1.5950
USD/CHF spiked to a fresh session high as EUR/CHF ran stops above 1.5950. However, with 1.2035 printed and the action dying down in the cross the Dollar pair has again found that higher levels are proving unsustainable. Easing lower once more the comfort of the 1.2020's beckon but bulls remain adamant that a serious push for 1.2050 will be seen later in the day.
FX OPTIONS: EUR/USD Vols Extend Losses, Large Topside Barrier
EUR/USD vols extend losses, with the 1-mth getting given at 7.2% to show 7.05/7.25. Vols have traded on the heavier side after a largely muted reaction to yesterday's FOMC minutes. Exotic option supply has added to the heavier vol tone, with reports of a large 1.3290 barrier expiring tomorrow.
The payout is reportedly EUR 15 million and fueling gamma activity and delta re-hedging. Option defensive sellers are noted in spot from the 1.3270/75, while stops are seen around 1.3305/10. Further expiries are seen at 1.3250 and 1.3200 today.
The payout is reportedly EUR 15 million and fueling gamma activity and delta re-hedging. Option defensive sellers are noted in spot from the 1.3270/75, while stops are seen around 1.3305/10. Further expiries are seen at 1.3250 and 1.3200 today.
Sterling Outlook (13th December 2006)
Cable rallied by more than a quarter-cent to 1.9725 offers after the 09:30GMT disclosure of an unexpected 5.7k decline in November UK claimant count unemployment. A 3.5k rise was expected. October's ILO jobless rate also came in at a lower-than-expected 5.5%, with annualized earnings rising by an above-forecast 4.1% in the three months to October.
The above-mentioned data is further good news for UK rate hawks touting another 25bp base rate hike to 5.25% in February, following yesterday's unveiling of higher-than-expected UK November CPI inflation. Touted stops above 1.9730 could spur fresh upward momentum towards 1.9800 if tripped. 1.9849 was the December 1, 14-year high. 1.9670 was the early Europe pre-UK unemployment and earnings data low.
1.9650 is a support point below. Today's key US event risk is the 13:30GMT release of November retail sales figures. Headline sales are forecast +0.1% m/m, ex-autos +0.3% m/m. UK November retail sales will be revealed at 09:30GMT tomorrow. The CBI's industrial trends survey ensues at 11:00GMT.
The above-mentioned data is further good news for UK rate hawks touting another 25bp base rate hike to 5.25% in February, following yesterday's unveiling of higher-than-expected UK November CPI inflation. Touted stops above 1.9730 could spur fresh upward momentum towards 1.9800 if tripped. 1.9849 was the December 1, 14-year high. 1.9670 was the early Europe pre-UK unemployment and earnings data low.
1.9650 is a support point below. Today's key US event risk is the 13:30GMT release of November retail sales figures. Headline sales are forecast +0.1% m/m, ex-autos +0.3% m/m. UK November retail sales will be revealed at 09:30GMT tomorrow. The CBI's industrial trends survey ensues at 11:00GMT.
Yen Outlook (13th December 2006)
JPY crosses were the main influence on the European market, with continued investment flows helping to underpin USD/JPY and the other dollar majors. Investment trust launches encouraged heavy flows. EUR/JPY traded on a supportive footing despite moving off the 155.50 record high.
The pullback was limited to 155.25, yet ongoing bid interest underpinned. Standing offers from exporters and reports of sovereign name activity kept the topside in check. USD/JPY climbed back above 117.00 at the start of the European session, yet struggled ahead of 117.20, where sovereign names are reportedly sitting. Middle Eastern selling interest was also tipped but this failed to dent the pair, which held ahead of 117.00 for a large part of the session. Large option strikes at 117.00 over the next couple of sessions are expected to limit action here.
The JPY crosses should continue to shape near-term direction, with GBP/JPY, CHF/JPY, AUD/JPY and EUR/JPY all benefiting. Friday's Tankan report may reduce the pace of JPY weakness but this trend is well developed while Japanese rates remain off the table. EUR/JPY stops eyed at 155.50 and 117.30 USD/JPY interest is noted.
The pullback was limited to 155.25, yet ongoing bid interest underpinned. Standing offers from exporters and reports of sovereign name activity kept the topside in check. USD/JPY climbed back above 117.00 at the start of the European session, yet struggled ahead of 117.20, where sovereign names are reportedly sitting. Middle Eastern selling interest was also tipped but this failed to dent the pair, which held ahead of 117.00 for a large part of the session. Large option strikes at 117.00 over the next couple of sessions are expected to limit action here.
The JPY crosses should continue to shape near-term direction, with GBP/JPY, CHF/JPY, AUD/JPY and EUR/JPY all benefiting. Friday's Tankan report may reduce the pace of JPY weakness but this trend is well developed while Japanese rates remain off the table. EUR/JPY stops eyed at 155.50 and 117.30 USD/JPY interest is noted.
Euro Outlook (13th December 2006)
In the wake of the FOMC EUR/USD broke above Fibo resistance at 1.3274 but the price failed to clear 1.3300. As a result, action since has been consolidative with the stops in the 1.3290's intact (albeit threatened). Holding near the 1.3275 mark for the majority of Asian trading the fresh record highs in EUR/JPY underpinned trading with German & French data overlooked into early Europe.
Profit-taking against the Yen also weighed into Europe but real money demand into 1.3260 propped the downside. However, this bidding was soon filled and spot dipped back towards 1.3250 before option related buyers kicked the pair higher once more. 1.3253 marks the intraday low with the gamma related interest linked to expiries at 1.3250 at the NY cut. Also set to mature at 15:00 GMT are a batch of large 1.3200 strikes.
Looking ahead, US November Retail Sales at 13:30 GMT are eyed as the near-term propellant for further volatility with more stop loss orders found on a break above 1.3305. Below 1.3250, reserve managers and other official interest is tipped on the books into 1.3230.
Profit-taking against the Yen also weighed into Europe but real money demand into 1.3260 propped the downside. However, this bidding was soon filled and spot dipped back towards 1.3250 before option related buyers kicked the pair higher once more. 1.3253 marks the intraday low with the gamma related interest linked to expiries at 1.3250 at the NY cut. Also set to mature at 15:00 GMT are a batch of large 1.3200 strikes.
Looking ahead, US November Retail Sales at 13:30 GMT are eyed as the near-term propellant for further volatility with more stop loss orders found on a break above 1.3305. Below 1.3250, reserve managers and other official interest is tipped on the books into 1.3230.
Tuesday, December 12, 2006
FOREX: ECB Reserves Increase EUR200 mln in Dec 8 Week
ECB reserves have increased by EUR200mln in the week of Dec 8th with reserves now at EUR152.6 bln. Gold reserves have declined by EUR71 mln due to sales from two Eurosystem central banks. Gold reserves have now declined for 107 out of the last 113 weeks. EUR/USD trades at 1.3235 currently.
USD/JPY: Struggles To Move Higher
USD/JPY struggles to move higher after getting a boost from the better than expected US trade deficit. The headline number came in better than expected at USD 58.87 billion, helping USD/JPY up to the 117.15 level.
