USD/JPY is likely to remain rangebound in Asia today as the market hunkers down for a slew of economic data out of the US and possible indications of near-term Fed policy following the end of the two-day FOMC meeting tonight. Recent data out of the US has been bullish, and Fed officials could very well take this into account in future policy decisions.
No change is expected in the Fed funds rate tonight. USD/JPY still looks to be well supported in the 121.40-50 area, 121.47 the extent of the downside overnight. Asia saw a low of 121.56 yesterday. More support is seen at 121.20-30 and then on towards 121.00.
Topside resistance, as was the case yesterday, is seen from 122.00 and trailing up to 122.50. Option barriers are presumed at 122.25 and 122.50. Stops are seen mixed in, especially above 122.20, the high Monday, and 122.25. USD/JPY currently trades 121.65/68.
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Wednesday, January 31, 2007
GBP/USD: Trips Stops Below 1.9510 on Strong US Q4 GDP
Tripped stops below 1.9510 have helped depress cable to a fresh 19-day low of 1.9483 following the better-than-expected advance estimate of US annualized Q4 GDP. This came in at 3.5%, compared to the 3.0% forecast. 1.9510 was a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last week's 15-year high). It is now a rebound resistance level. 1.9427 (Jan 12 low), 1.9400, and 1.9390 (Jan 11, post-UK rate hike low) are among bear targets south of 1.9483.
EUR/USD: Greenback's Rally Accelerating
After a tentative initial reaction to the GDP data, the USD is picking up its pace against the European pairs. Cable is leading the charge, breaking through the 61.8% retracement of its 1.9260/1.9915 rally. Overnight lows at 1.2925 are holding the line so far in EUR/USD. Expect probes to the downside to be tentative amid the usual central bank bid rumors on weakness. 1.2830 expiries are eyed this morning.
USD/JPY: Extends Gains In The Wake Of Firm US Data
USD/JPY has extended gains to move above the European high. A better than expected Q4 GDP release has fueled expectations of a hawkish Fed tone at today's US FOMC policy announcement. US Yield have pushed higher, underscoring the widening differentials between their Japanese counterparts.
USD/JPY will target the Asian high at 121.74 and standing offers from 121.80 and into the 122.00 region. Speculative account demand and macro account activity has increased, with yields once again overwhelming any JPY nervousness. Sentiment is little mixed now, with the recent break down in prices turning the daily picture bearish.
As a result, technical based accounts are looking to sell into strength, with 121.80 as the first point of interest. The latest round of buying has come from US exporters and Swiss private banks following the good interest from Japanese real money in the European morning.
USD/JPY will target the Asian high at 121.74 and standing offers from 121.80 and into the 122.00 region. Speculative account demand and macro account activity has increased, with yields once again overwhelming any JPY nervousness. Sentiment is little mixed now, with the recent break down in prices turning the daily picture bearish.
As a result, technical based accounts are looking to sell into strength, with 121.80 as the first point of interest. The latest round of buying has come from US exporters and Swiss private banks following the good interest from Japanese real money in the European morning.
EUR/USD: Goldilocks Alive and Well and Living in the States
Q4 GDP beat expectations to the topside but the inflation measures were contained. The chain weighted price index was a bit firm at +1.5% but the employment cost index was below forecasts at up 0.8%. EUR/USD is showing a modest response to the data, dipping only to the 1.2940s before stalling. This is the tip of the data iceberg, with Chicago PMI, construction spending and most importantly the FOMC statement still to come.
US ECON: GDP Better Than Expected in Q4, +3.5%
According to the advance estimate, real GDP expanded by 3.5% in the final quarter of 2006, faster than expected (IFR median was 3.1%) and well ahead of whisper numbers calling for something short of 2% due to auto production accounting. So much for that concept, though we think the risk is for GDP to be revised slightly lower in each of the preliminary and final reports.
For now, the growth rate is the best since Q1 (5.6%) and leaving the 2006 growth rate above the economy's long-run potential. That's inflationary though you'd not get that from the price indices.
For now, the growth rate is the best since Q1 (5.6%) and leaving the 2006 growth rate above the economy's long-run potential. That's inflationary though you'd not get that from the price indices.
Swiss Outlook (31st January 2007)
The first upswing in the Swiss leading indicator for six months has helped the carry-embattled Franc alleviate some support in European trading. The upwardly revised December KoF headline destroyed the hopes of a dovish January 1.51/52 reading. The previous data was revised from 1.60 to 1.75, thus the January 1.71 still represents a dip but not as significant a drop as many had hoped for.
The data combined with the event-risk produced by the Roth comments, due Tomorrow (after 14:00 GMT), have forced many to reverse CHF positions and the market is now awash with short-term sell EUR/CHF recommendations. French names target 1.6060 in the short-run while Swiss players opt for a Q2 correction back to 1.58 while an aggressive US name is now talking up the chances of a 50bp Q1 hike from the SNB.
As a result expect the Franc to find renewed strength as buy-backs continue. USD/CHF may be driven by US data and the FOMC into North American trading but bids into the 1.2500 area are eyed on the downside while stops below 1.60 are targeted in the Euro cross.
The data combined with the event-risk produced by the Roth comments, due Tomorrow (after 14:00 GMT), have forced many to reverse CHF positions and the market is now awash with short-term sell EUR/CHF recommendations. French names target 1.6060 in the short-run while Swiss players opt for a Q2 correction back to 1.58 while an aggressive US name is now talking up the chances of a 50bp Q1 hike from the SNB.
As a result expect the Franc to find renewed strength as buy-backs continue. USD/CHF may be driven by US data and the FOMC into North American trading but bids into the 1.2500 area are eyed on the downside while stops below 1.60 are targeted in the Euro cross.
Sterling Outlook (31st January 2007)
A welter of US data will be released ahead of today's 19:15GMT FOMC rate verdict and statement. That welter of data includes the 13:30GMT advance estimate of Q4 GDP, and the 14:45GMT unveiling of January's Chicago PMI index. Annualized GDP forecast: 3.0%. Chicago PMI forecast: 52.0. US and European name selling of the pound was seen from the European open, with tripped stops under 1.9600 and 1.9550 helping depress GBP/USD to 19-day lows just shy of 1.9510.
The latter level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last week's 15-year high). Further stops are touted sub-1.9510. Bear targets below include 1.9430 and 1.9400. 1.9650/60 is now a rebound resistance window. Upper obstacles are located at 1.9580, 1.9600, 1.9611 (today's Asian session base), 1.9637 (today's Asian session top), 1.9663 (yesterday's NY session peak), and 1.9700. January's GfK UK consumer confidence gauge unexpectedly improved to minus 7, from minus 8 in December, against a forecast drop to minus 9. January's UK manufacturing sector PMI is due tomorrow.
The latter level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last week's 15-year high). Further stops are touted sub-1.9510. Bear targets below include 1.9430 and 1.9400. 1.9650/60 is now a rebound resistance window. Upper obstacles are located at 1.9580, 1.9600, 1.9611 (today's Asian session base), 1.9637 (today's Asian session top), 1.9663 (yesterday's NY session peak), and 1.9700. January's GfK UK consumer confidence gauge unexpectedly improved to minus 7, from minus 8 in December, against a forecast drop to minus 9. January's UK manufacturing sector PMI is due tomorrow.
Yen Outlook (31st January 2007)
USD/JPY and the JPY crosses slipped lower. Market nerves over short-JPY positions continued, fueling a pick up in speculative account selling and FX related hedging. Exporter interest was noted and some repatriation relating to US and EZ coupon payments was pushed through. Stops gave way in USD/JPY and EUR/JPY but both pairs stabilised over the course of the European morning.
USD/JPY pushed on 121.20 but was unable to extend losses amid importer bid interest and real money cross JPY demand. EUR/JPY breached 157.00 and ran into good real money demand at 156.80. The USD/JPY recovery extended to 120.50/55 and EUR/JPY traded back into 157.25. The market will remain on a tentative footing, with a slew of US data/events due.
The highlights include US GDP, Chicago PMI, US FOMC announcement and a testimony from US Treasury Secretary Paulson at 15:00GMT. Paulson is expected to comment on Chinese FX policy and there are fears JPY could feature given the current climate. Recently US Treasury"s Adams played down concerns, which reduced JPY risk. This could encourage speculative accounts to increase JPY sales into the London close.
USD/JPY pushed on 121.20 but was unable to extend losses amid importer bid interest and real money cross JPY demand. EUR/JPY breached 157.00 and ran into good real money demand at 156.80. The USD/JPY recovery extended to 120.50/55 and EUR/JPY traded back into 157.25. The market will remain on a tentative footing, with a slew of US data/events due.
The highlights include US GDP, Chicago PMI, US FOMC announcement and a testimony from US Treasury Secretary Paulson at 15:00GMT. Paulson is expected to comment on Chinese FX policy and there are fears JPY could feature given the current climate. Recently US Treasury"s Adams played down concerns, which reduced JPY risk. This could encourage speculative accounts to increase JPY sales into the London close.
Euro Outlook (31st January 2007)
Interest in EUR/USD is reported to be have been limited as Euro crosses and Dollar majors generate the bulk of the short-term momentum being witnessed. Stops below 1.2940 were removed as reserve managers failed to prop the dip but official buyers into the 1.2920 and 1.2900 levels are noted to stall further follow-through sales.
Looking ahead, the FOMC concludes their latest policy assessment later today (19:15 GMT) so many will refrain from entering fresh positions until after the Bernanke rubberstamp to 5.25% rates. Before this event, the deluge of US data continues with ADP Jan numbers, Q4 US GDP and employment (both 13:30 GMT), NY Jan NAPM (14:00 GMT) & Chicago PMI (14:45 GMT). Add to the mix the 15:00 GMT Paulson comments and another choppy afternoon could be on the cards.
1.29/30 directs broader interest with 1.2865 seen as the key level on the downside. On the options front, another batch of 1.30 strikes are set to mature at the NY cut (15:00 GMT) but still downside talk continues with exotic 1.2850 interest now compounded by speculation over 1.2820/30 option structures.
Looking ahead, the FOMC concludes their latest policy assessment later today (19:15 GMT) so many will refrain from entering fresh positions until after the Bernanke rubberstamp to 5.25% rates. Before this event, the deluge of US data continues with ADP Jan numbers, Q4 US GDP and employment (both 13:30 GMT), NY Jan NAPM (14:00 GMT) & Chicago PMI (14:45 GMT). Add to the mix the 15:00 GMT Paulson comments and another choppy afternoon could be on the cards.
1.29/30 directs broader interest with 1.2865 seen as the key level on the downside. On the options front, another batch of 1.30 strikes are set to mature at the NY cut (15:00 GMT) but still downside talk continues with exotic 1.2850 interest now compounded by speculation over 1.2820/30 option structures.
Tuesday, January 30, 2007
EUR/USD: Dips to 1.2850 ahead of Data
With US consumer confidence data in-line with expectations, prices have drifted back up into the low 1.2960s after a dip toward 1.2950 just ahead of the numbers. Options-related sales were rumored for the 15:00 GMT cut. Continued European jawboning on EUR/JPY should slow any rebound rallies in EUR/USD near-term. sellers are still seen toward 1.2980.
USD/CHF: Revision Takes The Fun Out Of Confidence
The upward revision to December US Consumer Confidence has taken the kudos out of breaking the 110 mark. January hit 110.3, from an upwardly revised 110.0, to leave the Dollar underpinned on dips. As a result USD/CHF will continue to be supported on any sign of a drop back to 1.2500 with the stops below likely to remain intact for the moment.
Dealers will also look for signs of renewed Dollar weakness with EUR/USD needing to clear 1.2980/3000 before the upside opens. Against the Euro the Franc is consolidating the run higher. Stops were removed in the break below 1.6220, helping force the current EUR/CHF intraday low at 1.6213, but with bids seen into 1.6200 the downside looks limited for the moment also.
Dealers will also look for signs of renewed Dollar weakness with EUR/USD needing to clear 1.2980/3000 before the upside opens. Against the Euro the Franc is consolidating the run higher. Stops were removed in the break below 1.6220, helping force the current EUR/CHF intraday low at 1.6213, but with bids seen into 1.6200 the downside looks limited for the moment also.
US ECON: Consumer Confidence Index Post at 110.3, At Median
The Conference Board's index of consumer confidence rose slightly to 110.3 in January from 110.0. The December figure was revised upward from 109 when it was reported. This is the highest the index has been since March 2002 (110.7) and matches the May 2002 reading.
Consumers saw the present situation as better in January than in December. The present situation index grew to 133.9 from 130.5, the highest since the May 2006 reading (136.2). The increase is owed to the low gas prices in January and the flattering labor market. However, consumers were less optimistic about the future than they were in December. The expectations index fell to 94.5 from 96.3.
Consumers saw the present situation as better in January than in December. The present situation index grew to 133.9 from 130.5, the highest since the May 2006 reading (136.2). The increase is owed to the low gas prices in January and the flattering labor market. However, consumers were less optimistic about the future than they were in December. The expectations index fell to 94.5 from 96.3.
FX OPTIONS: GBP/USD 1-mth Vol Paid at 6.8%
According to one of my sources that a 1-mth option strike traded at 6.8 pct earlier today. Tuesday February 27 is the present 1-mth expiry date, according to FENICS FX 2002.
On the exotic front: exposure is tipped from 2.0000, inclusive of triggers at 2.0100, 2.0200, 2.0250, 2.0300, 2.0450, and 2.0500. GBP/USD scaled a 15-year peak of 1.9917 seven days ago (Jan 23).
On the exotic front: exposure is tipped from 2.0000, inclusive of triggers at 2.0100, 2.0200, 2.0250, 2.0300, 2.0450, and 2.0500. GBP/USD scaled a 15-year peak of 1.9917 seven days ago (Jan 23).
EUR/USD: Almunia says EUR Can't Get No Respect
EU economics czar Almunia, channeling Rodney Dangerfield, says the Euro doesn't deserve its bad image. He must not have been around in the bad old days of 2000 when the EUR was trading at 0.82 and was a laughing stock.
Some would venture to say that it does not deserve its good image, trading near 1.30 despite the presence of countries like Slovenia in the Euro area. EUR/USD is trading quietly near 1.2960 with support coming via purchases of EUR/JPY by US investment names. Bids are seen in the 1.2950/55 area near-term.
Some would venture to say that it does not deserve its good image, trading near 1.30 despite the presence of countries like Slovenia in the Euro area. EUR/USD is trading quietly near 1.2960 with support coming via purchases of EUR/JPY by US investment names. Bids are seen in the 1.2950/55 area near-term.
US TECHS: S&P Maintains Holding Pattern as Volatility Sinks
Mar S&P has been in a sideways range for the past two months and has been in an even tighter range over the past two sessions. This is not yet a concern for the larger bullish price pattern but failure to break up and away from the 50-day moving average (1421) over the next couple of sessions would be a short-term bearish signal.
That said the big three of sentiment, seasonals and price action still seem to be leaning toward the bullish camp. The equity put/call ratio is not showing the overly optimistic levels that have been associated with significant tops. The larger seasonal pattern remains bullish through mid-April and finally price action is not breaking any significant support levels.
As mentioned, volatility and trending measures, at least on the daily time frame, have sunk to low levels. This implies that the market is ready to make a strong directional move sometime soon. With the weekly chart holding what appears to be a continuation pattern the technical picture is pointing to a solid move higher.
That said the big three of sentiment, seasonals and price action still seem to be leaning toward the bullish camp. The equity put/call ratio is not showing the overly optimistic levels that have been associated with significant tops. The larger seasonal pattern remains bullish through mid-April and finally price action is not breaking any significant support levels.
As mentioned, volatility and trending measures, at least on the daily time frame, have sunk to low levels. This implies that the market is ready to make a strong directional move sometime soon. With the weekly chart holding what appears to be a continuation pattern the technical picture is pointing to a solid move higher.
FX OPTIONS: USD/JPY Curve Flat, JPY Call Interest Noted
The USD/JPY curve has flattened out amid a range bound spot tone. The flatter profile came after further selling in the short end and the front end of the curve. 1-wk vols indicate 7.00/7.75 and the 1-mth indicates 7.05/7.35. 3-mth vols sit at 7.00/7.25, 6-mth is at 6.95/7.20 and the 1-yr is at 7.00/7.20.
A 2nd March 119.00 vs April 9th 117.80 traded at 0.30% in favour of the near-dates and June 7th 114.20 dealt at 8.25%. A 3-mth risk reversal dealt in favour of JPY calls at 1.40% in USD 250 million a leg and long dated interest was also seen. 1-yr 25-d dealt at 1.05% and 18-mth 115.00 JPY puts with a Knock In at 115.00 went through at 0.845% in USD 500 million.
The Asian session also saw 1-yr 15-d reversals trade at 1.7% for JPY calls over and 18th October 120.00 JPY call with a Knock Out at 105.00 traded at 2.035% in USD 100 million. The pick up in downside interest has not had a great deal of effect on the strip. 1-wk reversals show 0.35/1.10, 1-mth is at 0.65/0.95 and the 3-mth shows 0.75/1.05. 6-mth and 1-yr 25-d show 0.95/1.20 respectively.
A 2nd March 119.00 vs April 9th 117.80 traded at 0.30% in favour of the near-dates and June 7th 114.20 dealt at 8.25%. A 3-mth risk reversal dealt in favour of JPY calls at 1.40% in USD 250 million a leg and long dated interest was also seen. 1-yr 25-d dealt at 1.05% and 18-mth 115.00 JPY puts with a Knock In at 115.00 went through at 0.845% in USD 500 million.