Follow through has been well contained amid standing offers from 117.20 up 117.30. Exporter interest has been a feature of today's session but it is sovereign activity that has been behind USD/JPY's stubbornness on the topside. Commercial activity featured in yesterday's session and further interest has managed to contain the pair despite an improving technical picture.
Elsewhere, the JPY crosses retain a bid tone, with GBP/JPY, EUR/JPY, AUD/JPY and NZD/JPY outperforming. EUR/JPY has managed to record a 155.11 high, yet a congestion of profit take orders and Japanese orders flows is capping further gains. 155.20 remains a near-term pivot point ahead of an extended run on 156.75, which is the 2%moving average band top.
Follow through has been well contained amid standing offers from 117.20 up 117.30. Exporter interest has been a feature of today's session but it is sovereign activity that has been behind USD/JPY's stubbornness on the topside. Commercial activity featured in yesterday's session and further interest has managed to contain the pair despite an improving technical picture.
Elsewhere, the JPY crosses retain a bid tone, with GBP/JPY, EUR/JPY, AUD/JPY and NZD/JPY outperforming. EUR/JPY has managed to record a 155.11 high, yet a congestion of profit take orders and Japanese orders flows is capping further gains. 155.20 remains a near-term pivot point ahead of an extended run on 156.75, which is the 2%moving average band top.
FX OPTIONS: EUR/USD 1-mth to 3-Mth Vols Go 7.5% Bid-to-Offered
1-mth, 2-mth and 3-mth implied option volatilities have gone 7.5 pct bid-to-offered through the European session-to-date. The 1-mth expiry date is still Thursday January 11, as per yesterday, according to FENICS FX 2002. The 1-mth started the week 7.75 pct bid. Monday expiry dates are helping weigh on the 2-mth and 3-mth.
Expiry-wise: 1.3200 EUR call options roll off at the 10am EST NY cuts today and tomorrow. The size of today's 1.3200 strike is estimated at E250mn. A E500mn+ 1.3100 strike also expires today. On the exotic front: the main concentration of barriers are tipped between 1.3500 and 1.3600--inclusive of a large 1.3550 trigger. Pre-1.3500 exotic exposure is located at 1.3400, 1.3425, and 1.3450.
Expiry-wise: 1.3200 EUR call options roll off at the 10am EST NY cuts today and tomorrow. The size of today's 1.3200 strike is estimated at E250mn. A E500mn+ 1.3100 strike also expires today. On the exotic front: the main concentration of barriers are tipped between 1.3500 and 1.3600--inclusive of a large 1.3550 trigger. Pre-1.3500 exotic exposure is located at 1.3400, 1.3425, and 1.3450.
EUR/USD: Sovereigns Soak Up Selling
EUR/USD has rebounded back toward 1.3240 as the usual sovereign accounts soak of selling on dips. Emblematic of the USD selling are comments from the Qatari Finance Minister who notes he is very worried about the weaker USD. With oil priced in USD and their imports largely priced in EUR and Asian currencies, they are taking a haircut. Offers are seen on rallies to the 1.3240s.
GBP/USD: Knee-Jerk Losses on US Trade Deficit Drop
Knee-jerk quarter-cent cable losses to lows just shy of 1.9595 followed the disclosure that October's US trade deficit contracted by a much larger than expected amount to $58.87bn.
GBP/USD has since recouped those losses. 1.9595 was yesterday's Greenspan-spurred high. Offers are touted at 1.9650, with some stops tipped above that level. The flagged stops could inflate the rate towards 1.9700 if tripped. 1.9729 was last Friday's post-Michigan Sentiment high.
Sterling scaled an intra-week peak just shy of 1.9650 during the European morning, after the 09:30GMT unveiling of November's above-forecast UK annualized CPI.
GBP/USD has since recouped those losses. 1.9595 was yesterday's Greenspan-spurred high. Offers are touted at 1.9650, with some stops tipped above that level. The flagged stops could inflate the rate towards 1.9700 if tripped. 1.9729 was last Friday's post-Michigan Sentiment high.
Sterling scaled an intra-week peak just shy of 1.9650 during the European morning, after the 09:30GMT unveiling of November's above-forecast UK annualized CPI.
USD/CHF: Spikes To 1.2050 On Trades But Fails To Follow-Though
The US trade gap narrowed in October and the Dollar has spiked higher on the data news. Hitting USD 58.7Bln the trade data has offered some support to the US unit ahead of the FOMC later today. USD/CHF rallied to 1.2050 in the wake of the data but the pair has failed to break any higher and this lack of follow-through will weigh as sellers into the strength return.
EUR/USD: Dips to 1.3217 as Trade Gap Narrows
EUR/USD dipped below 1.3220 as the US posted a much narrower than expected trade deficit for October. Sovereign bids were rumored headed into the figures and they look to be at play as the greenback stabilizes in the 1.3220s. 1.3200 and 1.3175 are further support on dips. A quick read of the trade data show record US exports. Offers are eyed at 1.3235/40 near-term.
US ECON: Trade Deficit Narrows Dramatically to $58.87 Bln
* Largest 1-month drop since Dec 2001
* Smallest deficit since August 2005
* More than $5 bln smaller than consensus
* Industrial supplies imports fall $5.2 bln
In the last two months, the trade gap has narrowed by 14.6% or nearly $10 bln.In October, export growth (+0.2%) was the slowest in three months but imports fell by 2.7%, the most in nearly five years. Imports of industrial supplies (read oil) fell by $5.2 bln, conveniently explaining the larger than expected drop in the deficit. Crude oil imports fell by $3.47 bln, far more than expected and at a dubious price, valued at roughly $55 per barrel.
Nevertheless, the ex-petroleum balance improved as well, to the smallest deficit in four months. The share of the deficit owing to petroleum fell to 31.9% in October, a 16-month low.
* Smallest deficit since August 2005
* More than $5 bln smaller than consensus
* Industrial supplies imports fall $5.2 bln
In the last two months, the trade gap has narrowed by 14.6% or nearly $10 bln.In October, export growth (+0.2%) was the slowest in three months but imports fell by 2.7%, the most in nearly five years. Imports of industrial supplies (read oil) fell by $5.2 bln, conveniently explaining the larger than expected drop in the deficit. Crude oil imports fell by $3.47 bln, far more than expected and at a dubious price, valued at roughly $55 per barrel.
Nevertheless, the ex-petroleum balance improved as well, to the smallest deficit in four months. The share of the deficit owing to petroleum fell to 31.9% in October, a 16-month low.
Swiss Outlook (12th December 2006)
Whispers out of Zurich in early European trading were for the potential for an SNB 50bp move on Thursday. The Franc rallied on the news but the broader Dollar correction, of the overnight sales, kept USD/CHF underpinned above 1.20. As a result CHF crosses reflected the strength with EUR/CHF dropping to 1.5900 & CHF/JPY printed an 8-Year high.