The Asian session also saw 1-yr 15-d reversals trade at 1.7% for JPY calls over and 18th October 120.00 JPY call with a Knock Out at 105.00 traded at 2.035% in USD 100 million. The pick up in downside interest has not had a great deal of effect on the strip. 1-wk reversals show 0.35/1.10, 1-mth is at 0.65/0.95 and the 3-mth shows 0.75/1.05. 6-mth and 1-yr 25-d show 0.95/1.20 respectively.
FX OPTIONS: EUR/USD O/N Strike Trades at 9.25%, pre-FOMC Expiry
One of my sources have informed me that an O/N ATM option strike traded at 9.25 pct earlier today. The strike will roll off a few hours ahead of the first FOMC rate verdict and statement of 2007. Beyond tomorrow's 19:15GMT FOMC announcement, the focus will switch to Friday's publication of January's US employment report.
NFP consensus forecast: 140k. 1-mth vol is little moved from today's European open, with 5.85/6.05 defining the current market. 1-mth ATM option strikes were reportedly given at 6.0 pct and 5.9 pct yesterday. The current 1-mth expiry date is Tuesday February 27, according to FENICS FX 2002. The 1-mth expiry date fell on Monday February 26 yesterday.
NFP consensus forecast: 140k. 1-mth vol is little moved from today's European open, with 5.85/6.05 defining the current market. 1-mth ATM option strikes were reportedly given at 6.0 pct and 5.9 pct yesterday. The current 1-mth expiry date is Tuesday February 27, according to FENICS FX 2002. The 1-mth expiry date fell on Monday February 26 yesterday.
FOREX: ECB Reserves Decline EUR700 mln in Jan 26 Week
ECB reserves have declined EUR700 mln in the week ending January 26th with reserves now at EUR145.3 bln. Reserves have now declined EUR3.4 bln in the last three weeks. Gold reserves declined EUR36 mln due to sales from one central bank. Gold reserves have declined 114 out of the last 120 weeks. EUR/USD currently trades at 1.2960.
Swiss Outlook (30th January 2007)
Into European trading and the divergent paths of EUR/CHF and USD/CHF were in focus. EUR/CHF broke 1.6250 (1.6257 the high) to erase exotic options. This buying helped force USD/CHF to bounce off 1.2513. Looking ahead, the latest Swiss leading indicator numbers are due for release tomorrow (Wednesday at 10:30 GMT), the Kof is expected to slip further into the New Year and any such slippage will keep the pressure on the Swiss Franc.
A 1.51 headline in January, from December's figure of 1.60, is seen as the consensus, however, the recent downward trend is set to reverse soon amid expectations Swiss growth will resume again in 2H 2007 after the cooling that is expected to be witnessed in 1H. Following this, SNB President, Roth, is due to speak on Thursday (after 14:00 GMT).
There is a view in the local market that his comments could carry another warning and thus garner more support for the CHF. Such verbal interventions are yet to deter many traders but this coupled with an increase in hawkish rhetoric could give EUR/CHF longs a thing or two to ponder.
A 1.51 headline in January, from December's figure of 1.60, is seen as the consensus, however, the recent downward trend is set to reverse soon amid expectations Swiss growth will resume again in 2H 2007 after the cooling that is expected to be witnessed in 1H. Following this, SNB President, Roth, is due to speak on Thursday (after 14:00 GMT).
There is a view in the local market that his comments could carry another warning and thus garner more support for the CHF. Such verbal interventions are yet to deter many traders but this coupled with an increase in hawkish rhetoric could give EUR/CHF longs a thing or two to ponder.
Sterling Outlook (30th January 2007)
Cable rallied through the peak of today's 1.9598-1.9645 Asian session range from the European open, on the back of good size GBP/JPY buying from a UK clearer. Cable scaled a five-day peak just shy of 1.9700 on the back of that GBP/JPY buying, with a half-cent+ pullback ensuing once the GBP 2.0bn cross buy order was completed.
Touted offers at 1.9720 represent an appreciation obstacle north of 1.9700. Sub-1.9598 support points include 1.9548 (yesterday's 17-day low), and 1.9510. The latter level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last Tuesday's 15-year high). NIESR has warned that UK CPI will fall back to its 2.0% target level this year--but not as swiftly as previously thought (Reuters).
UK CPI is currently at an 11-year high of 3.0%. NIESR has also upwardly revised its 2007 UK GDP growth estimate to 2.75%. The think-tank forecasts UK GDP growth of 2.4% next year. January"s US consumer confidence gauge will be disclosed at 15:00GMT. Forecast: 110.0, from 109.0 in December.
Touted offers at 1.9720 represent an appreciation obstacle north of 1.9700. Sub-1.9598 support points include 1.9548 (yesterday's 17-day low), and 1.9510. The latter level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last Tuesday's 15-year high). NIESR has warned that UK CPI will fall back to its 2.0% target level this year--but not as swiftly as previously thought (Reuters).
UK CPI is currently at an 11-year high of 3.0%. NIESR has also upwardly revised its 2007 UK GDP growth estimate to 2.75%. The think-tank forecasts UK GDP growth of 2.4% next year. January"s US consumer confidence gauge will be disclosed at 15:00GMT. Forecast: 110.0, from 109.0 in December.
Yen Outlook (30th January 2007)
USD/JPY and JPY crosses did little in the European session. Overnight Japanese data saw weaker employment and household consumption, underpinning the weak JPY theme. Production data was on the strong side but a rise in inventories offset the positive headline. Most players chose to sit on the sidelines ahead of a slew of US data due from tomorrow and the FOMC meeting which starts today.
JPY was little affected by further European commentary over the weak yen. It appears that the issue will be brought to the G7, yet it is clearly a European agenda and the wider market has seen limited impact with Japanese officials clearly reluctant to raise the issue. Most of the European action was limited to jobbing the range.
Interbank names bought at the start of the session but momentum waned towards 122.00. Large Asian offers capped and the pair edged back into 121.80. EUR/JPY moved above 158.00, buoyed by a large GBP/JPY buy order. Once the order was filled momentum waned and this seemed to have an adverse effect on the leading JPY pairs. Bias is skewed to a softer JPY tone, yet Asian names look set to cap USD/JPY and EUR/JPY.
JPY was little affected by further European commentary over the weak yen. It appears that the issue will be brought to the G7, yet it is clearly a European agenda and the wider market has seen limited impact with Japanese officials clearly reluctant to raise the issue. Most of the European action was limited to jobbing the range.
Interbank names bought at the start of the session but momentum waned towards 122.00. Large Asian offers capped and the pair edged back into 121.80. EUR/JPY moved above 158.00, buoyed by a large GBP/JPY buy order. Once the order was filled momentum waned and this seemed to have an adverse effect on the leading JPY pairs. Bias is skewed to a softer JPY tone, yet Asian names look set to cap USD/JPY and EUR/JPY.
Euro Outlook (30th January 2007)
Into European trading and the break above 1.2950 gave bulls confidence but the early French data disappointed and this failed to boost the Euro. Spot failed to retest the 1.2975 Asian session high and short-term accounts began to eye the downside. German CPI data then weighed but bids into the 1.2945/50 area continued to prop to leave trading working 1.2950/75.
Stops are noted above 1.2980 with CB offers into 85 before option sales into 1.30. Looking ahead, more comments are expected from the ECOFIN Finance meeting in Brussels. Overnight the conference produced a host of Finance Minister comments but it was the Almunia speech that drew the most press coverage. Kick starting the US deluge for the rest of the week is the first day of the FOMC meeting but only the most ardent expect any move from Bernanke & Co.
US weekly redbook data is followed by the 15:00 GMT release of January Consumer Confidence numbers (the consensus forecast sits at 110.0). On the options front, a brace of 1.3000 strikes are set to mature over the next two days with downside 1.2850 interest still speculated upon.
Stops are noted above 1.2980 with CB offers into 85 before option sales into 1.30. Looking ahead, more comments are expected from the ECOFIN Finance meeting in Brussels. Overnight the conference produced a host of Finance Minister comments but it was the Almunia speech that drew the most press coverage. Kick starting the US deluge for the rest of the week is the first day of the FOMC meeting but only the most ardent expect any move from Bernanke & Co.
US weekly redbook data is followed by the 15:00 GMT release of January Consumer Confidence numbers (the consensus forecast sits at 110.0). On the options front, a brace of 1.3000 strikes are set to mature over the next two days with downside 1.2850 interest still speculated upon.
Monday, January 29, 2007
US TECHS: Rally Stalling in S&P, No Significant Damage Yet
Mar S&P has not really made any net gains since it established a high on December 15. Price action over the past month has stuck to a sideways pattern and has slipped back to the 50-day moving average at 1421, which has been excellent support since the middle of August. A close below there would likely provide a more bearish signal but until that develops the market still has a few technicals leaning toward the bullish camp.
The six-month seasonal pattern remains constructive through April and the equity/put call ratio has not reached the overly optimistic levels that have signaled prior tops. The sideways range of the past month has forced daily ADX to very low levels so this market seems to be on the verge of another trending move. Given the health of the longer-term charts, a test of the 2000 highs (1540) could unfold before a significant decline develops.
The six-month seasonal pattern remains constructive through April and the equity/put call ratio has not reached the overly optimistic levels that have signaled prior tops. The sideways range of the past month has forced daily ADX to very low levels so this market seems to be on the verge of another trending move. Given the health of the longer-term charts, a test of the 2000 highs (1540) could unfold before a significant decline develops.
USD/CHF: Bid Interest Countered By EUR/CHF Demand
Localized demand for USD/CHF seemingly looking to break more stops at 1.2560 until running into countering demand from offshore Investment Houses in EUR/CHF.
GBP/USD: Consolidating Losses, Pru Sells Egg to Citigroup
Cable is currently trading within a quarter-cent of 1.9550, as it consolidates three-and-a-half cent+ losses from last Tuesday's 15-year high of 1.9917. 17-day lows just shy of 1.9550 were plumbed late in the London morning, despite the 11:00GMT disclosure that January's CBI retail sales balance came in double its forecast level at a 25-month high of +30.
Some stops are touted below 1.9550, with bids flagged at 1.9540. Further demand is noted at 1.9520/25, with additional stops pegged under 1.9510 and 1.9500. The 1.9510 level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last Tuesday's 15-year high). 1.9450 and 1.9430 are among slated bear targets south of 1.9500. GBP/USD resistance levels include 1.9600 and 1.9617 (today's Asian session top).
US hedge fund selling was seen pre-1.9600 during the European morning. M&A-wise: UK life assurer Prudential is selling its online bank Egg to Citigroup for GBP 575mn cash (FT website).
Some stops are touted below 1.9550, with bids flagged at 1.9540. Further demand is noted at 1.9520/25, with additional stops pegged under 1.9510 and 1.9500. The 1.9510 level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last Tuesday's 15-year high). 1.9450 and 1.9430 are among slated bear targets south of 1.9500. GBP/USD resistance levels include 1.9600 and 1.9617 (today's Asian session top).
US hedge fund selling was seen pre-1.9600 during the European morning. M&A-wise: UK life assurer Prudential is selling its online bank Egg to Citigroup for GBP 575mn cash (FT website).
USD/CHF: More Domestic Buying Of USD/CHF
Following on from this morning's localized buying of USD/CHF around the 1.2530 area, further interest has been noted paying through the 1.2550 area. Indigenous players are suspected of having interest to break further topside stops between 1.2555-60, in order to stimulate a bid rally session.
EUR/USD: Same Old Same Old
EUR/USD finds its self in tight ranges as the week gets underway in North America with central bank bids guarding the downside and medium-term sales still capping rallies. Sustained jawboning by the ECB is having limited impact with tightening fully anticipated several more times as 2007 unfolds.
Dealers await a flood of US data from mid-week on to help determine the course of US monetary policy. One thing is clear; The Fed is unlikely to cut any time soon. USD bears continue to find excuses for the unexpected resilience of the US economy. The latest is relatively warm weather through the fall of 2006. One factor supporting the USD in a macros sense is the stable oil price. The New York Times highlighted Saudi desires to see prices hold in the $50 region.
One reason is to keep demand from slumping as a result of too-high prices while an ancillary benefit is that it pressures its rival Iran which needs higher prices to keep a restive populace at bay. Small stops are seen above the 1.2930/35 level near-term while offers return toward 1.2950/60. A break above 1.2960 suggests a short to medium-term bottom is in place.
Dealers await a flood of US data from mid-week on to help determine the course of US monetary policy. One thing is clear; The Fed is unlikely to cut any time soon. USD bears continue to find excuses for the unexpected resilience of the US economy. The latest is relatively warm weather through the fall of 2006. One factor supporting the USD in a macros sense is the stable oil price. The New York Times highlighted Saudi desires to see prices hold in the $50 region.
One reason is to keep demand from slumping as a result of too-high prices while an ancillary benefit is that it pressures its rival Iran which needs higher prices to keep a restive populace at bay. Small stops are seen above the 1.2930/35 level near-term while offers return toward 1.2950/60. A break above 1.2960 suggests a short to medium-term bottom is in place.
Swiss Outlook (29th January 2007)
Asian trading centered on the Yen and as a result Swissie was overlooked. USD/CHF pivoted the 1.2550 mark as the standing supply into 1.2360/65 (65 the high from Friday) continued to rebuff advances. However, with carry trade interest on the crosses increasing into European trading the Franc has again spent the morning on the defensive.
Stabs higher in USD/CHF have been witnessed while EUR/CHF is currently attempting to cement the early break back into the 1.62's. Above the All-Time high sits at 1.6237 with the option barriers at 1.6250 still seen as protected. Looking ahead, a busy week for US watchers kicks off only the Dallas & Chicago Fed numbers. Texas Manf. is set for release at 15:30 GMT with the mid-West index following at 17:00 GMT.
The numbers are unlikely to give the Dollar much support in the longer-term as the impending FOMC and Employment reports will garner the bulk of the markets attention. However, should the data be US unit supportive then expect further USD/CHF stabs higher. A UK Clearer is still looking for the 1.2600/05 mark while in the longer-term a Swiss player eyes 1.2770 with EUR/CHF forced back to 1.6300.
Stabs higher in USD/CHF have been witnessed while EUR/CHF is currently attempting to cement the early break back into the 1.62's. Above the All-Time high sits at 1.6237 with the option barriers at 1.6250 still seen as protected. Looking ahead, a busy week for US watchers kicks off only the Dallas & Chicago Fed numbers. Texas Manf. is set for release at 15:30 GMT with the mid-West index following at 17:00 GMT.
The numbers are unlikely to give the Dollar much support in the longer-term as the impending FOMC and Employment reports will garner the bulk of the markets attention. However, should the data be US unit supportive then expect further USD/CHF stabs higher. A UK Clearer is still looking for the 1.2600/05 mark while in the longer-term a Swiss player eyes 1.2770 with EUR/CHF forced back to 1.6300.
Sterling Outlook (29th January 2007)
Cable slid to 17-day lows just shy of 1.9550 late in the London morning, despite the 11:00GMT disclosure that January's CBI retail sales balance came in double its forecast level at a 25-month high of +30, from +25 in December. Some stops are touted below 1.9550, with bids flagged at 1.9540.
Further demand is noted at 1.9520/25, with additional stops pegged under 1.9510 and 1.9500. The 1.9510 level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last Tuesday's 15-year high). GBP/USD resistance levels include 1.9600 and 1.9617 (Asian session top). US hedge fund selling was seen pre-1.9600 during the European morning. EUR/GBP stops reportedly reside above 0.6610. 17-day highs just shy of 0.6610 have been notched since the CBI survey was published at 11:00GMT.
MPC ultra-dove David Blanchflower, who has voted against all three 25bp UK rate hikes through the current tightening cycle, predicts that UK CPI could start falling from February and be below its 2.0% target level by year-end. UK CPI is presently 3.0% (Guardian).
Further demand is noted at 1.9520/25, with additional stops pegged under 1.9510 and 1.9500. The 1.9510 level is a 61.8% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (last Tuesday's 15-year high). GBP/USD resistance levels include 1.9600 and 1.9617 (Asian session top). US hedge fund selling was seen pre-1.9600 during the European morning. EUR/GBP stops reportedly reside above 0.6610. 17-day highs just shy of 0.6610 have been notched since the CBI survey was published at 11:00GMT.
MPC ultra-dove David Blanchflower, who has voted against all three 25bp UK rate hikes through the current tightening cycle, predicts that UK CPI could start falling from February and be below its 2.0% target level by year-end. UK CPI is presently 3.0% (Guardian).
Yen Outlook (29th January 2007)
JPY losses were limited in a quiet European morning. The start of the session saw a quick USD/JPY run higher in the wake of good interest from leverage funds and technical accounts. The 122.00 barriers gave way and the pair extended to 122.19. Gains were short lived amid good selling interest from Tokyo based accounts and Chinese names.
This was the main movement in an otherwise quiet session. Pullbacks into the 121.80 area ran into buying from a UK clearer and a US name, yet the topside failed to dent 122.00 amid ongoing selling pressure. A large part of the interest is reportedly options activity relating to large 122.00 vanilla strikes due to expire throughout the week. Elsewhere, EUR/JPY was underpinned amid proprietary name bids and investment trust demand. The topside was hampered by real money and lifer selling.