However, domestic data has not reinforced this view of late and despite the hawkish tone to much of the Roth rhetoric, many still erred on the side of caution and preferred to stick to their 25bp Q4 expectations. Thursday is still expected to produce a 25bp hike and with central bankers remaining vexed over the H2 outlook in the mountain economy there is risk on both sides for the accompanying assessment. Hawks will look for clues for a further hike into Q1 2007 (mid-March) while doves will eye alterations to official projections.
Standing offers in USD/CHF into 1.2035 capped the move higher as the Franc gave back its early cross gains. More offers are noted into 1.2040/50 but the attention in the short-term will be on the Trade data & FOMC (19:15 GMT).
However, domestic data has not reinforced this view of late and despite the hawkish tone to much of the Roth rhetoric, many still erred on the side of caution and preferred to stick to their 25bp Q4 expectations. Thursday is still expected to produce a 25bp hike and with central bankers remaining vexed over the H2 outlook in the mountain economy there is risk on both sides for the accompanying assessment. Hawks will look for clues for a further hike into Q1 2007 (mid-March) while doves will eye alterations to official projections.
Standing offers in USD/CHF into 1.2035 capped the move higher as the Franc gave back its early cross gains. More offers are noted into 1.2040/50 but the attention in the short-term will be on the Trade data & FOMC (19:15 GMT).
Sterling Outlook (12th December 2006)
The FOMC is expected to keep the US Funds rate at 5.25% at 19:15GMT, with the content of its accompanying statement of prime interest. Today's key pre-FOMC US event risk is the 13:30GMT unveiling of the size of October's trade deficit.
Forecast: $63.7bn, from $64.3bn in September. GBP/USD rallied to intra-week highs just shy of touted offers at 1.9650 after the 09:30GMT disclosure of November's higher-than-expected UK CPI. The above-forecast CPI is good news for UK rate hawks touting another 25bp hike to 5.25% in February. Some stops are tipped above 1.9650. 1.9595 (yesterday's high) is now a pullback support point. 1.9570 is a lower prop.
Cable rallied through 1.9570 to a high of 1.9595 on the back of yesterday's Greenspan comment that he expects the USD to continue to drift downwards until there is a change in the US balance of payments (Reuters). UK unemployment and earnings data will be revealed at 09:30GMT tomorrow. Thursday will see the release of UK November retail sales figures, and the CBI's December industrial trends survey.
Forecast: $63.7bn, from $64.3bn in September. GBP/USD rallied to intra-week highs just shy of touted offers at 1.9650 after the 09:30GMT disclosure of November's higher-than-expected UK CPI. The above-forecast CPI is good news for UK rate hawks touting another 25bp hike to 5.25% in February. Some stops are tipped above 1.9650. 1.9595 (yesterday's high) is now a pullback support point. 1.9570 is a lower prop.
Cable rallied through 1.9570 to a high of 1.9595 on the back of yesterday's Greenspan comment that he expects the USD to continue to drift downwards until there is a change in the US balance of payments (Reuters). UK unemployment and earnings data will be revealed at 09:30GMT tomorrow. Thursday will see the release of UK November retail sales figures, and the CBI's December industrial trends survey.
Yen Outlook (12th December 2006)
JPY continued to trade on the heavy side as JPY remained the funding currency of choice for carry trades. Japanese investor demand for higher-yielding overseas assets continued. These factors along with expectations of a hawkish Fed tonight and no interest rate hike by the BOJ next underpin both USD/JPY and the JPY crosses.
A Fuji Evening newspaper report that the BoJ could still hike interest rates in December or January failed to stir the market, especially as it tipped a BoJ Fukui resignation thereafter to take the political heat for the move. USD/JPY consolidated yesterday's gains. Offers from 117.00 capped amid reports of exporters lowering their interest after yesterday's decent 117.20-30 offers from sovereign names. Stops are seen building above 117.30. Most of the JPY crosses remained buoyant.
EUR/JPY traded up to a fresh record high of 155.05 in Asia but struggled to recapture these levels amid profit take orders. Retail investor flows supported any pullback in the 154.60 region, leaving the pair in a narrow range. GBP/JPY, AUD/JPY and NZD/JPY also remained bid after seeing fresh highs.
A Fuji Evening newspaper report that the BoJ could still hike interest rates in December or January failed to stir the market, especially as it tipped a BoJ Fukui resignation thereafter to take the political heat for the move. USD/JPY consolidated yesterday's gains. Offers from 117.00 capped amid reports of exporters lowering their interest after yesterday's decent 117.20-30 offers from sovereign names. Stops are seen building above 117.30. Most of the JPY crosses remained buoyant.
EUR/JPY traded up to a fresh record high of 155.05 in Asia but struggled to recapture these levels amid profit take orders. Retail investor flows supported any pullback in the 154.60 region, leaving the pair in a narrow range. GBP/JPY, AUD/JPY and NZD/JPY also remained bid after seeing fresh highs.
Euro Outlook (12th December 2006)
Technical weight in the form of the 10-Day moving average line (currently 1.3265) & the 61.8% Fibo at 1.3274 (of the Friday sell-off from 1.3363 to 1.3131) has kept the topside intact in EUR/USD thus far intraday. However, the Euro has been underpinned by fresh record EUR/JPY highs and the upside surprise in the December German ZEW release (62.5 Vs the Pvs 53.0, against the expected 55.0).
As a result of this push-me/pull-you EUR/USD has steadied close to 1.3250, add into the equation the impending FOMC risk and spot has looked steady with little propensity for fresh short-run volatility. All this will change into North American trading if the Fed Chairman, Bernenke, has altered his inflation view and the outlook for early 2007. Also adding to the Dollar risk is the October trade data set for release at 13:30 GMT.
Dealers note Sovereign & option interest from 1.3210 back to 1.3200 (linked to the strikes set to expire at the NY cut at 15:00 GMT) while on the topside only a break above 1.3275 will add to the momentum. Above here and a full retracement back to the Friday highs will be eyed before the 1.34 barriers.
As a result of this push-me/pull-you EUR/USD has steadied close to 1.3250, add into the equation the impending FOMC risk and spot has looked steady with little propensity for fresh short-run volatility. All this will change into North American trading if the Fed Chairman, Bernenke, has altered his inflation view and the outlook for early 2007. Also adding to the Dollar risk is the October trade data set for release at 13:30 GMT.
Dealers note Sovereign & option interest from 1.3210 back to 1.3200 (linked to the strikes set to expire at the NY cut at 15:00 GMT) while on the topside only a break above 1.3275 will add to the momentum. Above here and a full retracement back to the Friday highs will be eyed before the 1.34 barriers.
Monday, December 11, 2006
EUR/USD: Drifts toward 1.3200 at Expiry
EUR/USD, lacking any fresh catalysts, drifted to 1.3200 at the New York options cut. Dealers note slightly lower US bond yields weighing on the buck this morning in addition to a solid bid underpinning EUR/JPY.
Dealers say US institutional investors are beginning to close their books for year-end, with many expected to finish up the bulk of their activity by the end of this week. If that is the case, EUR/USD may have topped out for the time being, capped at 1.3365/67. It trades now at 1.3197.
Dealers say US institutional investors are beginning to close their books for year-end, with many expected to finish up the bulk of their activity by the end of this week. If that is the case, EUR/USD may have topped out for the time being, capped at 1.3365/67. It trades now at 1.3197.
GBP/USD: Capped at Friday's Low, UK CPI Tomorrow
Sell interest at Friday's low of 1.9515 is currently keeping a lid on cable, following its rise from early NY lows circa 1.9475. Upper obstacles include the early Europe intra-day high of 1.9568.
The latter level is an approximate 38.2% Fibo retracement point of the drop from Friday's post-Michigan Sentiment high of 1.9729 to 1.9467 (today's Asian session 11-day low). Looking ahead to tomorrow: UK November inflation data will be disclosed at 09:30GMT.
Annualized UK CPI is forecast to rise to 2.6%, from 2.4% in October. 2.0% is the BoE's target level. The size of October's US trade deficit will be revealed at 13:30GMT tomorrow, with the final FOMC statement of 2006 ensuing at 19:15GMT. US trade deficit forecast: $63.0bn.
The latter level is an approximate 38.2% Fibo retracement point of the drop from Friday's post-Michigan Sentiment high of 1.9729 to 1.9467 (today's Asian session 11-day low). Looking ahead to tomorrow: UK November inflation data will be disclosed at 09:30GMT.
Annualized UK CPI is forecast to rise to 2.6%, from 2.4% in October. 2.0% is the BoE's target level. The size of October's US trade deficit will be revealed at 13:30GMT tomorrow, with the final FOMC statement of 2006 ensuing at 19:15GMT. US trade deficit forecast: $63.0bn.
US ECON: Wholesale Inventories Up Another 0.8% in October
Wholesale inventories continued to grow rapidly in October, up 0.8% from the prior month. The September increase was revised lower to a gain of 0.7% from 0.9% previously reported.
IFR expected inventories to have risen by 0.6% in October, though the average over the last two months works out to be the same after revisions. From a year ago, wholesale sales have risen by 10.1%, their fastest 12-month growth rate in 18 months.
Wholesale sales fell by 0.5% against IFR's expectation of a 0.2% gain. September sales fell by 1.5%, revised lower from a 0.9% drop. The ratio of inventories to sales rose to 1.199 in October, the highest in 16 months but up smartly from a record low 1.148 as recently as June.
IFR expected inventories to have risen by 0.6% in October, though the average over the last two months works out to be the same after revisions. From a year ago, wholesale sales have risen by 10.1%, their fastest 12-month growth rate in 18 months.
Wholesale sales fell by 0.5% against IFR's expectation of a 0.2% gain. September sales fell by 1.5%, revised lower from a 0.9% drop. The ratio of inventories to sales rose to 1.199 in October, the highest in 16 months but up smartly from a record low 1.148 as recently as June.
USD/JPY: On A Supportive Footing, Crosses Underpin
USD/JPY trades on a supportive footing, just off the 117.17 high recorded early on in the North American session. Japanese rate hike expectations have disappeared from the market following Friday's new stories from JiJi press and Yomiuri. Japanese rate have come in a little but the cash market is still pricing in the risk of a December move.
The speculative market is encouraged by the press stories, with previous rate changes tending to be leaked on JiJi or Yomiuri. As a consequence, macro- based accounts and leverage funds have been actively selling JPY. All the JPY crosses have benefited, while USD/JPY had an added boost from Friday's strong US NFP data, which boosted US yields. The low yield environment in Japan should fuel further overseas investment by retail investors and pension funds.
Indeed, Sunday's Nikkei story that government pension funds may add more foreign assets is just another negative JPY story adding to an already well developed theme. EUR/JPY trades at 154.50, USD/JPY sits at 117.10 and AUD/JPY is around 91.70.
The speculative market is encouraged by the press stories, with previous rate changes tending to be leaked on JiJi or Yomiuri. As a consequence, macro- based accounts and leverage funds have been actively selling JPY. All the JPY crosses have benefited, while USD/JPY had an added boost from Friday's strong US NFP data, which boosted US yields. The low yield environment in Japan should fuel further overseas investment by retail investors and pension funds.
Indeed, Sunday's Nikkei story that government pension funds may add more foreign assets is just another negative JPY story adding to an already well developed theme. EUR/JPY trades at 154.50, USD/JPY sits at 117.10 and AUD/JPY is around 91.70.
FX OPTIONS: EUR/USD Vols Ease, 3-mth Goes 7.7% Bid-to-Offered
Implied option volatilities have softened through the European session, with the 3-mth having gone 7.7 pct bid-to-offered. March 9 - an NFP Friday, is the current 3-mth expiry date, according to FENICS FX 2002. At the front of the curve: the 1-mth is also now 7.7 pct offered, having been 7.75 pct bid at today's European open. The 1-week is 8.0/9.0 last, having been 8.8/9.8 at today's European open.
US TECHS: S&P Not Giving Up Ground Despite Warning Signs
While some technical warning signs (bearish divergences, fading trend signals) have developed for Mar S&P, the market is not really giving up much ground. Price action remains the dominant technical indicator and the current pattern of higher highs and higher lows is one of the most powerful patterns that exists.
One other growing concern is seen in the sentiment arena as the 20-day equity put/call ratio has been sinking lately, reflecting growing optimism by the general public. It currently sits at .58 and it was at .57 at the last significant top in May of this year.
It's not so much the actual level of this ratio but rather its behavior at these levels. If it begins to turn up from here it would reflect growing pessimism in the market and would be an indication of a near-term top. For now though price action has been a good guide and it continues to maintain a bullish bias.
One other growing concern is seen in the sentiment arena as the 20-day equity put/call ratio has been sinking lately, reflecting growing optimism by the general public. It currently sits at .58 and it was at .57 at the last significant top in May of this year.
It's not so much the actual level of this ratio but rather its behavior at these levels. If it begins to turn up from here it would reflect growing pessimism in the market and would be an indication of a near-term top. For now though price action has been a good guide and it continues to maintain a bullish bias.
Swiss Outlook (11th December 2006)
Comments noted on the weekend from the SNB's Roth have kept the markets positioned for a 25bp rate hike at the Thursday Q4 meeting. The market may not be actively buying the Franc ahead of the verdict but the CHF is seen as underpinned by the potential for further H1 tightening.
However, should the SNB move into a "data dependant" period then the CHF is expected to be sold as the dovish official outlook for H2 2007 has left many wary over the alpine economies potential in the latter stages of 07. USD/CHF attempted to retrace the Friday move into European trading but the 38.2% Fibo (of the rally from 1.1884 to 1.2101) at 1.2018 stalled the move lower. As a result the price has steadied around 1.2050 as longer-term sellers continue to battle short-term buyers.
Dealers talk of stops remaining on the downside under 1.2015 bids with more sub-1.20. Technically, the 50% level has been reinforced by the 10-Day M/A line while the 61.8% sitting below at 1.1965. Looking ahead, only Paulson comments and the October Whole-Sale Inventory data (15:00 GMT) are noted into North American trading.