Hedging has picked up and expected to continue as accounts reduce their exposure ahead of the G7 meeting in early February. The fundamental and technical picture supports near-term JPY losses but we expect quite a lot of JPY demand as hedging increases via the crosses and option accounts restrict USD/JPY movement.
This was the main movement in an otherwise quiet session. Pullbacks into the 121.80 area ran into buying from a UK clearer and a US name, yet the topside failed to dent 122.00 amid ongoing selling pressure. A large part of the interest is reportedly options activity relating to large 122.00 vanilla strikes due to expire throughout the week. Elsewhere, EUR/JPY was underpinned amid proprietary name bids and investment trust demand. The topside was hampered by real money and lifer selling.
Hedging has picked up and expected to continue as accounts reduce their exposure ahead of the G7 meeting in early February. The fundamental and technical picture supports near-term JPY losses but we expect quite a lot of JPY demand as hedging increases via the crosses and option accounts restrict USD/JPY movement.
Euro Outlook (29th January 2007)
With little altered with regards to the fundamental outlook there was no reason for speculative EUR/USD sales to increase into the new week. Add into the equation the talk of sizeable official support for the Euro on a drop towards 1.2865 and the downside was left limited into European trading.
As a result the topside has been in focus in the short-run but spot has failed to clear the offers into 1.2925/30. Stops are noted tight above but more sellers are then camped around 1.2950 while 1.2970 is expected to cap intraday. In the medium-term, 1.2680/95 targets (low from Oct 31 06 & the 76.4% of 1.2485-3365) are emerging from all corners while longer-term players look to the 1.2505/2485 support zone. However, all these will require the downside to stay in focus in the medium-term but with the ECB likely to hike rates further the single currency could find increased support at such lower levels.
As a result, the 1.2820 level (the 61.8% Fibo of the above move) has now taken on an increased significance for those eyeing the downside. Any break below here will increase the momentum and appetite for a move lower.
As a result the topside has been in focus in the short-run but spot has failed to clear the offers into 1.2925/30. Stops are noted tight above but more sellers are then camped around 1.2950 while 1.2970 is expected to cap intraday. In the medium-term, 1.2680/95 targets (low from Oct 31 06 & the 76.4% of 1.2485-3365) are emerging from all corners while longer-term players look to the 1.2505/2485 support zone. However, all these will require the downside to stay in focus in the medium-term but with the ECB likely to hike rates further the single currency could find increased support at such lower levels.
As a result, the 1.2820 level (the 61.8% Fibo of the above move) has now taken on an increased significance for those eyeing the downside. Any break below here will increase the momentum and appetite for a move lower.
Saturday, January 27, 2007
USD/JPY: JPY Cross Demand Underpins USD/JPY
USD/JPY is trading at 121.55/57 and at the upper half of today's range but good offers remain at 121.65 and 121.80 that will slow any ascent. Helping underpin USD/JPY is cross JPY performance with AUD/JPY at NY session highs of 94.04 and approaching resistance at overnight highs around 94.15.
CAD/JPY broke the 200-day moving average at 102.98 earlier and is at session highs of 103.03. NZD/JPY has rallied off session lows of 84.10 this morning and is at 84.63 with GBP/JPY also bouncing back after selling ahead of the London fix, to trade at 238.28.
EUR/JPY has bounced as well and is testing 157.00. A break above this level targets the offers at 157.25/30. US Treasury comments condoning Japan"s easy monetary policy and expectations that the BOJ will not hike rates after the soft CPI data is fostering fresh JPY selling interest.
CAD/JPY broke the 200-day moving average at 102.98 earlier and is at session highs of 103.03. NZD/JPY has rallied off session lows of 84.10 this morning and is at 84.63 with GBP/JPY also bouncing back after selling ahead of the London fix, to trade at 238.28.
EUR/JPY has bounced as well and is testing 157.00. A break above this level targets the offers at 157.25/30. US Treasury comments condoning Japan"s easy monetary policy and expectations that the BOJ will not hike rates after the soft CPI data is fostering fresh JPY selling interest.
EUR/USD: Fresh New York Highs but No Follow-Through
EUR/USD extended the New York range to the topside, pushing up to 1.2927 but the gains were quickly shed as prices slipped back into the 1.29-teens. A move back above the 1.2950/60 area is needed to take the immediate downside pressure off EUR/USD a prompt shorts to fear a double bottom is in place at 1.2868/78.
Central bank buying at today's low helped prompt the rebound that is extending into early afternoon as is a correction in the recent US yield rise. Bids are eyed at 1.2905 near-term. Offers are scattered from 1.2930 up through 1.2960 above which stops predominate.
Central bank buying at today's low helped prompt the rebound that is extending into early afternoon as is a correction in the recent US yield rise. Bids are eyed at 1.2905 near-term. Offers are scattered from 1.2930 up through 1.2960 above which stops predominate.
USD/CHF: Looks Soft But Traders Eye 10-Day M/A Warily
USD/CHF has traded in a sideways 1.2520-40 chop for most of the morning. Traders are bearish, given that yet again topside failed to break out, although new highs for the month were registered at 1.2565. The swathe of sovereign offers, and corporate hedgers were filled in earlier in the day, only for new sellers to emerge - the approach slopes of Mt. 1.26 are teeming with bears it seems. What is interesting however is that the USD bids have ratcheted up alongside the new highs, short sellers are now on the bid between 1.2520-25 instead of the offer.
Momentum accounts are worried, the day's low, registered in early Asian trading coincided with the 10-day M/A at 1.2480, and price action on the daily chart looks like the pair tested the level and immediately rebounded. Tuesday's 1.2375 low bounced off the 20-day M/A in similar fashion. There was also a 45 degree Gann line from the highs that had held price action up until today violated at 1.2480, giving the 10-day M/A even more power. On the weekly study a close at current levels would reclaim an uptrend line abandoned 9 weeks ago - the bottom of an uptrend channel formed by the June, July and October tops.
Today's highs were the highest since Nov 6, and momentum accounts are getting edgy - without the heavy sovereign sales USD/CHF would be a lot higher - back on the march to the October 1.2775 highs we asked the question is 1.2500 weak? The same question is relevant today.
Momentum accounts are worried, the day's low, registered in early Asian trading coincided with the 10-day M/A at 1.2480, and price action on the daily chart looks like the pair tested the level and immediately rebounded. Tuesday's 1.2375 low bounced off the 20-day M/A in similar fashion. There was also a 45 degree Gann line from the highs that had held price action up until today violated at 1.2480, giving the 10-day M/A even more power. On the weekly study a close at current levels would reclaim an uptrend line abandoned 9 weeks ago - the bottom of an uptrend channel formed by the June, July and October tops.
Today's highs were the highest since Nov 6, and momentum accounts are getting edgy - without the heavy sovereign sales USD/CHF would be a lot higher - back on the march to the October 1.2775 highs we asked the question is 1.2500 weak? The same question is relevant today.
EUR/USD: Shorts Showing No Signs of Panic
It is not unusual for the market to make a new low for the week Friday morning, run into some fresh buying, and then spend the rest of the session squeezing out the new, misplaced shorts. That does not appear to be the case today as rebounds continue to stall in the 1.2920/25 area.
A move back above the 1.2950/60 area will be needed to dramatically change the near-term picture. A move above those levels will confirm a near-term bottom is in fact in place and set the stage for more 1.2850/1.3050 range trade in the weeks ahead. EUR/USD trades at 1.2910.
A move back above the 1.2950/60 area will be needed to dramatically change the near-term picture. A move above those levels will confirm a near-term bottom is in fact in place and set the stage for more 1.2850/1.3050 range trade in the weeks ahead. EUR/USD trades at 1.2910.
Swiss Outlook (26th January 2007)
Stops in USD/CHF have been removed amid the break above 1.2550. These have helped push trading to the 1.2565 level, just shy of the 1.2570 level we noted earlier that one notable Swiss player was eyeing. However, into North American trading and with EUR/USD failing to break below 1.2890 the price is looking to consolidate the run higher.
Looking ahead, the pair will be bid on dips ahead of the US data due this afternoon. US data kicks off with the 13:30 GMT release of Durable goods numbers for December followed by the 15:00 GMT unveiling of New Home Sales (also Dec). Elsewhere, a research note from a UK Clearer heralds a new broader market Dollar barometer. USD/CHF is now seen by the name as the clearest indicator of the Dollar directional bias.
The note cites the increased fixed income interest of late and goes on to tout the recent break above 4.85% in the US 10-year Treasury yield as the trigger for the latest strength. "The highest levels since August 2006 triggered USD gains pretty much across the board". The name in question is looking for a run at 1.2605 into next week in USD/CHF.
Looking ahead, the pair will be bid on dips ahead of the US data due this afternoon. US data kicks off with the 13:30 GMT release of Durable goods numbers for December followed by the 15:00 GMT unveiling of New Home Sales (also Dec). Elsewhere, a research note from a UK Clearer heralds a new broader market Dollar barometer. USD/CHF is now seen by the name as the clearest indicator of the Dollar directional bias.
The note cites the increased fixed income interest of late and goes on to tout the recent break above 4.85% in the US 10-year Treasury yield as the trigger for the latest strength. "The highest levels since August 2006 triggered USD gains pretty much across the board". The name in question is looking for a run at 1.2605 into next week in USD/CHF.
Sterling Outlook (26th January 2007)
Sell interest at 1.9680 kept a lid on cable in early European trade, following its break through 1.9664 (today's Asian session top). Much of the blame for sterling's subsequent three-quarter cent drop to 10-day lows under 1.9600 was attributed to Greg Ip's claim that the Fed is likely to reaffirm its "bias" towards raising interest rates, rather than lowering them, when its two-day meeting concludes next Wednesday (WSJ).
Touted stops below 1.9590 could spur fresh downward momentum if tripped. 1.9590 is an approximate 50% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (Tuesday's 15-year high). There is talk that 1.9570 and 1.9550 option strikes might roll off at today's 10am EST NY cut (15:00GMT). 1.9610 is now a rebound resistance level. Upper obstacles include 1.9626 (yesterday's low), and 1.9645 (Wednesday's floor).
US December durable goods orders will be disclosed at 13:30GMT. Forecast: +3.0% m/m, ex-transport +0.5% m/m. US December new home sales ensue at 15:00GMT. Forecast: 1052k.
Touted stops below 1.9590 could spur fresh downward momentum if tripped. 1.9590 is an approximate 50% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (Tuesday's 15-year high). There is talk that 1.9570 and 1.9550 option strikes might roll off at today's 10am EST NY cut (15:00GMT). 1.9610 is now a rebound resistance level. Upper obstacles include 1.9626 (yesterday's low), and 1.9645 (Wednesday's floor).
US December durable goods orders will be disclosed at 13:30GMT. Forecast: +3.0% m/m, ex-transport +0.5% m/m. US December new home sales ensue at 15:00GMT. Forecast: 1052k.
Yen Outlook (26th January 2007)
JPY consolidated in the European session. USD/JPY held on a supportive footing, while EUR/JPY traded off its overnight highs. USD/JPY was buoyed by a softer than expected Japanese CPI release and a hawkish Greg Ip article in the WSJ. USD/JPY traded higher in early Europe, yet struggled to overcome 121.60 amid Tokyo name offers.
The pair drifted and was dragged lower in the wake of EUR/JPY selling. European fund selling was noted, with a UK clearer and a German name with the order. EUR/USD weakness also weighed and the pair traded down to the 156.70 area. Pullbacks were contained by retail investor demand out of Asia and proprietary name bids. In general, both USD/JPY and EUR/JPY experienced relatively quiet trade compared with recent sessions.
USD/JPY bias is skewed to the topside, yet momentum is struggling due to an overhang of offers. Bid interest between 121.20 and 120.00 should support any pullback. EUR/JPY is expected to find bids between 156.75 and 156.50, with stops below the latter. The European session will focus on durable goods and US new home sales. USD/JPY strikes are noted at 122.00.
The pair drifted and was dragged lower in the wake of EUR/JPY selling. European fund selling was noted, with a UK clearer and a German name with the order. EUR/USD weakness also weighed and the pair traded down to the 156.70 area. Pullbacks were contained by retail investor demand out of Asia and proprietary name bids. In general, both USD/JPY and EUR/JPY experienced relatively quiet trade compared with recent sessions.
USD/JPY bias is skewed to the topside, yet momentum is struggling due to an overhang of offers. Bid interest between 121.20 and 120.00 should support any pullback. EUR/JPY is expected to find bids between 156.75 and 156.50, with stops below the latter. The European session will focus on durable goods and US new home sales. USD/JPY strikes are noted at 122.00.
Euro Outlook (26th January 2007)
The slide in oil seen since yesterday is said to have helped boost the Dollar but the recent adverse weather conditions may hamper any further drop in the price. As a result the Dollar may have elicited all the pre-weekend help it is going to get from the commodity markets.
Lucky for Dollar bulls the US unit has its yield advantage to fall back on. Research notes published today tout the recent break above 4.85% in the US 10-year Treasury yield as the trigger for the latest US unit strength. Into European trading and the Dollar rallied further with EUR/USD easing back to 1.2892 after buying into the 1.29 level was eventually filled. Stops below 1.2890 are still threatened but for the moment the talk of central bank buying is limiting the potential for a run at the current 2007 yearly low at 1.2868 from January 12th.
Looking ahead, the pair will be bid on dips ahead of the US data this afternoon. US data kicks off with the 13:30 GMT release of Durable goods numbers for December followed by the 15:00 GMT unveiling of New Home Sales (also Dec).
Lucky for Dollar bulls the US unit has its yield advantage to fall back on. Research notes published today tout the recent break above 4.85% in the US 10-year Treasury yield as the trigger for the latest US unit strength. Into European trading and the Dollar rallied further with EUR/USD easing back to 1.2892 after buying into the 1.29 level was eventually filled. Stops below 1.2890 are still threatened but for the moment the talk of central bank buying is limiting the potential for a run at the current 2007 yearly low at 1.2868 from January 12th.
Looking ahead, the pair will be bid on dips ahead of the US data this afternoon. US data kicks off with the 13:30 GMT release of Durable goods numbers for December followed by the 15:00 GMT unveiling of New Home Sales (also Dec).
Friday, January 26, 2007
USD/CHF: Back From The Brink, Back In Familiar Territory
After a hefty whack at trying to break out downside, USD/CHF bottomed at 1.2423 and has bounced back up to 1.2445 again. The selling impetus emanated from European markets, and carried through into New York, however the US session range of 1.2423/ 1.2461 - the 50% Fibo of which is 1.2442, seems to be attracting price action into mid-range as traders really are ambivalent at current levels. Overall NY traders are bearish, looking to sell rallies, as the greenback has continually disappointed in its ability to rally through the 1.2530-50 area over the past two weeks - capped by sovereign sales, and European hedgers.
The 38.2% Fibo of the recent 1.2375/1.2550 range that has prevailed for the past few weeks also comes in at 1.2442, so it is no wonder that there is some "stickiness" here. The fact that today's lows fell short of yesterday's lows has tech traders a little disappointed, and wary of a rebound, and with the slow stochastics on the hourly study winding in and out of each other like a snake, these levels are terribly neutral.
Traders are looking for something to propel them out of the doldrums, their nearest hope being ECB speakers this afternoon hence the preponderance to short rallies rather than buy dips. Other than that, US durable goods and new home sales data tomorrow is the next hope, if no break more range trading ahead.
The 38.2% Fibo of the recent 1.2375/1.2550 range that has prevailed for the past few weeks also comes in at 1.2442, so it is no wonder that there is some "stickiness" here. The fact that today's lows fell short of yesterday's lows has tech traders a little disappointed, and wary of a rebound, and with the slow stochastics on the hourly study winding in and out of each other like a snake, these levels are terribly neutral.
Traders are looking for something to propel them out of the doldrums, their nearest hope being ECB speakers this afternoon hence the preponderance to short rallies rather than buy dips. Other than that, US durable goods and new home sales data tomorrow is the next hope, if no break more range trading ahead.
USD/JPY: Bullish Trend Intensity Signal Stalls
The bullish trend intensity signal for USD/JPY has stalled and is at mature levels of 35 where trends often fail. The EUR/USD trend signal is neutral and consolidating, easing to 17.
The GBP/USD trend signal is neutral at 17 and the USD/CHF trend signal is neutral at 27. The EUR/JPY bullish signal has stalled at 25. The ERU/GBP bearish signal has stalled at 27. These proprietary indicators are updated each trading day after the NY close.
The GBP/USD trend signal is neutral at 17 and the USD/CHF trend signal is neutral at 27. The EUR/JPY bullish signal has stalled at 25. The ERU/GBP bearish signal has stalled at 27. These proprietary indicators are updated each trading day after the NY close.
USD/CHF: Toying With 1.2455/60 Offers After US Data
In the wake of the US data USD/CHF is back testing the 1.2455/60 level where local players note reasonable offers. However, these are expected to halt the initial run higher and leave spot drifting inside a 1.2425/55 comfort zone ahead of the European closes.
In other news, the Medley rumours continue with the subject now turning towards the Fed and the potential for higher rates. Should any such report emerge then 1.2500 would come back into sight.
In other news, the Medley rumours continue with the subject now turning towards the Fed and the potential for higher rates. Should any such report emerge then 1.2500 would come back into sight.
US GOVTS: Market In Trouble - Hawkish FOMC
Adding insult to injury there's talk from a US think tank that next Wednesday's FOMC may lean toward the hawkish side, even switching back to implying renewed rate hikes down the road.