However, should the SNB move into a "data dependant" period then the CHF is expected to be sold as the dovish official outlook for H2 2007 has left many wary over the alpine economies potential in the latter stages of 07. USD/CHF attempted to retrace the Friday move into European trading but the 38.2% Fibo (of the rally from 1.1884 to 1.2101) at 1.2018 stalled the move lower. As a result the price has steadied around 1.2050 as longer-term sellers continue to battle short-term buyers.
Dealers talk of stops remaining on the downside under 1.2015 bids with more sub-1.20. Technically, the 50% level has been reinforced by the 10-Day M/A line while the 61.8% sitting below at 1.1965. Looking ahead, only Paulson comments and the October Whole-Sale Inventory data (15:00 GMT) are noted into North American trading.
Sterling Outlook (11th December 2006)
There are a raft of potentially market-moving UK event risks this week, including tomorrow's 09:30GMT November inflation figures, Wednesday's unemployment and earnings numbers, and Thursday's November retail sales. Annualized CPI is forecast to rise to 2.6%, from 2.4% in October.
GBP/USD tripped stops above 1.9550 in early European trade, as it pushed its recovery envelope from an Asian session 11-day low of 1.9467. Offers circa 1.9565 capped those gains. 1.9565 is an approximate 38.2% Fibo retracement point of the drop from Friday's post-Michigan Sentiment high of 1.9729 to 1.9467. Cable's subsequent retreat extended through 1.9500 post-UK PPI.
M&A-wise: Brazil's CSN has trumped India's Tata Steel with a GBP 4.9bn bid for Anglo-Dutch Corus (Times website). In other news: Pearson has agreed to sell its government services unit to Veritas Capital for $600mn (Times website). Prudential has rebuffed a GBP 500mn offer for Egg from Citigroup (Telegraph). This week's key US event risk is tomorrow's FOMC meeting. US November inflation figures are due on Friday.
GBP/USD tripped stops above 1.9550 in early European trade, as it pushed its recovery envelope from an Asian session 11-day low of 1.9467. Offers circa 1.9565 capped those gains. 1.9565 is an approximate 38.2% Fibo retracement point of the drop from Friday's post-Michigan Sentiment high of 1.9729 to 1.9467. Cable's subsequent retreat extended through 1.9500 post-UK PPI.
M&A-wise: Brazil's CSN has trumped India's Tata Steel with a GBP 4.9bn bid for Anglo-Dutch Corus (Times website). In other news: Pearson has agreed to sell its government services unit to Veritas Capital for $600mn (Times website). Prudential has rebuffed a GBP 500mn offer for Egg from Citigroup (Telegraph). This week's key US event risk is tomorrow's FOMC meeting. US November inflation figures are due on Friday.
Yen Outlook (11th December 2006)
JPY remained on a heavy footing throughout the European morning. Japanese rate hike fears receded after Friday's JiJi news reports, which claimed there would be no change in BOJ policy in December. USD/JPY performed well, along with all the JPY crosses.
In particular, EUR/JPY traded higher on decent model fund demand and ongoing interest from fund names looking to get back into the carry trade. EUR/JPY cleared 154.00 and then moved through the previous high of 154.17 to record a new high of 154.42. USD/JPY was buoyed by the cross-JPY activity, trading up to 117.00. Option related flows capped for a short while before the interest gave way and the pair extended to 117.08. Exporter offers at 117.10 capped ahead of stops from 117.15 up through 117.20.
The near-term focus remains on interest rates, particularly with firm US employment reducing the potential for a Fed cut in rates. The argument for a weaker JPY was compelling after the JiJi news reports but it will be Friday's Tankan report that casts fresh insight into Japanese economic conditions and the interest rate outlook. Until then USD/JPY and EUR/JPY will press higher.
In particular, EUR/JPY traded higher on decent model fund demand and ongoing interest from fund names looking to get back into the carry trade. EUR/JPY cleared 154.00 and then moved through the previous high of 154.17 to record a new high of 154.42. USD/JPY was buoyed by the cross-JPY activity, trading up to 117.00. Option related flows capped for a short while before the interest gave way and the pair extended to 117.08. Exporter offers at 117.10 capped ahead of stops from 117.15 up through 117.20.
The near-term focus remains on interest rates, particularly with firm US employment reducing the potential for a Fed cut in rates. The argument for a weaker JPY was compelling after the JiJi news reports but it will be Friday's Tankan report that casts fresh insight into Japanese economic conditions and the interest rate outlook. Until then USD/JPY and EUR/JPY will press higher.
Euro Outlook (11th December 2006)
Spot attempted to retrace the Friday sell-off into Europe but failed at the first hurdle as the 38.2% Fibo near 1.3220 capped. In other news, many continue to attempt to piece together the details from last week but players on both sides remain tight lipped over much of the action.
The usual "corporate go-to guys" look the happiest in the wake of the moves while the real damage was done by both the Sovereign & Hedge Fund flows. Sizable orders continue to be the source of much speculation but in reality the volatility can be consigned to history and normal service can resume. Looking ahead, the latest German ZEW and FOMC minutes are the key event risks on both sides but these are not due for release until tomorrow.
As a result option players note the expiries at 1.3200 & 1.3250 at the NY cut (15:00 GMT) as a likely weight on EUR/USD into North American trading. Liikanen & Papademos comments are set for early trading but few expect ECB rhetoric to boost the Euro going forward while Paulson lines up in Washington. US data is provided by the 15:00 GMT release of October Whole-Sale Inventories.
The usual "corporate go-to guys" look the happiest in the wake of the moves while the real damage was done by both the Sovereign & Hedge Fund flows. Sizable orders continue to be the source of much speculation but in reality the volatility can be consigned to history and normal service can resume. Looking ahead, the latest German ZEW and FOMC minutes are the key event risks on both sides but these are not due for release until tomorrow.
As a result option players note the expiries at 1.3200 & 1.3250 at the NY cut (15:00 GMT) as a likely weight on EUR/USD into North American trading. Liikanen & Papademos comments are set for early trading but few expect ECB rhetoric to boost the Euro going forward while Paulson lines up in Washington. US data is provided by the 15:00 GMT release of October Whole-Sale Inventories.
Friday, December 08, 2006
EUR/USD: Expiries, Barriers Rumored
EUR/USD will likely trade close to 1.3350 in the run up to the New York options cut with expiries and a new barrier options rumored at that rate. Prices have flirted with that level before stalling. Dealers are still a bit shell-shocked after this morning's abrupt central-bank inspired U-turn.
The aggressive nature of the buying, particularly by an Asian name, was the most surprising factor this morning as they chased the market higher, rather than sitting on a bid, as is the usual modus operandi. 1.3365/70 is the near-term topside objective with stops seen just above. Offers are eyed toward 1.3400, where barriers are struck. EUR/US trades at 1.3342 ahead of Michigan sentiment.