Soft economic data meanwhile (initial claims and existing home sales) has not been enough to stop the rot. For Bunds, a close below the 118.18/20 region brings danger, and it won't take much to force new lows. Buying has been in Europe but it has been insufficient to fob off decent leveraged selling, which has been the dominating force this year. Real money types are active but not aggressively so.
Soft economic data meanwhile (initial claims and existing home sales) has not been enough to stop the rot. For Bunds, a close below the 118.18/20 region brings danger, and it won't take much to force new lows. Buying has been in Europe but it has been insufficient to fob off decent leveraged selling, which has been the dominating force this year. Real money types are active but not aggressively so.
EUR/USD: US Yields Reach Pivotal Level
Benchmark 10-year US Treasuries are testing their high yields for the last five months, with a break of the 4.85% area targeting an eventual move back to 5.25%. A hawkish report from one of the big consulting shops is helping push yields higher as has a decline in US existing home inventories. Central bank bids are rumored as close at 1.2965 with more seen down through 1.2940. EUR/USD trades at 1.2972.
FX OPTIONS: USD/JPY Vols Settle Down Amid Spot Recovery
USD/JPY vols have settled down, with spot trading back into the 121.00 region. The most notable move is the easier tone in the short end, with the 1-wk at 7.55/8.30 vs a lofty 8.55/9.30 at the start of the European session. Movement in the remainder of the curve has been less pronounced, although there have been some good moves with some large accounts taking advantage of the improved vol levels.
The 1-mth is at 7.20/7.50 vs 7.60/7.85 and the 3-mth shows 7.05/7.35 vs 7.40/7.70. 6-mth and 1-yr vols currently show 6.90/7.20 vs 7.25/7.50 and 7.15/7.35 respectively. Heavy demand was noted into the European session, with 1-mth trading as high at 7.7% and 1-yr trading from 7.15-7.25%. There was heavy interest for 120.00 strikes, largely in a 1-wk to 2-wk horizon. 2-wk would capture the start of the G7 meeting and is expected to stay bid. Despite the volatility in spot this week there have been range bets put on.
The most notable one to mention is a 120-123 DNT over a 2-mth horizon. This would explain some of the aggressive short dated interest across 120.00 and the decent bid interest that emerged via spot out of Asia. Risk reversal retain their skew for JPY calls over, with 1-mth 25-d indicating 0.80/1.10. This is a touch easier compared with the 0.85/1.15 high we saw this morning.
The 1-mth is at 7.20/7.50 vs 7.60/7.85 and the 3-mth shows 7.05/7.35 vs 7.40/7.70. 6-mth and 1-yr vols currently show 6.90/7.20 vs 7.25/7.50 and 7.15/7.35 respectively. Heavy demand was noted into the European session, with 1-mth trading as high at 7.7% and 1-yr trading from 7.15-7.25%. There was heavy interest for 120.00 strikes, largely in a 1-wk to 2-wk horizon. 2-wk would capture the start of the G7 meeting and is expected to stay bid. Despite the volatility in spot this week there have been range bets put on.
The most notable one to mention is a 120-123 DNT over a 2-mth horizon. This would explain some of the aggressive short dated interest across 120.00 and the decent bid interest that emerged via spot out of Asia. Risk reversal retain their skew for JPY calls over, with 1-mth 25-d indicating 0.80/1.10. This is a touch easier compared with the 0.85/1.15 high we saw this morning.
US ECON: Existing Home Sales Fall 0.8% to 6.22M; 6.8m Supply
Existing home sales drifted down to a 6220k annual rate from a revised 6270k rate in November (prev 6280k). The result compared to expectations to a 6250k rate.
The interesting news is that supply fell to a six-month low of 6.8 mos supply from 7.3 mos in November. There were 3.51 mln homes available for sale at the end of December. Prices rose unexpectedly. The median home price was $222,000 in December, compared with a revised $217,000 in November and an unrevised $222,000 in December 2005. The average price rose to $269,000 from $265,000 and was also above its year-ago level of $268,000.
Sales for all of 2006 dropped by 8.4% to 6480k from a record 7080k in 2005. The annual drop was the sharpest since 17.7% in 1982 but 2006 marked the third strongest year on record for existing home sales.
Sales fell 2.8% in the Northeast to a 1040k rate, rose 4.3% in the Midwest to a 1470k rate and were up 0.8% in the South at 2490k. Sales pulled back by 9.1% to a 1200k rate in the West. Sales in the prior two months had been quite strong.
In December single family home sales fell 1.3% to a 5440k annual rate while condo sales fell 1.8% to a 746k rate. Prices were up slightly for condos but unchanged for single-family homes.
The data reflects contracts that were signed a month or two prior so weather can't be flagged as a supporting factor. Looking ahead sales may drift closer to the 6200k mark in the first quarter. However, the supply overhang is less of an issue in the resale market than first thought. It continues to be an issue for home builders though with companies flagging excess inventories and cancellations as impacting earnings.
The interesting news is that supply fell to a six-month low of 6.8 mos supply from 7.3 mos in November. There were 3.51 mln homes available for sale at the end of December. Prices rose unexpectedly. The median home price was $222,000 in December, compared with a revised $217,000 in November and an unrevised $222,000 in December 2005. The average price rose to $269,000 from $265,000 and was also above its year-ago level of $268,000.
Sales for all of 2006 dropped by 8.4% to 6480k from a record 7080k in 2005. The annual drop was the sharpest since 17.7% in 1982 but 2006 marked the third strongest year on record for existing home sales.
Sales fell 2.8% in the Northeast to a 1040k rate, rose 4.3% in the Midwest to a 1470k rate and were up 0.8% in the South at 2490k. Sales pulled back by 9.1% to a 1200k rate in the West. Sales in the prior two months had been quite strong.
In December single family home sales fell 1.3% to a 5440k annual rate while condo sales fell 1.8% to a 746k rate. Prices were up slightly for condos but unchanged for single-family homes.
The data reflects contracts that were signed a month or two prior so weather can't be flagged as a supporting factor. Looking ahead sales may drift closer to the 6200k mark in the first quarter. However, the supply overhang is less of an issue in the resale market than first thought. It continues to be an issue for home builders though with companies flagging excess inventories and cancellations as impacting earnings.
Swiss Outlook (25th January 2007)
Another day and another raft of comments on the lack of Swiss Franc resilience from the SNB Chairman. Talking to a financial television station Roth noted in his latest comments that he is "sure that (Swiss) fundamentals will show through". The central banker is also noted saying the SNB are "watching import prices very carefully and will act if necessary" and that all currencies have "phases of strength and weakness".
The Franc has reacted to the latest verbal intervention for the SNB head as this is the first time Roth has centered on import prices rather than straight inflation. USD/CHF has eased back to 1.2431 on the rhetoric and a break below the current intraday lows at 1.2428 will see the 1.2400 level come back into focus. Against the Euro, the Franc is looking equally as bid with EUR/CHF still attempting to consolidate the break under 1.6150 with bears eyeing 1.6100 on an extension of the decline.
The Franc has reacted to the latest verbal intervention for the SNB head as this is the first time Roth has centered on import prices rather than straight inflation. USD/CHF has eased back to 1.2431 on the rhetoric and a break below the current intraday lows at 1.2428 will see the 1.2400 level come back into focus. Against the Euro, the Franc is looking equally as bid with EUR/CHF still attempting to consolidate the break under 1.6150 with bears eyeing 1.6100 on an extension of the decline.
Sterling Outlook (25th January 2007)
Sell interest at 1.9730 kept a lid on cable in early European trade, as it pushed its recovery envelope from yesterday's six-day low of 1.9645. Lows just under 1.9680 were posted on the subsequent pullback. Further offers are touted up at 1.9750, half-a-dozen pips ahead of Tuesday's low, and 1.9800.
Loss consolidation from Tuesday's 15-year high of 1.9917 is the big-picture story, with diminished risk of a February UK rate hike helping weigh. That diminished February hike risk derives from BoE Governor King's relatively dovish comments late Tuesday, and yesterday's MPC minutes disclosure that this month's UK rate rise to 5.25% was only delivered by a 5-4 margin. 1.9600 and 1.9590 are noted support points south of 1.9645/50.
The 1.9590 level approximates to a 50% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917. Decent size stops reportedly reside below 1.9590. A 1.9735 option strike rolls off at tomorrow's NY cut (Friday, 15:00GMT). US weekly jobless claims are due at 13:30GMT. Forecast: 310k. US existing home sales ensue at 15:00GMT. Forecast: 6.25mn.
Loss consolidation from Tuesday's 15-year high of 1.9917 is the big-picture story, with diminished risk of a February UK rate hike helping weigh. That diminished February hike risk derives from BoE Governor King's relatively dovish comments late Tuesday, and yesterday's MPC minutes disclosure that this month's UK rate rise to 5.25% was only delivered by a 5-4 margin. 1.9600 and 1.9590 are noted support points south of 1.9645/50.
The 1.9590 level approximates to a 50% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917. Decent size stops reportedly reside below 1.9590. A 1.9735 option strike rolls off at tomorrow's NY cut (Friday, 15:00GMT). US weekly jobless claims are due at 13:30GMT. Forecast: 310k. US existing home sales ensue at 15:00GMT. Forecast: 6.25mn.
Yen Outlook (25th January 2007)
Price action was choppy as G7 risk and carry trade fears continued to influence. JPY received a lift in Asia amid a paring down of built-up cross positions. Both USD/JPY and the JPY crosses posted a decent bounce out of the lows amid Japanese real money demand and fresh speculative positioning.
Gains were clipped by further confusion over the forthcoming G7 meeting. MOF's Watanabe and another unnamed G7 source played down the prospect of a discussion on JPY at the meeting. This weighed on JPY, although gains were limited amid hedge fund selling and general profit taking by stale longs. USD/JPY traded up to 120.70 from the 120.20 lows in Asia but met good selling interest, leaving the pair around 120.40. EUR/JPY pressed higher to print a 156.85 high but was unable to sustain these gains, with prices falling away amid speculative account selling.
GBP/JPY followed a similar theme, yet held up amid rumours of a decent buy order. The activity was reportedly M&A related and follows yesterday's heavy interest from a large US name. Price action is expected to remain choppy, with focus expected to remain on carry trades and pre-G7 risk reduction.
Gains were clipped by further confusion over the forthcoming G7 meeting. MOF's Watanabe and another unnamed G7 source played down the prospect of a discussion on JPY at the meeting. This weighed on JPY, although gains were limited amid hedge fund selling and general profit taking by stale longs. USD/JPY traded up to 120.70 from the 120.20 lows in Asia but met good selling interest, leaving the pair around 120.40. EUR/JPY pressed higher to print a 156.85 high but was unable to sustain these gains, with prices falling away amid speculative account selling.
GBP/JPY followed a similar theme, yet held up amid rumours of a decent buy order. The activity was reportedly M&A related and follows yesterday's heavy interest from a large US name. Price action is expected to remain choppy, with focus expected to remain on carry trades and pre-G7 risk reduction.
Euro Outlook (25th January 2007)
Into European trading and despite the risk to the Ifo release being skewed on the downside speculators were quick to buy EUR/USD on the talk that a 112 headline was in the offing. Spot rallied and the offers from 1.2980 back to 1.3000 were absorbed with option related and official supply stalling the momentum ahead of the publication.
However, the eventual 107.9 January reading forced a quick U-turn and EUR/USD dropped 20-pips as long positions were exited. Bids into the 1.2950/60 area are now expected to prop while any clear break above 1.30 will see bulls look to the 1.3040/50 level. Looking ahead, US data into the North American session kicks off with weekly jobless numbers.
Following this, the 15:00 GMT unveiling of existing home sales & help-wanted index (both December) will keep the attention on the Dollar before the ECB speakers after the European close will re-focus the market attention on the potential for Trichet & Co. to hike rates. On the options front, dealers note 1.2985, 90 & 1.3000 strikes set to expire at the NY cut at 15:00 GMT.
However, the eventual 107.9 January reading forced a quick U-turn and EUR/USD dropped 20-pips as long positions were exited. Bids into the 1.2950/60 area are now expected to prop while any clear break above 1.30 will see bulls look to the 1.3040/50 level. Looking ahead, US data into the North American session kicks off with weekly jobless numbers.
Following this, the 15:00 GMT unveiling of existing home sales & help-wanted index (both December) will keep the attention on the Dollar before the ECB speakers after the European close will re-focus the market attention on the potential for Trichet & Co. to hike rates. On the options front, dealers note 1.2985, 90 & 1.3000 strikes set to expire at the NY cut at 15:00 GMT.
Wednesday, January 24, 2007
EUR/USD: Belgian Survey Correlation Breaking Down
The Belgian Business Sentiment survey is traditionally released a day before the Ifo survey and is thought to be closely correlated. That correlation appears to be breaking down as the Belgian survey has dipped for four straight months and Ifo has risen three of those four months and is expected to rise again tomorrow.
EUR/USD is range-bound after the latest rally stalled near 1.3000. Central bank bids are rumored on dips in the 1.2975/80 area. Small stops lie at 1.2970. Bids return in the 1.2945/55 zone.
EUR/USD is range-bound after the latest rally stalled near 1.3000. Central bank bids are rumored on dips in the 1.2975/80 area. Small stops lie at 1.2970. Bids return in the 1.2945/55 zone.
GBP/USD: Helped Off Six-Day Lows by Real Money Demand
Real money buying of GBP has reportedly aided cable's lift off six-day lows circa 1.9666. The latter level is a 38.2% Fibo retracement point of the ascent from 1.9260 (Jan 8 low) to 1.9917 (yesterday's 15-year high).
GBP/USD resistance levels are located at 1.9700 (approximate London morning floor), 1.9717 (pre-MPC minutes low), 1.9756 (yesterday's base), and 1.9770 (European morning rebound top from 1.9700).
GBP/USD resistance levels are located at 1.9700 (approximate London morning floor), 1.9717 (pre-MPC minutes low), 1.9756 (yesterday's base), and 1.9770 (European morning rebound top from 1.9700).
US GOVTS: CBO Predicts a $172B Budget Deficit in FY2007
The Associated Press reported that the Congressional Budget Office (CBO) projects a $172 bln budget deficit for FY2007. The figure was supposedly disclosed by a congressional aide ahead of the release of the CBO's "The Budget and Economic Outlook: Fiscal Years 2008 to 2017" at 15:00. The report also predicts the budget could swing back to a surplus by 2012, although that would require President Bush's tax cuts to expire at the end of 2010.
The CBO's report also underestimates the cost of military operations in Iraq. The CBO's estimates are typically put together before any supplemental spending has been approved. In recent years the funding for the war in Iraq has largely come from supplemental spending bills making the CBO estimates published early in the year too low.
The CBO's report also underestimates the cost of military operations in Iraq. The CBO's estimates are typically put together before any supplemental spending has been approved. In recent years the funding for the war in Iraq has largely come from supplemental spending bills making the CBO estimates published early in the year too low.
USD/CHF: Fresh Highs But 1.25 Hurdle Holds Fresh Sales
With no data to impede its afternoon appreciation the Dollar has made further stabs higher and 1.2490 printed amid the recent USD/CHF rally. However, local players talk of the 1.2500 level holding what could potentially be a mass of fresh sellers that could then stall any further gains. As a result, profit booking on long positions could be witnessed and into the European close a slight drift lower would see rates edge back towards 1.2445/50.
EUR/USD: The More Things Change
Germany has benefited from past labor market reforms but now that the economy is showing signs of life, labor is reluctant to bend much more. AFX reports that IG Metall, the German engineering union, calls for strikes to protest the government"s plan to raise the retirement age to 67.
It's back to the future in Germany. EUR/USD is getting a lift from continued sovereign demand on dips, trading back up to 1.2995. Expiries at 1.3000 are helping as well. 1.3015 offers are eyed near-term. Small stops are above. Stops on the downside are seen below 1.2970.
It's back to the future in Germany. EUR/USD is getting a lift from continued sovereign demand on dips, trading back up to 1.2995. Expiries at 1.3000 are helping as well. 1.3015 offers are eyed near-term. Small stops are above. Stops on the downside are seen below 1.2970.
Swiss Outlook (24th January 2007)
USD/CHF opened in London at levels around 1.2433 and the market a slightly jaded look about it following Tuesday's sharp decline. Cross activity again had the measure of the Franc with EUR/CHF, GBP/CHF and CHF/JPY all providing direction for the spot market. The main drivers have again been Sterling and the Yen with the fall-out leading to a generally weaker Swiss unit.
Focusing on the Swiss pairs we have seen EUR/CHF confound the pundits and clear the 1.6200 level and USD/CHF has rebounded out of an early European 1.2413 hole. While much of the influence on the Swiss market has been external there has been further positioning linked to the benign Swiss inflation outlook. USD/CHF based at 1.2375 last session and has retraced much of the Tuesday fall from 1.2517.
A 1.2440-1.2480 range seen so far with a slightly easier bias into the North American open. The bigger picture continues to hold roughly to a 1.2400 to 1.2545 range. The 200-day MA line provides support at 1.2355, just outside the 21-day line at 1.2380.
Focusing on the Swiss pairs we have seen EUR/CHF confound the pundits and clear the 1.6200 level and USD/CHF has rebounded out of an early European 1.2413 hole. While much of the influence on the Swiss market has been external there has been further positioning linked to the benign Swiss inflation outlook. USD/CHF based at 1.2375 last session and has retraced much of the Tuesday fall from 1.2517.