The aggressive nature of the buying, particularly by an Asian name, was the most surprising factor this morning as they chased the market higher, rather than sitting on a bid, as is the usual modus operandi. 1.3365/70 is the near-term topside objective with stops seen just above. Offers are eyed toward 1.3400, where barriers are struck. EUR/US trades at 1.3342 ahead of Michigan sentiment.
USD/CHF: Stop Clear Out Continues But Swiss Names Now Buying
A large number of stops were reportedly cleared away on the move from 1.1945 to 1.1905 and there is talk of further orders tight under 1.1900. The current stalling in the 1.1905-10 area is being blamed on reasonable demand from Swiss players but so far the buying has failed to push the Buck back above 1.1920. Risk remains for a drop to 1.1885, the Dec 5 low.
USD/JPY: Hangs Over 115.00 Ahead Of NY Cut
USD/JPY hangs over the 115.00 handle ahead of the NY cut. A very large plain vanilla strike is due to roll off at this level, along with open interest at 114.90 and 115.25 in modest size. USD/JPY looks as if it wants to test levels below the 115.00 handle, yet dollar price action appears to be linked heavily to large EUR/USD options interest at 1.3350.
Sellers of USD/JPY have included macro name and a large Middle Eastern player. Bids of noted in good size from 114.75/80 and into 114.50 from Japanese commercial accounts.
Sellers of USD/JPY have included macro name and a large Middle Eastern player. Bids of noted in good size from 114.75/80 and into 114.50 from Japanese commercial accounts.
USD/JPY: Bids Found After 115.00 Test
USD/JPY found good size bid interest around the 115.00 handle after the initial test lower saw a 114.95 low. A rumour of a widening in the Chinese FX band next week was the catalyst for the swift reversal from the 115.65 area. Generally, the market was long into the number, with USD/JPY hovering around the 115.70 area ahead of the release.
The pair extended to 115.87 but was unable to overcome good size offers, which fueled profit taking by CTAs, macro funds and speculative accounts that were forced long through 115.45 in the European morning. Sovereign name activity has also been tipped, largely through the "Europeans", while USD/JPY has also seen its own commercial interest, yet on the bid side. This has stemmed some of the supply that is currently coming in above 115.00.
The pair extended to 115.87 but was unable to overcome good size offers, which fueled profit taking by CTAs, macro funds and speculative accounts that were forced long through 115.45 in the European morning. Sovereign name activity has also been tipped, largely through the "Europeans", while USD/JPY has also seen its own commercial interest, yet on the bid side. This has stemmed some of the supply that is currently coming in above 115.00.
FX OPTIONS: EUR/USD Talk of a Large 1.3350 Expiry Later Today
A large 1.3350 EUR call option reportedly rolls off later today, at 3pm EST (20:00GMT). Three-day highs a pip shy of the strike level have been notched on the back of post-NFP Central Bank buying of EUR/USD. On top of that, one of my sources have informed me that next Monday expiry 1.3400 strikes have traded in good size. 1.3370 was this Monday's 21-month high.
EUR/USD: Sovereigns Taketh, then Giveth Away
EUR/USD is holding below 1.3350 amid talk of selling from sovereign names. The same guys took the market aggressively higher after the US employment report, catching the market far offside. Leveraged accounts were large sellers toward the lows after the data only to see prices rally better than a cent against them in no time.
Dealers fear a protracted period of range trade as central banks bottle up the market much like they did during the low volatility period last summer. EUR/USD trades at 1.3337.
Dealers fear a protracted period of range trade as central banks bottle up the market much like they did during the low volatility period last summer. EUR/USD trades at 1.3337.
FX OPTIONS: EUR/USD Good Size Early January 1.3500 EUR Call
According to one of my sources that a January 9 expiry 1.3500 EUR call option traded at 8.05 pct in an estimated E400mn earlier today. The 1.3500 level also holds exotic exposure. Pre-1.3500 exotic barriers are located at 1.3400, 1.3425, and 1.3450. 1.3500+ barriers reside at 1.3550, 1.3600, 1.3700, 1.3750, 1.3900, 1.3950 and 1.4000+.
EUR/USD: Reserve Diversification Still the Key
Dealers report a variety of central banks came in to buy EUR/USD as prices bounced back after the decent US employment report. Two high profile bouts of intervention have been seen in the market in the last two days with Russia buying chunks of USD Ruble and converting part of the proceeds to EUR and the same being said for South Korea, which was a cable buyer as well earlier today.
As long as central bankers look to spread their reserve risks, the EUR will be the prime beneficiary. Offers are seen layered up from 1.3350 to 1.3400 but expect black-box types to rush in on the buy side if recent 1.3367 highs are overcome. 1.3290 is support on pullbacks.
As long as central bankers look to spread their reserve risks, the EUR will be the prime beneficiary. Offers are seen layered up from 1.3350 to 1.3400 but expect black-box types to rush in on the buy side if recent 1.3367 highs are overcome. 1.3290 is support on pullbacks.
GBP/USD: Rally Extends to 1.9680 Offers
Cable's rally off a post-NFP eight-day low of 1.9534 has extended to 1.9680 offers, as the USD slump continues. Additional sell interest is touted at 1.9700. 1.9640 (today's Asian session peak) is now a pullback support point. 1.9610 was today's Asian session base.
EUR/USD: Russia Poisons USD Rally
EUR/USD has sprinted back through 1.3300 and onto recent range tops at 1.3320/25 on rampant reports of fresh Russian buying of EUR/USD. Intraday shorts are scrambling for cover. US yields are off their highs, but it may be more of a reaction to USD weakness than vice versa. Stops are seen at 1.3330 but offers extend from 1.3350 up through 1.3400.
Swiss Outlook (8th December 2006)
A marginally better bid to the Dollar but no major movers through the European morning. The usual pre-payroll lethargy hit the market early and tight ranges played out between 1.1950 and 1.1985.
Big picture dynamics continue to show the Dollar in recovery mode but progress has been slow and from a technical perspective the potential for a trend reversal in USD/CHF has been lost. Little on the domestic front for the Swiss market but the Swiss National Bank's address to the investment community in Fribourg did provide some food for thought. The Bank's Chief, Jean-Pierre Roth, did not make any reference to monetary policy but based his speech around the potential for a global financial crisis.
The Roth warning comes at a time when investors have moved heavily into high yield and emerging markets and global equity markets are trading just off significant highs. USD/CHF is currently capped at 1.1985, the 10-day moving average line, but the risk is seen to the topside going into the US data release.
Big picture dynamics continue to show the Dollar in recovery mode but progress has been slow and from a technical perspective the potential for a trend reversal in USD/CHF has been lost. Little on the domestic front for the Swiss market but the Swiss National Bank's address to the investment community in Fribourg did provide some food for thought. The Bank's Chief, Jean-Pierre Roth, did not make any reference to monetary policy but based his speech around the potential for a global financial crisis.
The Roth warning comes at a time when investors have moved heavily into high yield and emerging markets and global equity markets are trading just off significant highs. USD/CHF is currently capped at 1.1985, the 10-day moving average line, but the risk is seen to the topside going into the US data release.