A 1.2440-1.2480 range seen so far with a slightly easier bias into the North American open. The bigger picture continues to hold roughly to a 1.2400 to 1.2545 range. The 200-day MA line provides support at 1.2355, just outside the 21-day line at 1.2380.
Sterling Outlook (24th January 2007)
Cable ran into resistance at 1.9770 late in the European morning, after pushing its recovery envelope from two-day lows circa 1.9700. Those lows were plumbed in a knee-jerk reaction to the 09:30GMT disclosure of a closer-than-expected 5-4 MPC vote to hike the base rate to 5.25% earlier this month. Bean, Tucker, Lomax & Blanchflower voted against that hike.
The pound was already under pressure prior to the MPC minutes release, as long GBP positions were cut on the back of yesterday's relatively dovish speech from BoE Governor King. 1.9803-1.9831 was today's Asian session range. GBP bulls have sought solace in the shape of better-than-expected UK Q4 GDP numbers. GBP/USD stops are touted below 1.9696 (last Friday's low). 0.6595 offers capped EUR/GBP at a fractionally fresh one-week peak after the MPC minutes release.
Lows just shy of 0.6576 (today's Asian session top) were posted on the subsequent pullback. Stops are tipped above 0.6610. A raft of GBP/USD exotic option barriers reside from 2.0000, inclusive of triggers at 2.0100, 2.0200, 2.0250, and 2.0300.
The pound was already under pressure prior to the MPC minutes release, as long GBP positions were cut on the back of yesterday's relatively dovish speech from BoE Governor King. 1.9803-1.9831 was today's Asian session range. GBP bulls have sought solace in the shape of better-than-expected UK Q4 GDP numbers. GBP/USD stops are touted below 1.9696 (last Friday's low). 0.6595 offers capped EUR/GBP at a fractionally fresh one-week peak after the MPC minutes release.
Lows just shy of 0.6576 (today's Asian session top) were posted on the subsequent pullback. Stops are tipped above 0.6610. A raft of GBP/USD exotic option barriers reside from 2.0000, inclusive of triggers at 2.0100, 2.0200, 2.0250, and 2.0300.
Yen Outlook (24th January 2007)
JPY experienced wild price swings in the European morning. Initially, broad based JPY gains were noted in the wake of sharp GBP/JPY and AUD/JPY selling. The catalyst was weak Australian CPI release and less hawkish comment from BOE Governor King. This prompted a broad based adjustment. USD/JPY tested either side of the market.
The pair sank early on, breaking through 121.00 and 120.80 to record a 120.66 low as a number of sizeable stops were filled. Trust banks and real money names emerged at the low, fueling a modest recovery. The highlight of the session was a large US name pushed through a good size GBP/JPY order, with GBP 1.5 billion reportedly pushed through the legs. This forced a massive scramble in the market, with EUR/JPY, AUD/JPY, GBP/JPY and USD/JPY all recovering.
EUR/JPY recovered from 156.72 to regain the 158.00 handle and USD/JPY cleared stops at 121.40 and 121.50. There is some concern over the prospect for carry trades. Today's price action was reminder of how quickly the trade could unwind if players all exit together. For now core positions remain but the market is clearly shaken.
The pair sank early on, breaking through 121.00 and 120.80 to record a 120.66 low as a number of sizeable stops were filled. Trust banks and real money names emerged at the low, fueling a modest recovery. The highlight of the session was a large US name pushed through a good size GBP/JPY order, with GBP 1.5 billion reportedly pushed through the legs. This forced a massive scramble in the market, with EUR/JPY, AUD/JPY, GBP/JPY and USD/JPY all recovering.
EUR/JPY recovered from 156.72 to regain the 158.00 handle and USD/JPY cleared stops at 121.40 and 121.50. There is some concern over the prospect for carry trades. Today's price action was reminder of how quickly the trade could unwind if players all exit together. For now core positions remain but the market is clearly shaken.
Euro Outlook (24th January 2007)
The Wednesday session has been all about Sterling and the ever changing market mood towards UK interest rates. The Pound has been under pressure having topped out in the 1.99's last session and failing at 1.9830 earlier today. This activity has leaned on EUR/USD but the effect has been lessened by the pick up in EUR/GBP. Good two-way movement in EUR/GBP and GBP/JPY has also helped to steady the EUR generally.
With just mortgage index numbers in the US Wednesday diary the afternoon session for EUR/USD is again likely to be dominated by external factors, like the sterling moves. Option related interest closed to the 1.30 level looks to be holding the market steady ahead of the North American open. Good bids are touted between 1.2970 and 1.2980 while any recovery towards 1.3050 is expected to find reasonable offers.
There has also been more talk of good sized stops under 1.2950. The market is looking like 1.2950 to 1.3050, 10-day average and Tuesday highs. The bigger picture shows aily trend support at 1.2910 and a failure by price to close above the 21-day moving average today at 1.3027.
With just mortgage index numbers in the US Wednesday diary the afternoon session for EUR/USD is again likely to be dominated by external factors, like the sterling moves. Option related interest closed to the 1.30 level looks to be holding the market steady ahead of the North American open. Good bids are touted between 1.2970 and 1.2980 while any recovery towards 1.3050 is expected to find reasonable offers.
There has also been more talk of good sized stops under 1.2950. The market is looking like 1.2950 to 1.3050, 10-day average and Tuesday highs. The bigger picture shows aily trend support at 1.2910 and a failure by price to close above the 21-day moving average today at 1.3027.
Tuesday, January 23, 2007
EUR/USD: Pullbacks Limited, 1.3055/60 Eyed
EUR/USD dips remain shallow with bulls targeting stops above the 1.3060 level. That area is pivotal technically as it was the January 5 rebound high as well as the December 18 low after EUR/USD topped out at 1.3365. EUR/USD trades at 1.3030 amid 1.3020 bids on dips and solid offers ahead of 1.3050.
The European press is crowing this morning about a Conference Board report showing US productivity advancing only 1.6% in 2006, below levels in Europe and Japan. While that may be the case, the US has enjoyed unimagined productivity advances in the last decade with the 90s IT boom paying dividend for years.
One upshot of the report is that lower productivity growth lowers the "potential" growth rate of the US economy (the rate at which it can grow without producing inflation). This makes the Fed more likely to hike ahead than they would have been in the past. In a yield-starved world, this could support the USD in a macro sense.
The European press is crowing this morning about a Conference Board report showing US productivity advancing only 1.6% in 2006, below levels in Europe and Japan. While that may be the case, the US has enjoyed unimagined productivity advances in the last decade with the 90s IT boom paying dividend for years.
One upshot of the report is that lower productivity growth lowers the "potential" growth rate of the US economy (the rate at which it can grow without producing inflation). This makes the Fed more likely to hike ahead than they would have been in the past. In a yield-starved world, this could support the USD in a macro sense.
GBP/USD: Consolidating Gains, King Speaks at 19:00GMT
Cable is consolidating gains to a 15-year peak of 1.9915, with the risk that the UK base rate might be raised by another 25bp to 5.5% as early as next month (Feb 8) helping underpin. The last time the BoE delivered back-to-back UK rate hikes was in January and February 2000.
Fresh guidance as to the probability of a February 8th UK rate increase will be supplied by a 19:00GMT speech from BoE Governor Mervyn King at the Birmingham Chamber of Commerce annual banquet. Expect some profit-taking on long GBP positions if King is less hawkish-than-expected.
GBP/USD support points include 1.9883 (earlier stall point), 1.9849 (Dec 1 high), and 1.9800. Stops above 1.9800 were tripped in early European trade. December's US leading indicator will be revealed at 15:00GMT.
Forecast: +0.2% m/m. Minutes from the January 10/11 MPC meeting, and the first estimate of UK Q4 GDP, will be disclosed at 09:30GMT tomorrow.
Fresh guidance as to the probability of a February 8th UK rate increase will be supplied by a 19:00GMT speech from BoE Governor Mervyn King at the Birmingham Chamber of Commerce annual banquet. Expect some profit-taking on long GBP positions if King is less hawkish-than-expected.
GBP/USD support points include 1.9883 (earlier stall point), 1.9849 (Dec 1 high), and 1.9800. Stops above 1.9800 were tripped in early European trade. December's US leading indicator will be revealed at 15:00GMT.
Forecast: +0.2% m/m. Minutes from the January 10/11 MPC meeting, and the first estimate of UK Q4 GDP, will be disclosed at 09:30GMT tomorrow.
FOREX: ECB Reserves Decline EUR1.3 bln in Jan 19 Week
ECB reserves have declined sharply for the second week in a row, falling EUR1.3 bln to EUR146.1 bln. The total decline over the last two weeks is EUR2.7 bln. Gold reserves declined by EUR37 mln due to selling from one Eurosystem central bank. Gold reserves have declined for 113 out of the last 119 weeks. EUR/USD currently trades at 1.3026.
US TECHS: False Breakout in NASDAQ Leading Way Lower
The NASDAQ index has been one of the leading indicators for the stock market over the past six months but it has slipped into a sideways range since mid-November. Strength in early January saw the market break through the top of that pattern but that break did not attract follow through selling and the index has subsequently slipped back into the prior range. These false breakout patterns can provide powerful signals and the impression from this one is that the market is headed back to the range lows (2390).
Mar S&P has been following this same path although that contract was not able to make a new high in January and instead stalled right at the spot of the December high at 1445. Given the fairly balanced sentiment readings, this does not appear to be the start of a very significant decline but the reaction to key support (50-day moving average at 1420) will have to be monitored closely over the next few sessions.
Mar S&P has been following this same path although that contract was not able to make a new high in January and instead stalled right at the spot of the December high at 1445. Given the fairly balanced sentiment readings, this does not appear to be the start of a very significant decline but the reaction to key support (50-day moving average at 1420) will have to be monitored closely over the next few sessions.
Swiss Outlook (23rd January 2007)
The Swiss Franc rebounded into European trading as the move higher against the Dollar helped offset further Franc weakness on the crosses. GBP/CHF hit another fresh 5-Year+ high in Asia as 2.4759 printed while EUR/CHF continues to struggle to break above 1.6200.
One Swiss player is looking for further strength here and for the move higher to accelerate once 1.6200 is eventually removed. However, both pairs eased as USD/CHF removed stops on the break below 1.2450. Trading against the Dollar is now looking consolidative with stabs lower eyed by bears if EUR/USD can break above 1.3020/30. Looking ahead, the risk profile for the North American session has been increased by the 15:00 GMT release of the delayed US December Leading Indicator data.
Also set for publication at 15:00 GMT is the latest Richmond Fed manufacturing data. Following this the BoE's King speech will draw the attention but it is the Bush "State of the Union" address that has the biggest potential to shock. On the downside, USD/CHF sees more support into the 1.2400 mark with talk of more stops below.
One Swiss player is looking for further strength here and for the move higher to accelerate once 1.6200 is eventually removed. However, both pairs eased as USD/CHF removed stops on the break below 1.2450. Trading against the Dollar is now looking consolidative with stabs lower eyed by bears if EUR/USD can break above 1.3020/30. Looking ahead, the risk profile for the North American session has been increased by the 15:00 GMT release of the delayed US December Leading Indicator data.
Also set for publication at 15:00 GMT is the latest Richmond Fed manufacturing data. Following this the BoE's King speech will draw the attention but it is the Bush "State of the Union" address that has the biggest potential to shock. On the downside, USD/CHF sees more support into the 1.2400 mark with talk of more stops below.
Sterling Outlook (23rd January 2007)
Eastern European demand helped inflate cable to a 15-year high of 1.9857 during the European morning as GBP continued to benefit from the risk that another 25bp UK rate hike to 5.5% might be delivered as early as next month. GBP/JPY also hit a 15-year peak of 241.03 during the European morning.
Fresh guidance as to the probability of a February 8th UK rate hike will be supplied by a slated 19:00GMT speech from BoE Governor King, and tomorrow's 09:30GMT publication of minutes from the January 10/11 MPC meeting. Some GBP/USD stops are tipped above 1.9860. These could further inflate the rate towards 1.9900 if tripped. An exotic option barrier resides at 1.9900. 2.00 is an oft-mentioned bull target above.
2.01 was the September 1992 high. EUR/GBP tripped stops below 0.6545 in Asia today, en route to a 47-month low of 0.6536. Sell interest at 0.6560 has kept a lid on the subsequent recovery rally. GBP/CHF notched a new 64-month top of 2.4758 in Asia today. January's CBI industrial orders balance came in worse-than-expected, but the price expectations index soared.
Fresh guidance as to the probability of a February 8th UK rate hike will be supplied by a slated 19:00GMT speech from BoE Governor King, and tomorrow's 09:30GMT publication of minutes from the January 10/11 MPC meeting. Some GBP/USD stops are tipped above 1.9860. These could further inflate the rate towards 1.9900 if tripped. An exotic option barrier resides at 1.9900. 2.00 is an oft-mentioned bull target above.
2.01 was the September 1992 high. EUR/GBP tripped stops below 0.6545 in Asia today, en route to a 47-month low of 0.6536. Sell interest at 0.6560 has kept a lid on the subsequent recovery rally. GBP/CHF notched a new 64-month top of 2.4758 in Asia today. January's CBI industrial orders balance came in worse-than-expected, but the price expectations index soared.
Yen Outlook (23rd January 2007)
USD/JPY traded defensively throughout after losing ground after the Tokyo fix. The pair edge through 121.50 and extended losses after finding brief support from Tokyo names. Movement elsewhere led price action, with a decent EUR/USD run higher weighing on USD/JPY. The pair traded into the 121.35 area, yet found good support amid decent interest via the JPY crosses.
GBP/JPY outperformed on general GBP strength, while gains were also noted via AUD/JPY, NZD/JPY and EUR/JPY. EUR/JPY made a fresh all time high, yet struggled initially amid good supply. Selling was noted from option names, lifers and exporters. Price action was choppy around the 158.00 handle and the pair eventually cleared stops above 158.20 and 158.25 to record a 158.28 high.
The JPY crosses are expected to lead USD/JPY price action in the near-term, which should bring the focus back on the 122.00 handle. Recent sessions have seen USD/JPY struggle due to an overhang of offers between 121.80-00. However, we expect the latest JPY moves to feed through USD/JPY, with a return to 121.80/85 likely. Some of the 122.00 triggers roll off today.
GBP/JPY outperformed on general GBP strength, while gains were also noted via AUD/JPY, NZD/JPY and EUR/JPY. EUR/JPY made a fresh all time high, yet struggled initially amid good supply. Selling was noted from option names, lifers and exporters. Price action was choppy around the 158.00 handle and the pair eventually cleared stops above 158.20 and 158.25 to record a 158.28 high.
The JPY crosses are expected to lead USD/JPY price action in the near-term, which should bring the focus back on the 122.00 handle. Recent sessions have seen USD/JPY struggle due to an overhang of offers between 121.80-00. However, we expect the latest JPY moves to feed through USD/JPY, with a return to 121.80/85 likely. Some of the 122.00 triggers roll off today.
Euro Outlook (23rd January 2007)
The Euro rallied into European trading and EUR/USD has finally cleared some of the stale offers/stops to the topside. Stops were removed in the break above 1.3005 (back to around 1.3015) to help fuel the push to the current intraday high at 1.3021. Bulls may look towards the 1.3030 level in the short-run, however, it will be the ability of the pair to hold the gains that will be significant in the long-term.
As a result of this technicians will look for a positive (if not 1.30+) close on the day to signal the end of the 1.29/1.30 consolidation phase that has dominated the bulk of 2007 so far. The 2007 high currently sits at 1.3296 and currently the 38.2% Fibo of 1.3296 to 1.2868 sits at 1.3031, therefore a break above here will signal more potential for a full retracement back to the highs.
Looking ahead, the Bush State of the Union speech may be due today but there is a host of event-risk before his comments hit the screens. The delayed leading indicator data from yesterday adds to the US Richmond Fed due for publication at 15:00 GMT while more ECB rhetoric is expected later.
As a result of this technicians will look for a positive (if not 1.30+) close on the day to signal the end of the 1.29/1.30 consolidation phase that has dominated the bulk of 2007 so far. The 2007 high currently sits at 1.3296 and currently the 38.2% Fibo of 1.3296 to 1.2868 sits at 1.3031, therefore a break above here will signal more potential for a full retracement back to the highs.
Looking ahead, the Bush State of the Union speech may be due today but there is a host of event-risk before his comments hit the screens. The delayed leading indicator data from yesterday adds to the US Richmond Fed due for publication at 15:00 GMT while more ECB rhetoric is expected later.
Monday, January 22, 2007
FX OPTIONS: EUR/USD 1-Week Vol Cold, Early Feb Dates Warmer
1-week implied option volatility is languishing at a session low of 5.25/5.8, having been given at 6.0 pct earlier today. At the start of the year, the 1-week traded as high as 8.25 pct (Jan 2).
An estimated E850mn 1.3000 EUR call option expires a week today (Jan 29), as does an estimated E500mn 1.3155 EUR call.
Later this week (Thursday/Friday), the 1-week should elicit a boost once it encompasses the event risk of the January 30/31 FOMC meeting, and the February 2 release of January's US employment report.
An estimated E850mn 1.3000 EUR call option expires a week today (Jan 29), as does an estimated E500mn 1.3155 EUR call.
Later this week (Thursday/Friday), the 1-week should elicit a boost once it encompasses the event risk of the January 30/31 FOMC meeting, and the February 2 release of January's US employment report.
USD/CHF: Eases Back Below 1.2500 As Dollar Dips On Postponement
The Dollar is easing back on the news that the 15:00 GMT release of US December Leading Indicators has been postponed until tomorrow. USD/CHF has dipped back below 1.2500 on the news but buyers into 1.2495 are currently attempting to stall further declines.
The 10-hour moving average currently sits at 1.2497 and spot has not closed an hourly candle below this line since the post-North American sell-off on Friday. As a result any close below will put a short-term negative bias on the charts and put a return towards 1.2470 & 1.2450 on some bears minds.
The 10-hour moving average currently sits at 1.2497 and spot has not closed an hourly candle below this line since the post-North American sell-off on Friday. As a result any close below will put a short-term negative bias on the charts and put a return towards 1.2470 & 1.2450 on some bears minds.
US ECON: Conf Board's Leading Index Delayed Until Jan 23
The Conference Board announced that it will release its Leading Index 15:00 on Tuesday, January 23. The index had been scheduled to be released on Monday, but is delayed an extra day so the report can incorporate annual benchmark revisions.
US ECON: CFNAI Moves Up; +0.04 in December
The Chicago Fed reported and improvement in its National Activity Index for December. The index was at a positive 0.04 after it had been in the negative in the past three months. Anything above zero shows an above trend economic growth. The index for November was revised to 0.30 from 0.26. The index is lower than the year ago level which posted at 0.49.
The 3-month moving average also increase to 0.19 from 0.36. A year ago the 3-month average was at +0.77. This suggest weak inflationary pressures in the coming months
The 3-month moving average also increase to 0.19 from 0.36. A year ago the 3-month average was at +0.77. This suggest weak inflationary pressures in the coming months
EUR/USD: Sideways Action; Data Delayed
As if this morning's sideways action was not boring enough, the one piece of economic data scheduled for this morning has been postponed until tomorrow. Technical problems at the Conference Board have forced a postponement of the index of leading indicators until tomorrow.
EUR/USD remains sluggish. It is bid on dips into the 1.2930s in anticipation of central bank demand. Recent data showing liquidation of US Treasury positions by OPEC countries as oil prices fall and demand for EUR/USD on dips may be linked to this phenomenon. Prices trade quietly at 1.2941.
EUR/USD remains sluggish. It is bid on dips into the 1.2930s in anticipation of central bank demand. Recent data showing liquidation of US Treasury positions by OPEC countries as oil prices fall and demand for EUR/USD on dips may be linked to this phenomenon. Prices trade quietly at 1.2941.
Swiss Outlook (22nd January 2007)
Swiss economic data continues highlight a picture of benign price pressure in the economy. As a result, the Franc remains on the defensive into the new week. The lack of geopolitics also weighed on the CHF and fresh carry interest on the crosses has also been noted. Broader Dollar strength helped the pair work higher and the offers from 1.2490 back to the 1.2500/05 mark were absorbed.
A return to 1.2530/50 is now eyed by bulls. Dealers see the 13:30 GMT Chicago Fed data (Dec) & Gallup Poll publication (Jan) as the short-run event-risk with the intraday calendar completed by the 15:00 GMT unveiling of the Dec Leading Indicators. Should the Dollar be dented by the data then a return to the 1.2470, 60 & 50 bids will be looked for. Stops are noted below 1.2450.
Against the Euro, dealers talk of option related sales ahead of the 1.6200 expiry later today (15:00 GMT). Levels of 1.6225 and 1.6250 are eyed by bulls with the all-time high sitting at 1.6237. Against the Pound the Franc continues to struggle with the option barriers at 2.4700 protected from 2.4690.
A return to 1.2530/50 is now eyed by bulls. Dealers see the 13:30 GMT Chicago Fed data (Dec) & Gallup Poll publication (Jan) as the short-run event-risk with the intraday calendar completed by the 15:00 GMT unveiling of the Dec Leading Indicators. Should the Dollar be dented by the data then a return to the 1.2470, 60 & 50 bids will be looked for. Stops are noted below 1.2450.
Against the Euro, dealers talk of option related sales ahead of the 1.6200 expiry later today (15:00 GMT). Levels of 1.6225 and 1.6250 are eyed by bulls with the all-time high sitting at 1.6237. Against the Pound the Franc continues to struggle with the option barriers at 2.4700 protected from 2.4690.
Sterling Outlook (22nd January 2007)
This week's key UK event risk is Wednesday's publication of minutes from the January 10/11 BoE MPC meeting, at which the base rate was unexpectedly raised by 25bp to 5.25%. Last November's 25bp increase to 5.0% was delivered by a 7-2 margin, with Rachel Lomax and David Blanchflower dissenting. Blanchflower also voted against last August's 25bp hike to 4.75%. Wednesday will also see the first estimate of UK Q4 GDP.
Forecast: +0.7% q/q, +2.9% y/y. Ernst & Young's Item Club forecasts that the UK economy will grow by 2.9% this year, compared to 2.7% in 2006 (BBC website). The big-picture cable story is gain consolidation to last Thursday's 6-week peak of 1.9780. Helping underpin the pound is the risk that the UK base rate might be raised by another 25bp to 5.5% as early as next month (Feb 8).
The last time the MPC delivered back-to-back rate hikes was in January and February 2000. The latter of those hikes marked the end of a 100bp tightening cycle. 1.9719-1.9758 defines the GBP/USD intra-day range-to-date. 1.9696 (Friday's floor) is a support point south of 1.9719.
Forecast: +0.7% q/q, +2.9% y/y. Ernst & Young's Item Club forecasts that the UK economy will grow by 2.9% this year, compared to 2.7% in 2006 (BBC website). The big-picture cable story is gain consolidation to last Thursday's 6-week peak of 1.9780. Helping underpin the pound is the risk that the UK base rate might be raised by another 25bp to 5.5% as early as next month (Feb 8).
The last time the MPC delivered back-to-back rate hikes was in January and February 2000. The latter of those hikes marked the end of a 100bp tightening cycle. 1.9719-1.9758 defines the GBP/USD intra-day range-to-date. 1.9696 (Friday's floor) is a support point south of 1.9719.
Euro Outlook (22nd January 2007)
Into European trading and EUR/USD held softer having been capped at 1.2980 in late Asian trading. Spot pivoted 1.2970 while early German economic data was digested before heading lower once more as cumulative sales weighed. Bids into 1.2955 propped for a time before European names and speculative sales increased and price broke under 1.2950.
Small stops were triggered in the move and 1.2939 was printed. However, dealers were aware of decent bids in the 1.2930's so spot soon recovered. Offers into 1.3000/10 remain key above. Looking ahead, the short-term event-risk for EUR/USD will be the 13:30 GMT release of Chicago Fed data (Dec) and the UBS/Gallup Index (Jan). Following this the attention will turn to the 15:00 GMT December Leading Indicators and the Fed's Yellen, who is set to speak in Reno after the European close.
On the options front a barrage of topside strikes will weigh on price ahead of the 15:00 GMT NY cut. Large 1.2990 and smaller 1.3000 strikes should stall any topside interest with more 1.30 expiry action later in the week.
Small stops were triggered in the move and 1.2939 was printed. However, dealers were aware of decent bids in the 1.2930's so spot soon recovered. Offers into 1.3000/10 remain key above. Looking ahead, the short-term event-risk for EUR/USD will be the 13:30 GMT release of Chicago Fed data (Dec) and the UBS/Gallup Index (Jan). Following this the attention will turn to the 15:00 GMT December Leading Indicators and the Fed's Yellen, who is set to speak in Reno after the European close.
On the options front a barrage of topside strikes will weigh on price ahead of the 15:00 GMT NY cut. Large 1.2990 and smaller 1.3000 strikes should stall any topside interest with more 1.30 expiry action later in the week.
Yen Outlook (22nd January 2007)
JPY continued to lose ground in the European morning session. The JPY crosses led movement; EUR/JPY pushed higher amid good demand from a US name and a Swiss account into the European session. Good investment trust demand was cited, with Japanese accounts and offshore name behind the flows.
EUR/JPY pushed up to 157.65 from the low 157's in Asia, while GBP/JPY once again traded above the 240.00 handle to a high 240.39. USD/JPY moved through 121.50 and triggered to stops to record a 121.69 high. Exporter selling was noted from 121.65 and these capped for a short while, along with option related interest. Focus remains on the 122.00 option triggers, although there is considerable interest to emerge ahead amid heavy order flows from Japanese corporates and option names.
The bias remains up but there has been a lack of momentum amid overstretched positions in the JPY crosses and USD/JPY. The market is poised for a pick-up in official FX rhetoric into the World Economic Forum in Davos, this Wednesday. Elsewhere, options interest is noted at 121.75 and 122.00 today and EUR/JPY sees option supply at 158.00.
EUR/JPY pushed up to 157.65 from the low 157's in Asia, while GBP/JPY once again traded above the 240.00 handle to a high 240.39. USD/JPY moved through 121.50 and triggered to stops to record a 121.69 high. Exporter selling was noted from 121.65 and these capped for a short while, along with option related interest. Focus remains on the 122.00 option triggers, although there is considerable interest to emerge ahead amid heavy order flows from Japanese corporates and option names.
The bias remains up but there has been a lack of momentum amid overstretched positions in the JPY crosses and USD/JPY. The market is poised for a pick-up in official FX rhetoric into the World Economic Forum in Davos, this Wednesday. Elsewhere, options interest is noted at 121.75 and 122.00 today and EUR/JPY sees option supply at 158.00.
Friday, January 19, 2007
US TECHS: Commodities Outlook; Gold and Oil
[Gold] has been using converging 40- and 50-day moving averages on either side of $631 as a pivot the past week, first as resistance, then as support, and now back to resistance. Dec 1 to Jan 3 downtrends are at $642 today, while more steeply sloped Jan 3-18 downtrends are at $636.40. Continuation charts need a $645+ push to escape the dominant triangle pattern in place since July peaks. Daily trend models are bullish at $629 and higher; weeklies and monthlies are heading in a bullish direction by a modest amount.
[Oil] needs a move to about $51.50 Feb today in order to neutralize bearish daily trend models. Our Trend Intensity indicator has enough momentum in it to keep upticking bearishly for many days, absent a sharp reversal higher in prices. Yesterday saw long-term oscillator studies nearly matching the market's most extreme oversold readings ever set in 1986, when oil dipped below $10/barrel after having been nearly $32/barrel a short time before. Projected weekly supports for next week are setting up in the $48.25-49.40 region, and traders are urged to remain alert for a sizable counter-trend event developing.
[Oil] needs a move to about $51.50 Feb today in order to neutralize bearish daily trend models. Our Trend Intensity indicator has enough momentum in it to keep upticking bearishly for many days, absent a sharp reversal higher in prices. Yesterday saw long-term oscillator studies nearly matching the market's most extreme oversold readings ever set in 1986, when oil dipped below $10/barrel after having been nearly $32/barrel a short time before. Projected weekly supports for next week are setting up in the $48.25-49.40 region, and traders are urged to remain alert for a sizable counter-trend event developing.
USD/JPY: Makes Small Upside Progress After Strong US Data
USD/JPY is making small upside progress after the strong US Michigan sentiment data. A 121.47 high has been recorded, although momentum is a struggle due to heavy Japanese offers. Interest is noted from 121.50, 121.60/65 and ahead of 121.75 option triggers.
Price action are to be expected, led by EUR/USD movement, although central bank support has led to choppy price action at the lows. The JPY crosses have experienced some weakness, with EUR/JPY seeing the biggest move off the overnight high. Some of the other movers in the European morning, such as AUD/JPY, NZD/JPY and GBP/JPY have improved from their lows, leaving a mixed tone ahead of the weekend.
Position adjustment and book cleaning activity are expected to influence the remainder of the session. As a result we see little scope for a decent trend. USD/JPY should retain its upside bias, yet we do not expect 122.00 to come under pressure until next week should orderly price action continue. Buy on dips remains the theme.
Price action are to be expected, led by EUR/USD movement, although central bank support has led to choppy price action at the lows. The JPY crosses have experienced some weakness, with EUR/JPY seeing the biggest move off the overnight high. Some of the other movers in the European morning, such as AUD/JPY, NZD/JPY and GBP/JPY have improved from their lows, leaving a mixed tone ahead of the weekend.
Position adjustment and book cleaning activity are expected to influence the remainder of the session. As a result we see little scope for a decent trend. USD/JPY should retain its upside bias, yet we do not expect 122.00 to come under pressure until next week should orderly price action continue. Buy on dips remains the theme.
USD/CHF: 1.2550 Re-Test Eyed As Data Matches Rumour
A re-test of the 1.2550 level will be eyed by bulls in the wake of the buoyant 98.0 January Michigan sentiment reading. Those who bought on the rumour will undoubtedly sell on the fact so we at IFR foresee further profit taking hampering the ability of the pair to eke more meaningful gains. However, into the European close and further Dollar strength could filter through as speculation over fix demand keeps the US unit bid into the weekend.
US ECON: U of Michigan Sentiment Post Above Expectations
The preliminary look at January's sentiment shows consumers are much more confident than in December. The index jumped 6.3 points to 98.0, the highest level in three years. The index was rumored to reach 98.0 a little after 14:30 but the market expected a 1.1-point rise to 92.8 from a 91.7 index in December.
Pushing the index were the record highs in the current condition and expectations index. Current conditions, owing to the low oil prices rose by 4.4 points to 112.5, the highest since July 2005. The expectation index rose to 88.7 from 81.2, marking a 2-year high.
Pushing the index were the record highs in the current condition and expectations index. Current conditions, owing to the low oil prices rose by 4.4 points to 112.5, the highest since July 2005. The expectation index rose to 88.7 from 81.2, marking a 2-year high.
EUR/USD: ECB's Garganas Says Policy Still Very Accommodative
The ECB's Garganas says that monetary policy is still very accommodative and that inflation may reach 2% or more in 2007. Growth should be near or likely above potential in 2007 and that the ECB will act in a timely, prompt manner if needed. Fed speakers see inflation coming lower but remain focused on the chance it could accelerate. ECB speakers remain uniformly hawkish. EUR/USD is steady at 1.2943 amid talk of quasi-central bank bids below the 1.2940 level.
Sterling Outlook (19th January 2007)
Cable ran into a brick wall ahead of 1.9780 (yesterday's six-week peak) after rallying on the back of much better-than-expected 09:30GMT UK retail sales data. A bout of profit-taking on long GBP/USD positions was blamed for the subsequent half-cent+ drop to an intra-day low of 1.9709.
UK December retail sales came in +1.1% m/m, +3.7% y/y, against forecast increases of 0.5% m/m, and 3.2% y/y. The very strong numbers increase the risk of another 25bp UK base rate hike to 5.5% as early as next month (Feb 8). 1.9700, 1.9680, 1.9650, and 1.9636 (yesterday's floor) are noted support points south of 1.9709.
Offers are touted at 1.9780, inclusive of Swiss interest, with further sell orders flagged up at 1.9800. Bull targets/resistance levels above include 1.9849 (Dec 1, 14-year high), 1.9900, and 2.00. January's preliminary Michigan Sentiment index will be revealed at 15:00GMT.
Forecast: 92.5. Next week's key UK event risk is Wednesday's publication of minutes from last week's BoE MPC meeting, at which the UK base rate was unexpectedly raised by 25bp to 5.25%.
UK December retail sales came in +1.1% m/m, +3.7% y/y, against forecast increases of 0.5% m/m, and 3.2% y/y. The very strong numbers increase the risk of another 25bp UK base rate hike to 5.5% as early as next month (Feb 8). 1.9700, 1.9680, 1.9650, and 1.9636 (yesterday's floor) are noted support points south of 1.9709.
Offers are touted at 1.9780, inclusive of Swiss interest, with further sell orders flagged up at 1.9800. Bull targets/resistance levels above include 1.9849 (Dec 1, 14-year high), 1.9900, and 2.00. January's preliminary Michigan Sentiment index will be revealed at 15:00GMT.
Forecast: 92.5. Next week's key UK event risk is Wednesday's publication of minutes from last week's BoE MPC meeting, at which the UK base rate was unexpectedly raised by 25bp to 5.25%.
Yen Outlook (19th January 2007)
JPY consolidated, with USD/JPY and the JPY crosses unable to sustain the recent highs. USD/JPY retraced from the Tokyo high amid an overhang of exporter offers from 121.40 up towards yesterday's 121.60 high. Profit taking by longs and a smattering of sales from Japanese exporters was noted, although, there was a lack of appetite to push it aggressively lower as the market was aware that importers will have to buy relatively large amounts ahead of month-end.
EUR/JPY, GBP/JPY, AUD/JPY and NZD/JPY all experienced profit taking. Real money selling was noted in AUD/JPY and NZD/JPY via a Japanese securities house, while EUR/JPY fell amid European fund sales and an easier EUR/USD tone. EUR/JPY found bid interest towards the 157.00 area.
GBP/JPY was pulled back under the weight of selling via GBP/USD after the pair was unable to sustain gains despite strong UK retail sales. The outlook for JPY remains negative, however, some large JPY players are seeing signs of excess in the crosses, while the feeling is USD/JPY may still have some more upside. Exporter interest has picked up, yet many eye a run on 125.00.
EUR/JPY, GBP/JPY, AUD/JPY and NZD/JPY all experienced profit taking. Real money selling was noted in AUD/JPY and NZD/JPY via a Japanese securities house, while EUR/JPY fell amid European fund sales and an easier EUR/USD tone. EUR/JPY found bid interest towards the 157.00 area.