Sterling Outlook (8th December 2006)
Fresh market-moving influence over GBP/USD will be exerted by November's 13:30GMT US employment report. NFP forecast: 100/110k. The unemployment rate is expected to tick up to 4.5%, from 4.4% in October. Asian Central Bank demand at 1.9580 is currently propping cable, following its drop through 1.9600 to eight-day lows.
Further buy interest is tipped at 1.9545/50, with some stops noted sub-1.9540. 1.9550 was the December 2004 high. The perception is that the market remains long GBP/USD. Some of these long positions may be closed out later today, if November's US NFP number comes in better-than-expected. 1.9450 is a touted bear target south of 1.9540. 1.9600 (earlier absorbed bids) is now a rebound resistance level.
Upper obstacles include 1.9610 (today's Asian session base), 1.9640 (today's Asian session peak), 1.9650/60, 1.9680, and 1.9700. December's preliminary Michigan Sentiment index will be disclosed at 15:00GMT. Forecast: 92.0, from 92.1 in November. UK inflation, unemployment, earnings and retail sales data is due next week.
Further buy interest is tipped at 1.9545/50, with some stops noted sub-1.9540. 1.9550 was the December 2004 high. The perception is that the market remains long GBP/USD. Some of these long positions may be closed out later today, if November's US NFP number comes in better-than-expected. 1.9450 is a touted bear target south of 1.9540. 1.9600 (earlier absorbed bids) is now a rebound resistance level.
Upper obstacles include 1.9610 (today's Asian session base), 1.9640 (today's Asian session peak), 1.9650/60, 1.9680, and 1.9700. December's preliminary Michigan Sentiment index will be disclosed at 15:00GMT. Forecast: 92.0, from 92.1 in November. UK inflation, unemployment, earnings and retail sales data is due next week.
Yen Outlook (8th December 2006)
JPY headed lower against both USD and the crosses despite on-going speculation of a BoJ interest rate hike on December 19. Higher US yields on fading expectations of a Fed ease early next year and talk of increasing bids on the 114-handle pushed up USD/JPY. A larger-than-expected downward revision to Japan Q3 GDP and weaker than expected machinery orders data for October helped keep the pair bid.
Stops at 115.40 were taken out and the pair extended through 115.60 offers to record a 115.68 high. EUR/JPY also traded on a firmer footing in tandem with USD/JPY's move up to 115.60. The pair cleared 153.50 offers and extended to 153.67. The move lower in the JPY surprised a few players, with conditions largely quiet and with little going through. Some sources highlighted a BBC news story confirming a leak at a nuclear reactor in Japan, which may have contributed to the heavier JPY tone.
No one really expects the dollar to surge unless the US NFP report proves to be much larger than the +110K seen by most. Even then, good offering interest is likely to return towards and just above 116.00.
Stops at 115.40 were taken out and the pair extended through 115.60 offers to record a 115.68 high. EUR/JPY also traded on a firmer footing in tandem with USD/JPY's move up to 115.60. The pair cleared 153.50 offers and extended to 153.67. The move lower in the JPY surprised a few players, with conditions largely quiet and with little going through. Some sources highlighted a BBC news story confirming a leak at a nuclear reactor in Japan, which may have contributed to the heavier JPY tone.
No one really expects the dollar to surge unless the US NFP report proves to be much larger than the +110K seen by most. Even then, good offering interest is likely to return towards and just above 116.00.
Euro Outlook (8th December 2006)
It remains to be seen if the market has the appetite for another payroll number from the US as the year nears its close. Thursday's ADP data has set the stage for an upward surprise in today's data but so far there has been little sign of market factoring for a good number.
The early release of German trade numbers surprised with a new record surplus in October. The EUR 17.2 bln surplus compares with a September balance of EUR 15 bln and market expectations of a narrowing of the trade gap to EUR 13.4 bln. German data dominated the early session with the positive traded followed by poor industrial production. The 1.4% fall in output contrasted with the market's +0.5% m/m forecast. Through all the data releases the EUR was unmoved.
A slight bull bias intraday but a tight 1.3270-1.3290 range holds. For the US data , the market is looking for a number around 110,000 for the November payrolls. Next up, German October industrial production with a 0.5% rise expected on the month. EUR/USD looks like 1.3280 to 1.3300 with good bids reported at 1.3250 and offers in the 1.3320-30 area.
The early release of German trade numbers surprised with a new record surplus in October. The EUR 17.2 bln surplus compares with a September balance of EUR 15 bln and market expectations of a narrowing of the trade gap to EUR 13.4 bln. German data dominated the early session with the positive traded followed by poor industrial production. The 1.4% fall in output contrasted with the market's +0.5% m/m forecast. Through all the data releases the EUR was unmoved.
A slight bull bias intraday but a tight 1.3270-1.3290 range holds. For the US data , the market is looking for a number around 110,000 for the November payrolls. Next up, German October industrial production with a 0.5% rise expected on the month. EUR/USD looks like 1.3280 to 1.3300 with good bids reported at 1.3250 and offers in the 1.3320-30 area.
Thursday, December 07, 2006
FX OPTIONS: EUR/USD Decent Size Year-End 1.3100/1.3400 R/R
One of my sources informed me that a 1.3100/1.3400 risk reversal traded for the year-end expiry date (Dec 29) at 0.1 pct in an estimated E350mn a leg earlier today. The 1.3400 level also holds exotic exposure. 1.3370 was Monday's 21-month peak. A mid-January expiry 25 delta risk reversal is additionally tipped to have traded at 0.55 pct for EUR calls today.
FX OPTIONS: EUR/USD Another 1.3300 Expiry Today
Another 1.3300 option strike rolls off at today's 10am EST NY cut, after prior 1.3300 expiries yesterday and Tuesday.
USD/CHF: Euro Volatility Keeps Spot Choppy, Ultimately In Range
The ECB President will not comment further on future rate hikes. He says that markets have all the information they need to make up their own minds and that they know the central bank policy.
With Trichet seemingly intent on promoting further Euro volatility the Franc has been forced to trade the chop along with their European companions. USD/CHF dipped back to 1.1920 as EUR/USD surged above 1.33 but the price bounced almost immediately as EUR/USD was sold back and USD/CHF has since bounced back towards 1.1950.
However, some suggest that the price may be choppy but ultimately the price remains in the medium-term range and while 1.1850/2000 remains intact the price will continue to consolidate ahead of the SNB rate meeting for Q4 next week.
With Trichet seemingly intent on promoting further Euro volatility the Franc has been forced to trade the chop along with their European companions. USD/CHF dipped back to 1.1920 as EUR/USD surged above 1.33 but the price bounced almost immediately as EUR/USD was sold back and USD/CHF has since bounced back towards 1.1950.
However, some suggest that the price may be choppy but ultimately the price remains in the medium-term range and while 1.1850/2000 remains intact the price will continue to consolidate ahead of the SNB rate meeting for Q4 next week.
USD/JPY: Underpinned Amid Good EUR/JPY Demand
USD/JPY is underpinned ahead of the 115.00 handle, buoyed by good interest for EUR/JPY. The cross was bought up after ECB Chief Trichet said that monetary policy was accommodative and interest rates were low. EUR/JPY has struggled to overcome the 153.20 level and the Euro has lost some of its shine after the downgrade in Eurozone CPI.
Real money selling in EUR/JPY has featured from 153.00 throughout the session after reports of good fund interest via a Japanese securities house through both GBP/JPY and EUR/JPY. USD/JPY is struggling to break away from the shackles of the cross, with choppy post-ECB price action influencing the dollar majors. EUR/USD's dip back into 1.3280 may help USD/JPY but price action is not indicating much beyond consolidation today.
Strikes at 115.00 should ensure that we respect the familiar trading range, which will see players begin to look ahead to tomorrow's US NFP data. Offers remain at 115.45/50 and 115.60, with stops above at 115.65. Bids remain at 114.75/80, with custodial name being touted.
Real money selling in EUR/JPY has featured from 153.00 throughout the session after reports of good fund interest via a Japanese securities house through both GBP/JPY and EUR/JPY. USD/JPY is struggling to break away from the shackles of the cross, with choppy post-ECB price action influencing the dollar majors. EUR/USD's dip back into 1.3280 may help USD/JPY but price action is not indicating much beyond consolidation today.
Strikes at 115.00 should ensure that we respect the familiar trading range, which will see players begin to look ahead to tomorrow's US NFP data. Offers remain at 115.45/50 and 115.60, with stops above at 115.65. Bids remain at 114.75/80, with custodial name being touted.
EUR/USD: "We Do Not Pre-Commit" on Rate Moves- Trichet
Trichet says that the ECB does not pre-commit on rate moves (though it clearly pre-committed to this hike). He also says disorderly forex rates are undesirable. EUR/USD dipped toward session lows at 1.3275/80 before steadying. Dealers are on-guard for central bank bids after strong buying yesterday. EUR/USD trades at 1.3285.
FOREX: Central Bank Summary Updated
The RBNZ issued a hawkish statement last night, sending three month Libor rates to the highest since Mid-November. The next RBNZ policy statement is scheduled for January 25. The Bank of England kept rates steady as expected with the next policy decision slated for January 11th.
The ECB hiked rates by 25 bp to 3.50% as expected. The next policy statement is due January 11th. The press conference comments from the ECB have been updated on our website at www.ifrmarkets.com. Look under "Forex Watch" then "Central Bank Summary."
The ECB hiked rates by 25 bp to 3.50% as expected. The next policy statement is due January 11th. The press conference comments from the ECB have been updated on our website at www.ifrmarkets.com. Look under "Forex Watch" then "Central Bank Summary."
GBP/USD: Decent Size 1.9640-50 Bids Continue to Underpin
Decent size bids at 1.9640-50 are continuing to prop cable. The most recent drop to the support window has come on the back of EUR/USD weakness spurred by the ECB cutting its 2007 EZ HICP inflation forecast to 1.5-2.5%, from 1.9-2.9% previously. Yesterday's post-ADP employment report low of 1.9617 is a GBP/USD bear target south of 1.9640. 1.9600 is a lower prop.
EUR/USD: Lower ECB Inflation Range Stalls Rally
The devil is in the details, as they say. After an upbeat opening assessment got the market long EUR/USD, Trichet announced that the staff forecast for CPI had been revised lower to 1.5-2.5% in 2007 from 1.9-2.9% in its September forecast. Money supply growth remains rapid though, he says. EUR/USD is very whippy either side of 1.3300.
Swiss Outlook (7th December 2006)
Swiss jobless remained unchanged at 3.1% despite a slight rise in the number of unemployed. The headline figure was slightly better than what some economists had expected and points to a continued solid employment situation in the mountain economy.
The data backs our argument that the SNB will finish 2006 with a flourish and hike their target LIBOR bands by a further 25bps at the Q4 meeting next week. Ahead of the ECB rate setting verdict it has been position squaring that has driven markets in the European morning. Comments from the PBOC on a "potential Dollar slide" impacted USD/CHF in late Asian trading but 1.1920 propped the dip and the price drifted higher into the North American open.
Dealers look to EUR/USD for the next direction of USD/CHF while EUR/CHF will also cast an eye as the cross remains perilously close to a break above 1.59. Dealers note a 1.5925 expiry at the NY cut at 15:00 GMT that should weigh on any post-ECB Euro strength. Selling into strength remains preferred in the medium-term.
The data backs our argument that the SNB will finish 2006 with a flourish and hike their target LIBOR bands by a further 25bps at the Q4 meeting next week. Ahead of the ECB rate setting verdict it has been position squaring that has driven markets in the European morning. Comments from the PBOC on a "potential Dollar slide" impacted USD/CHF in late Asian trading but 1.1920 propped the dip and the price drifted higher into the North American open.
Dealers look to EUR/USD for the next direction of USD/CHF while EUR/CHF will also cast an eye as the cross remains perilously close to a break above 1.59. Dealers note a 1.5925 expiry at the NY cut at 15:00 GMT that should weigh on any post-ECB Euro strength. Selling into strength remains preferred in the medium-term.
Sterling Outlook (7th December 2006)
The MPC is expected to keep the UK base rate at 5.0% at 12:00GMT. Minutes from this week's meeting will be published on December 20. Japan Tobacco's takeover approach for GBP 6.4bn-valued Gallaher (FT website), Rank's $965mn sale of the Hard Rock Cafe to the Seminole Tribe of Florida (Daily Telegraph website), plus talk of Spanish or US interest to acquire Barclays (Reuters), is helping underpin the pound.
The Halifax's claim that UK house prices rose by another 1.7% last month is also GBP-supportive. GBP/USD resistance levels include 1.9712, 1.9739, 1.9808, 1.9822, and 1.9849 (last Friday's 14-year high). The almost mythical 2.00 level is also still being mentioned in dispatches. 1.9712 was yesterday's rebound rally high from the post-ADP employment report six-day low of 1.9617.
Supra-national demand helped fuel that recovery rally. 1.9648 was today's Asian session base. Weekly US jobless claims will be revealed at 13:30GMT. Forecast: 325k. US October consumer credit data ensues at 20:00GMT. Growth of $4.0bn is forecast. November's US employment report is due tomorrow.
The Halifax's claim that UK house prices rose by another 1.7% last month is also GBP-supportive. GBP/USD resistance levels include 1.9712, 1.9739, 1.9808, 1.9822, and 1.9849 (last Friday's 14-year high). The almost mythical 2.00 level is also still being mentioned in dispatches. 1.9712 was yesterday's rebound rally high from the post-ADP employment report six-day low of 1.9617.
Supra-national demand helped fuel that recovery rally. 1.9648 was today's Asian session base. Weekly US jobless claims will be revealed at 13:30GMT. Forecast: 325k. US October consumer credit data ensues at 20:00GMT. Growth of $4.0bn is forecast. November's US employment report is due tomorrow.
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