GBP/JPY was pulled back under the weight of selling via GBP/USD after the pair was unable to sustain gains despite strong UK retail sales. The outlook for JPY remains negative, however, some large JPY players are seeing signs of excess in the crosses, while the feeling is USD/JPY may still have some more upside. Exporter interest has picked up, yet many eye a run on 125.00.
Euro & Swiss Outlook (19th January 2007)
With the Dollar steady ahead of the weekend, USD/CHF has been forced into a rough 1.2450/2500 range. Dealers are expecting to see more pre-weekend profit-taking but with 1.2550 now seen as the key topside level is will take a break above here before the Dollar can extend its recent bull-run.
Intraday and Franc crosses have once more generated a better income-stream than the Dollar pair. Both EUR/CHF & GBP/CHF note option expiries close by with the 1.6200 & 2.4550 levels within striking distance in both. Bids in EUR/CHF into 1.6165/70 have propped into European trading while GBP/CHF bounced off 2.4585 into European action. Looking ahead, the deluge of US data already seen this week means there is little left to hit the screens.
Lacker comments are due early into North American trading (around 13:00 GMT) with data looking sparse. The key short-term event-risk for the US unit is seen as the 15:00 GMT January Michigan Consumer Sentiment release. Economists expect a 92.5 headline, compared to the previous 91.7 Dec reading.
Intraday and Franc crosses have once more generated a better income-stream than the Dollar pair. Both EUR/CHF & GBP/CHF note option expiries close by with the 1.6200 & 2.4550 levels within striking distance in both. Bids in EUR/CHF into 1.6165/70 have propped into European trading while GBP/CHF bounced off 2.4585 into European action. Looking ahead, the deluge of US data already seen this week means there is little left to hit the screens.
Lacker comments are due early into North American trading (around 13:00 GMT) with data looking sparse. The key short-term event-risk for the US unit is seen as the 15:00 GMT January Michigan Consumer Sentiment release. Economists expect a 92.5 headline, compared to the previous 91.7 Dec reading.
Thursday, January 18, 2007
USD/CHF: 1.2547 Prints, Profits Booked As EUR/USD Bounces
1.2547 printed in the move higher but "fast-money" accounts have again been active amid the move lower. London dealers talk of fund profit-booking after the highs were probed amid the EUR/USD test of 1.2900. However, with EUR/USD bouncing and talk of official USD/CHF sellers the downside has come back into view. Ahead of the European closes and with little on the diary for tomorrow some are expecting this vein of profit-taking to continue with 1.2500 resistance turned support eyed as the initial level to base a USD/CHF pullback.
GBP/USD: Recovery Rally Runs into Resistance at 1.9680
Cable's recovery rally from an intra-day low of 1.9637 has run into resistance at 1.9680. Tripped stops below 1.9680 helped depress GBP/USD to that 1.9637 low, following the 13:30GMT release of USD-positive housing starts and jobless claims data.
1.9680+ obstacles include 1.9692 (today's Asian session base), 1.9724 (yesterday's peak), 1.9743 (today's Asian session top), and 1.9780. Six-week highs just shy of 1.9780 were notched in early European trade. 1.9610, 1.9725 and 1.9800 option strikes roll off at today's 10am EST NY cut (15:00GMT).
Looking ahead: Fed Governor Ben Bernanke is slated to speak about budgetary issues at 15:00GMT. January's Philly Fed business outlook survey index will be revealed at 17:00GMT. Forecast: 3.1. UK December retail sales figures will be disclosed at 09:30GMT tomorrow (Friday).
1.9680+ obstacles include 1.9692 (today's Asian session base), 1.9724 (yesterday's peak), 1.9743 (today's Asian session top), and 1.9780. Six-week highs just shy of 1.9780 were notched in early European trade. 1.9610, 1.9725 and 1.9800 option strikes roll off at today's 10am EST NY cut (15:00GMT).
Looking ahead: Fed Governor Ben Bernanke is slated to speak about budgetary issues at 15:00GMT. January's Philly Fed business outlook survey index will be revealed at 17:00GMT. Forecast: 3.1. UK December retail sales figures will be disclosed at 09:30GMT tomorrow (Friday).
EUR/USD: Rebounds from Probe Below 1.2900
EUR/USD is rebounding from another probe below 1.2900, in very similar fashion to the way it rebounded yesterday on a similar dip following US PPI data. Central bank buying was rumored yesterday on dips and similar talk is making the rounds again today. 1.2940/50 offers are seen on rebounds. Look for quiet range trade once intraday shorts are covered. Sadly, EUR/USD looks to be going nowhere fast.
USD/JPY: Stops Filled On 121.50 Break
USD/JPY stops have been triggered on the spot through 121.50, extending to a 121.59 high. Offers between 120.60 and 120.70 are currently capping prices, yet pullbacks have been limited throughout the European session. Macro buyers and ongoing leverage account activity has the market directly focused on 122.00 option triggers, which are reportedly very large. Sellers are lined up all the way up to this level but at this time interest is only providing limited defense.
USD/JPY: Fails To Overcome 121.45/50 Offers
USD/JPY has failed to overcome 121.45/50 offers despite the broad dollar gains seen in the wake of the US data releases. Data was largely better than expected but this had only a minimal impact on price action, with standing Japanese offers capping the move high.
Sources note sizeable flows between 121.45 and 121.50, with one Japanese name alone reportedly having USD 1 yard to execute, while a number of other technical based accounts and model funds are also emerging here. Further offer are seen at 121.60/65, 121.70/75 and towards the 121.87 level, which is a March 2003 high.
Elsewhere, EUR/JPY is beginning to recovering from the early US mark down, with CTAs and proprietary names coming back into the market after stops were filled down to 156.55. The market is looking for an eventual run back into 158.00. Traders note offer from 157.35 up to 157.50, which have capped European morning gains.
Sources note sizeable flows between 121.45 and 121.50, with one Japanese name alone reportedly having USD 1 yard to execute, while a number of other technical based accounts and model funds are also emerging here. Further offer are seen at 121.60/65, 121.70/75 and towards the 121.87 level, which is a March 2003 high.
Elsewhere, EUR/JPY is beginning to recovering from the early US mark down, with CTAs and proprietary names coming back into the market after stops were filled down to 156.55. The market is looking for an eventual run back into 158.00. Traders note offer from 157.35 up to 157.50, which have capped European morning gains.
US TECHS: Possible False Breakout in NASDAQ May Stall S&P
A good deal of the rally in major equity indexes since this summer appears to have been led by the NASDAQ. Recently that index broke through the top of sideways range pattern but it has had difficulty generating follow through. Yesterday's dip closed right on the top of that range (1824 on NASDAQ 100) so the picture is a bit cloudy this morning, but a close through that level today would constitute a false breakout.
Such a close would be a signal that the markets are headed back into the range and will be more susceptible to selling pressure. Of course if the index closes above that range again an adoption of a short-term bearish bias would be on hold. The last couple sessions in MAR S&P have been stalling a bit at the December high at 1444.
While it's somewhat positive that the contract is seeing persistent trade against there, failure to get through there by Friday's close would be more damage to the pattern of higher highs and higher lows that had dominated the move since the summer lows.
Such a close would be a signal that the markets are headed back into the range and will be more susceptible to selling pressure. Of course if the index closes above that range again an adoption of a short-term bearish bias would be on hold. The last couple sessions in MAR S&P have been stalling a bit at the December high at 1444.
While it's somewhat positive that the contract is seeing persistent trade against there, failure to get through there by Friday's close would be more damage to the pattern of higher highs and higher lows that had dominated the move since the summer lows.
USD/CHF: Funds Eye Run At 1.2550
As EUR/USD works lower USD/CHF has broken above the previous top at 1.2530. However, funds are only talking on an extension of the top towards the 1.2550 level while EUR/USD holds above 1.2890/2900 mark.
GBP/USD: Trips Stops Below 1.9680 & 1.9660 post-US Data
Cable has tripped stops below 1.9680 and 1.9660 en route to a low of 1.9637 since the disclosure of better-than-expected US December housing starts. These came in at 1642k, against the 1565k forecast. Weekly US jobless claims also came in well-below forecast, at 290k against the expected 314k.
US December core CPI came in +0.2% m/m, exactly as expected. Sub-1.9637 support points/bear targets include 1.9620, 1.9610, 1.9600, and 1.9590 (Tuesday's base). Demand is tipped at 1.9620. A 1.9610 option strike rolls off at today's 10am EST NY cut (15:00GMT).
US December core CPI came in +0.2% m/m, exactly as expected. Sub-1.9637 support points/bear targets include 1.9620, 1.9610, 1.9600, and 1.9590 (Tuesday's base). Demand is tipped at 1.9620. A 1.9610 option strike rolls off at today's 10am EST NY cut (15:00GMT).
EUR/USD: Firm US Housing, Jobless Data Helping USD
EUR/USD is testing Wednesday's lows after strong US housing data and a continued fall in jobless claims. CPI was in-line with expectations. Central bank buying in the 1.2900 area yesterday helped hold the line and will keep dealers from aggressively selling this morning. Strong support lies in the 1.2865/75 area still on dips while 1.2850 barriers also remain in play. 1.2940 is resistance on rebounds.
Swiss Outlook (18th January 2007)
Swiss data was overlooked intraday (both robust retail sales and the January ZEW rebound) as renewed Franc shorting pushed the unit lower across the board. Cross selling, to fund fresh carry trades, weighed on USD/CHF and 1.2480 & 1.2500 offers were quickly absorbed.
1.2524 printed as the stops above 1.2515 were triggered and the current range-top at 1.2525/30 is now in sight on stabs higher. On the crosses EUR/CHF traded at levels not seen since Jan-99 as 1.6201 printed while GBP/CHF also hit fresh 5-year highs at 2.4694. Option barriers in EUR/CHF are now eyed at 1.6225 & 1.6250. Looking ahead, a busy North American session is once more expected. This kicks off with the 13:00 GMT Pianalto comments, however, it is the 13:30 GMT December US CPI data that is most eagerly anticipated.
Economists expect a +0.4% M/M headline against the previous flat reading. Core inflation is forecast up 0.2%. Also set for release at 13:30 GMT are the December US Housing Start & Real Earning numbers. Following this the European close will be manipulated by the tone undertaken in the 15:00 GMT Bernanke testimony.
1.2524 printed as the stops above 1.2515 were triggered and the current range-top at 1.2525/30 is now in sight on stabs higher. On the crosses EUR/CHF traded at levels not seen since Jan-99 as 1.6201 printed while GBP/CHF also hit fresh 5-year highs at 2.4694. Option barriers in EUR/CHF are now eyed at 1.6225 & 1.6250. Looking ahead, a busy North American session is once more expected. This kicks off with the 13:00 GMT Pianalto comments, however, it is the 13:30 GMT December US CPI data that is most eagerly anticipated.
Economists expect a +0.4% M/M headline against the previous flat reading. Core inflation is forecast up 0.2%. Also set for release at 13:30 GMT are the December US Housing Start & Real Earning numbers. Following this the European close will be manipulated by the tone undertaken in the 15:00 GMT Bernanke testimony.
Sterling Outlook (18th January 2007)
Tripped stops above 1.9752 helped inflate cable to 6-week highs just shy of 1.9780 in early European trade. A perception that Tim Besley's inaugural 08:40GMT MPC speech was less hawkish than it could have been was touted as a factor in sterling's subsequent three-quarter cent pullback.
GBP/USD support points include 1.9700, 1.9692 (today's Asian session floor), 1.9645 (yesterday's NY session base), and 1.9603 (yesterday's low). 1.9725 and 1.9800 option strikes roll off at today's 10am EST NY cut (15:00GMT), as does a GBP/CHF 2.4650 strike, and EUR/GBP 0.6550, 0.6545, and 0.6540 strikes. There is also EUR/GBP exotic exposure at 0.6550. GBP/CHF scaled a 64-month peak just shy of 2.47 during a European morning in which EUR/GBP plumbed new 31-month lows within a tenth-of-a-penny of 0.6550.
There is a raft of US data due today, with the prime focus being the 13:30GMT unveiling of December inflation figures. Headline CPI is forecast +0.4% m/m, with core CPI forecast +0.2% m/m. December housing starts will also be revealed at 13:30GMT. Forecast: 1565k.
GBP/USD support points include 1.9700, 1.9692 (today's Asian session floor), 1.9645 (yesterday's NY session base), and 1.9603 (yesterday's low). 1.9725 and 1.9800 option strikes roll off at today's 10am EST NY cut (15:00GMT), as does a GBP/CHF 2.4650 strike, and EUR/GBP 0.6550, 0.6545, and 0.6540 strikes. There is also EUR/GBP exotic exposure at 0.6550. GBP/CHF scaled a 64-month peak just shy of 2.47 during a European morning in which EUR/GBP plumbed new 31-month lows within a tenth-of-a-penny of 0.6550.
There is a raft of US data due today, with the prime focus being the 13:30GMT unveiling of December inflation figures. Headline CPI is forecast +0.4% m/m, with core CPI forecast +0.2% m/m. December housing starts will also be revealed at 13:30GMT. Forecast: 1565k.
Yen Outlook (18th January 2007)
JPY losses accelerated after BOJ Governor Fukui offered little on future hikes. He said there was no predetermined timing for a rate hike encouraging broad based JPY selling. The JPY lost ground against GBP, AUD, NZD, EUR and the USD. USD/JPY immediately breached 121.00 at the start of the European session and extended higher.
Buying was noted from speculative accounts, real money names and leverage funds. The pair traded into 121.30 and experienced very good two-way action before moving up to a 121.45 high. The pair slipped back into the 121.25/30 area, yet remained bid throughout. EUR/JPY saw a similar theme, extending to 157.37. An overhang of Japanese offers coupled with sizeable USD/JPY supply at 121.45 capped EUR/JPY gains. Profit takers moved in, with one UK name selling in good size.
A US name on behalf of a fund was a good buyer ahead of 157.00 and this kept the pair bid ahead of the US session. GBP/JPY also pushed higher, yet topped out ahead of large size 240.00 stops. Crosses are to be expected and USD/JPY to trade on the firmer side in the near-term, with BOJ policy bias encouraging further JPY-funded positioning.
Buying was noted from speculative accounts, real money names and leverage funds. The pair traded into 121.30 and experienced very good two-way action before moving up to a 121.45 high. The pair slipped back into the 121.25/30 area, yet remained bid throughout. EUR/JPY saw a similar theme, extending to 157.37. An overhang of Japanese offers coupled with sizeable USD/JPY supply at 121.45 capped EUR/JPY gains. Profit takers moved in, with one UK name selling in good size.
A US name on behalf of a fund was a good buyer ahead of 157.00 and this kept the pair bid ahead of the US session. GBP/JPY also pushed higher, yet topped out ahead of large size 240.00 stops. Crosses are to be expected and USD/JPY to trade on the firmer side in the near-term, with BOJ policy bias encouraging further JPY-funded positioning.
Euro Outlook (18th January 2007)
Into European trading and the Euro had rallied but sellers into 1.2880 capped the topside. Volatility in EUR/JPY is expected to keep spot choppy into North American trading. 1.2920 & 1.2900 are now seen as the key levels on the downside with offers tipped on most books from 1.2880 back to 1.3000.
Stops are tipped above 1.3005 but in the short-term volatility is once more likely to be confined by the 1.29/30 range. Looking ahead, a busy North American session is once more expected. This kicks off with the 13:00 GMT Pianalto comments, however, it is the 13:30 GMT December CPI data that is most eagerly anticipated. Economists expect a +0.4% M/M headline against the previous flat reading. Core inflation is forecast up 0.2%.
Also set for release at 13:30 GMT are the December Housing Start & Real Earning numbers. Following this central bankers will do battle into the European close with the 15:00 GMT Bernanke testimony set to vie with the 16:00 GMT Bini Smaghi rhetoric. Most expect the FOMC Chairman to win by way of a knock-out with ECB inaction forcing spot back towards the base of the 1.29/30 range.
Stops are tipped above 1.3005 but in the short-term volatility is once more likely to be confined by the 1.29/30 range. Looking ahead, a busy North American session is once more expected. This kicks off with the 13:00 GMT Pianalto comments, however, it is the 13:30 GMT December CPI data that is most eagerly anticipated. Economists expect a +0.4% M/M headline against the previous flat reading. Core inflation is forecast up 0.2%.
Also set for release at 13:30 GMT are the December Housing Start & Real Earning numbers. Following this central bankers will do battle into the European close with the 15:00 GMT Bernanke testimony set to vie with the 16:00 GMT Bini Smaghi rhetoric. Most expect the FOMC Chairman to win by way of a knock-out with ECB inaction forcing spot back towards the base of the 1.29/30 range.
EUR/USD: Germany Says Will Raise Growth Forecast
EUR/USD is getting a boost from a headline on Dow Jones that Germany will boost its 2007 GDP forecast. Earlier this week the Economics Minister said growth would be between 1.5 and 2.0%, down from 2.5% in 2006. EUR/USD is bumping up against sellers in the 1.2950 area again.
GBP/USD: Scales New Two-Week Peak pre-London Fix
Cable has scaled a fresh two-week peak just shy of 1.9720 ahead of the looming 16:00GMT London fix, amid talk of small demand for GBP at the fix. Some buy stops reportedly reside at 1.9720.
These may inflate GBP/USD towards 1.9730 if located. 1.9730+ resistance levels are located at 1.9752 (Jan 3 high), 1.9800, 1.9849 (Dec 1, 14-year peak), 1.9900, and 2.0000. 1.9700 is now a pullback support point. Sub-figure props include 1.9677 (London morning peak), and 1.9650.
These may inflate GBP/USD towards 1.9730 if located. 1.9730+ resistance levels are located at 1.9752 (Jan 3 high), 1.9800, 1.9849 (Dec 1, 14-year peak), 1.9900, and 2.0000. 1.9700 is now a pullback support point. Sub-figure props include 1.9677 (London morning peak), and 1.9650.
EUR/USD: Short-Lived Rally to 1.2950
Reports of central bank buying of EUR/USD and a move through 1.9700 stops in cable helped drag EUR/USD close to 1.2950 briefly, but prices slipped back quickly to the 1.2930s. Dealers are keeping an eye on oil prices at present, with price action closely tracking crude so far today.
EUR/USD went to its highs as crude pushed back above $51 briefly but it eased as prices slipped again. They are now down $0.38 at $50.82/barrel. Stops are eyed at the 1.2960 level near-term, dealers report. Sellers remain toward 1.2990/00.
EUR/USD went to its highs as crude pushed back above $51 briefly but it eased as prices slipped again. They are now down $0.38 at $50.82/barrel. Stops are eyed at the 1.2960 level near-term, dealers report. Sellers remain toward 1.2990/00.
FX OPTIONS: EUR/USD Vols Extend South, 1-mth Offered at 6.45%
Implied option volatilities have fallen to fresh intra-day lows ahead of the looming 16:00GMT London fix. The 1-mth is now 6.45 pct offered, having been bid at that level earlier today.
In the mid-dates: the 2-mth and 3-mth have respectively gone 6.4 pct and 6.35 pct bid-to-offered through today's European session. At the back of the curve: the 1-year resides just above last week's lifetime traded low of 6.55 pct (Jan 10). The period is presently 6.65 pct offered.
In the mid-dates: the 2-mth and 3-mth have respectively gone 6.4 pct and 6.35 pct bid-to-offered through today's European session. At the back of the curve: the 1-year resides just above last week's lifetime traded low of 6.55 pct (Jan 10). The period is presently 6.65 pct offered.
USD/JPY: Bullish Trend Intensity Signal Advances
The bullish trend intensity signal for USD/JPY has advanced to 28 and the overnight gains to 120.87, the highest since Dec 2005, should keep the bullish trend advancing. The EUR/USD bearish trend signal remains stalled for the fourth session at 20 with central bank buying preventing a push lower in the EUR with growing risk that the bearish trend signal could fail.
The USD/CHF bullish trend signal advanced to 25. The GBP/USD trend signal is neutral at 16. The EUR/JPY trend signal is neutral at 24 and continues to consolidate, easing one notch yesterday. The EUR/GBP trend signal remains strongly bearish, advancing another two notches to 18. These proprietary indicators are updated each trading day after the NY close.
The USD/CHF bullish trend signal advanced to 25. The GBP/USD trend signal is neutral at 16. The EUR/JPY trend signal is neutral at 24 and continues to consolidate, easing one notch yesterday. The EUR/GBP trend signal remains strongly bearish, advancing another two notches to 18. These proprietary indicators are updated each trading day after the NY close.
GBP/USD: Trips Stops Above 1.9700, Offers at 1.9710 Tested
Cable is currently probing for touted sell interest at 1.9710, after tripping stops above 1.9700. Additional stops are tipped at 1.9720. These could further inflate GBP/USD towards 1.9730 if tripped. 1.9730+ resistance levels are located at 1.9752 (Jan 3 high), 1.9800, 1.9849 (Dec 1, 14-year peak), 1.9900, and 2.0000.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] moved back above its 200-day moving average last Friday ($616) after spending just over a week below but not attracting follow-through selling. The market is now poised near converging 40- and 50-day moving averages to either side of $631. The market entered the session neutral on all trends, though it is closer to scoring a bullish shift on most time frames by a narrow amount. Of RSI, Stochastics and MACD, only Stochastics shows a bullish divergence setup. Yesterday we leaned bullishly, noting the market's tendency to stay closer to the upper end of the long-term triangle from May. Intraday supports are converging in the $625-26 zone.
[Oil] trying to pick a near-term low is like trying to catch the proverbial falling knife. Weekly pivot supports at $50.45 (Feb) have been narrowly broken intraday; next major supports on weekly charts are to either side of $48. Prices are below monthly extended envelope supports at $51.35 but not by too much. Trend Intensity should hit 31 today, still far from Sep peaks at 44 from that leg down. Very short-term intraday resistance is just a shade above current levels at $51. Yesterday's comment regarding a potential bullish daily momentum divergence (compared with last Sep) still stands, and maximum adverse excursion as measured by oscillator studies is near all-time oversold readings from 1986, increasing the risk of a furious counter-trend event.
[Oil] trying to pick a near-term low is like trying to catch the proverbial falling knife. Weekly pivot supports at $50.45 (Feb) have been narrowly broken intraday; next major supports on weekly charts are to either side of $48. Prices are below monthly extended envelope supports at $51.35 but not by too much. Trend Intensity should hit 31 today, still far from Sep peaks at 44 from that leg down. Very short-term intraday resistance is just a shade above current levels at $51. Yesterday's comment regarding a potential bullish daily momentum divergence (compared with last Sep) still stands, and maximum adverse excursion as measured by oscillator studies is near all-time oversold readings from 1986, increasing the risk of a furious counter-trend event.
EUR/USD: Central Bank Bids Rumored Once Again
All manner of central bank buyers of EUR/USD have been rumored today with a quasi-central bank now added to the mix in addition to Asian and Eastern European names mentioned earlier. The EUR continues to balk ahead of the 1.2940/50 area at present, but with the downside limited near-term, stops at 1.2960 may prove attractive. EUR/USD trades at 1.2938.
US TECHS: Bullish Continuation Pattern Remains Focus for S&P
With the NASDAQ 100 leading the way, Mar S&P has broken above the upper end of a bullish continuation pattern on daily charts implying new highs are likely for this move. Daily momentum studies are back on the bullish side and ADX is quite low so this market is ready to make a good directional move soon.
Trending studies on weekly charts remain bullish and do not appear to be overdone yet. Also a look at that time frame on the continuous contract shows the prior all-time high (1574) as a realistic target, which would be approximately another 9% to the upside. As mentioned, the NASDAQ 100 appears to be leading the way and the recent breakout, while losing a bit of steam, is holding above the top of the prior range at 1823. As long as trade persists above there, the market will be more inclined to achieve the measured move objective for this index at 1890 and 1460 for the Mar S&P contract.
Also it's been a running theme over the past few months but the 20-day equity put/call ratio is simply not showing the kind of optimism that would be expected after such a strong rally. This apparent disbelief in the move is probably more fuel for the upside.
Trending studies on weekly charts remain bullish and do not appear to be overdone yet. Also a look at that time frame on the continuous contract shows the prior all-time high (1574) as a realistic target, which would be approximately another 9% to the upside. As mentioned, the NASDAQ 100 appears to be leading the way and the recent breakout, while losing a bit of steam, is holding above the top of the prior range at 1823. As long as trade persists above there, the market will be more inclined to achieve the measured move objective for this index at 1890 and 1460 for the Mar S&P contract.
Also it's been a running theme over the past few months but the 20-day equity put/call ratio is simply not showing the kind of optimism that would be expected after such a strong rally. This apparent disbelief in the move is probably more fuel for the upside.
Swiss Outlook (17th January 2007)
US hedge funds sold USD/CHF into early European trading but the dip to 1.2465 was soon corrected. Buying into dips continues to look attractive and trading was soon back in the 1.2490's. CHF selling on the crosses then forced the pair to a session high at 1.2498 late-on, however, standing supply on Swiss and US books continues to rebuff the advance for the moment.
Elsewhere in European trading, GBP/CHF hit a 62-month high at 2.4571 as the option related supply (linked to the 2.4550 expires today) was eventually exhausted. Dealers now see the option barriers back to 2.4650 as bull targets. Looking ahead, a break above 1.2505 still looks required to add momentum to the short-term charts. Several Swiss player research notes have hit the screens intraday over the lack of upside potential in the Franc so the stops above 1.2505 remain a target with more 1.2515+ before 1.2525/30 is re-tested.
Yet, the raft of US data and speakers seen into North American trading will need to boost the Dollar further if the current range-top at 1.2530 is to be re-tested. US PPI at 13:30 GMT is seen as the next big event-risk.
Elsewhere in European trading, GBP/CHF hit a 62-month high at 2.4571 as the option related supply (linked to the 2.4550 expires today) was eventually exhausted. Dealers now see the option barriers back to 2.4650 as bull targets. Looking ahead, a break above 1.2505 still looks required to add momentum to the short-term charts. Several Swiss player research notes have hit the screens intraday over the lack of upside potential in the Franc so the stops above 1.2505 remain a target with more 1.2515+ before 1.2525/30 is re-tested.
Yet, the raft of US data and speakers seen into North American trading will need to boost the Dollar further if the current range-top at 1.2530 is to be re-tested. US PPI at 13:30 GMT is seen as the next big event-risk.
Wednesday, January 17, 2007
Sterling Outlook (17th January 2007)
Fresh demand for GBP was seen from today's European open. This inflated cable through the peak of today's 1.9603-1.9620 Asian session range. Sell interest at 1.9650 and 1.9670 was subsequently sated en route to a high of 1.9677. Further offers are tipped at 1.9700/10. Sell orders from 1.9700 capped GBP/USD at 13-day highs after yesterday's UK inflation data.
EUR/GBP plumbed a 31-month low of 0.6568 during the European morning, with GBP/CHF scaling a new 61-month top just shy of 2.4570, as the pound continued to benefit from the risk of another 25bp UK rate hike to 5.5% being delivered as early as next month (Feb 8). A 2.4550 GBP/CHF option strike expires at 10am EST. There is a raft of US numbers due today, inclusive of December producer prices at 13:30GMT, TIC data at 14:00GMT, industrial production and capacity utilization figures at 14:15GMT, and the Fed's Beige Book at 19:00GMT.
Headline PPI is forecast +0.5% m/m, with core PPI forecast +0.1% m/m. TIC inflows of $75.0bn are forecast. IP is forecast +0.1% m/m. CU is forecast at 81.7%. The Fed"s Yellen is slated to speak at 19:50GMT.
EUR/GBP plumbed a 31-month low of 0.6568 during the European morning, with GBP/CHF scaling a new 61-month top just shy of 2.4570, as the pound continued to benefit from the risk of another 25bp UK rate hike to 5.5% being delivered as early as next month (Feb 8). A 2.4550 GBP/CHF option strike expires at 10am EST. There is a raft of US numbers due today, inclusive of December producer prices at 13:30GMT, TIC data at 14:00GMT, industrial production and capacity utilization figures at 14:15GMT, and the Fed's Beige Book at 19:00GMT.
Headline PPI is forecast +0.5% m/m, with core PPI forecast +0.1% m/m. TIC inflows of $75.0bn are forecast. IP is forecast +0.1% m/m. CU is forecast at 81.7%. The Fed"s Yellen is slated to speak at 19:50GMT.
Yen Outlook (17th January 2007)
BOJ rate speculation continues to drive price action. Yesterday's reports suggested that the BOJ are unlikely to hike rates, although the market is still pricing in a 30% chance of a move. This is down on previous expectations, encouraging further JPY losses overnight.
USD/JPY was carried higher but was unable to overcome sizeable offers. There was increased speculation that the MOF may have asked Japanese exporters to buy JPY on growing fears of US protectionism from the Democratic controlled US Senate. A Swiss name led the selling on two occasions. Once in Tokyo and as the London market opened. USD/JPY pushed through 120.60 and 120.50, with light CTA stops filled. Japanese bid interest was noted and ongoing options interest underpinned at 120.35. EUR/JPY traded correctively after struggling to move higher.
Offers emerged above 156.00 from exporters and real money accounts. The pair moved through the 155.75 support and eventually found support just ahead of 155.50. Focus will remain on the USD/JPY topside amid reduced BOJ rate hike risk. A couple of the large option triggers expire today, with combined payouts of USD 25 million.
USD/JPY was carried higher but was unable to overcome sizeable offers. There was increased speculation that the MOF may have asked Japanese exporters to buy JPY on growing fears of US protectionism from the Democratic controlled US Senate. A Swiss name led the selling on two occasions. Once in Tokyo and as the London market opened. USD/JPY pushed through 120.60 and 120.50, with light CTA stops filled. Japanese bid interest was noted and ongoing options interest underpinned at 120.35. EUR/JPY traded correctively after struggling to move higher.
Offers emerged above 156.00 from exporters and real money accounts. The pair moved through the 155.75 support and eventually found support just ahead of 155.50. Focus will remain on the USD/JPY topside amid reduced BOJ rate hike risk. A couple of the large option triggers expire today, with combined payouts of USD 25 million.
Euro Outlook (17th January 2007)
Early European trading saw the slight Euro bid-tone disappear as German inflation was downwardly revised. EUR/USD dropped back from 1.2940 to 1.2920 but bids emerged to prop the downside. Despite being a sell into strength, EUR crosses were also seen adding weight, 1.2920/40 continued to trade ahead of the Euro Zone inflation release.
However, the as expected EZ data left the market flat and as Sterling was hit by a bout of profit-taking the EUR managed to elicit some support from EUR/GBP. Offers are still seen into 1.2940/50 with stops above while on the downside bids trail back to 1.2900. Looking ahead, dealers eye the slew of US data due into North American trading.
Weekly numbers hit the screens first but the 13:30 GMT release of US December PPI is seen as the next key event-risk. Economists forecast a +0.5% headline. Following this, Redbook Retails for Jan are set for unveiling at 13:55 GMT ahead of Capital Inflow numbers at 14:00 GMT (expected at USD 77.5Bn). 14:15 GMT then sees December Industrial Production with the post European close raft of Fed speakers kicking off at 18:00 GMT.
However, the as expected EZ data left the market flat and as Sterling was hit by a bout of profit-taking the EUR managed to elicit some support from EUR/GBP. Offers are still seen into 1.2940/50 with stops above while on the downside bids trail back to 1.2900. Looking ahead, dealers eye the slew of US data due into North American trading.
Weekly numbers hit the screens first but the 13:30 GMT release of US December PPI is seen as the next key event-risk. Economists forecast a +0.5% headline. Following this, Redbook Retails for Jan are set for unveiling at 13:55 GMT ahead of Capital Inflow numbers at 14:00 GMT (expected at USD 77.5Bn). 14:15 GMT then sees December Industrial Production with the post European close raft of Fed speakers kicking off at 18:00 GMT.
Tuesday, January 16, 2007
EUR/USD: Cross Selling Takes Prices Lower
EUR/USD has been unable to sustain gains on upbeat ZEW data nor on disappointing Empire State Manufacturing figures. Selling of EUR crosses is weighing on EUR/USD as well with stale longs still trimming positions as a result of the limited rebound. Dealers expect the 1.2935 level to provide some support as EUR/USD spent much of the holiday on Monday trading around that level. More support is at 1.2920. EUR/US trades at 1.2938.
FOREX: ECB Reserves Decline EUR1.4 bln in Jan 12 Week
ECB reserves have declined EUR1.4 bln during the week of Jan 12th to EUR147.3 bln. Gold reserves have declined by EUR28 bln due to sales by one Eurosystem central bank. Gold reserves have now declined for 112 out of the last 118 weeks. EUR/USD currently trades at 1.2954.
USD/CHF: Pares Back After Empire State Plummet
The Empire State drop to just 9.13 has helped pare back Dollar gains. The US unit had rallied back strongly before the numbers but USD/CHF is now stalling near the 1.2450 mark that it has pivoted for many of the last few sessions. On the topside offers from 1.2470 back to 1.2480 will look to cap should the Dollar build further momentum while on the downside 1.2425 stalls any Franc rally ahead of the current range-base at 1.2400.
FX OPTIONS: EUR/USD Good Size 1-mth 1.3150 EUR Call
One of my sources told that a 1.3150 EUR call strike traded for a 1-mth expiry date in good size at 6.75 pct earlier today. The current 1-mth expiry date is February 15, as per yesterday, according to FENICS FX 2002.
1-mth vol is 6.45/6.65 last, as it consolidates gains from last Wednesday's seven-week low of 6.05/6.25. The 1-mth traded as high as 7.25 pct at the start of the year (Jan 2). At the back of the curve: the 1-year is holding above last Wednesday's lifetime traded low of 6.55 pct, with 6.6/6.75 representing the present market.
Expiry-wise: there is speculation that a 1.3000 strike might roll off at today's 10am EST NY cut (15:00GMT). A confirmed quarter-yard 1.3000 strike expires tomorrow (Wednesday).
1-mth vol is 6.45/6.65 last, as it consolidates gains from last Wednesday's seven-week low of 6.05/6.25. The 1-mth traded as high as 7.25 pct at the start of the year (Jan 2). At the back of the curve: the 1-year is holding above last Wednesday's lifetime traded low of 6.55 pct, with 6.6/6.75 representing the present market.
Expiry-wise: there is speculation that a 1.3000 strike might roll off at today's 10am EST NY cut (15:00GMT). A confirmed quarter-yard 1.3000 strike expires tomorrow (Wednesday).
EUR/USD: Weak NY Fed Manufacturing Data Stalls Decline
The USD got a lift across the board from the Kyodo story saying the BOJ will not hike this week, but weaker than expected NY Fed Empire State Manufacturing Data helped stall the decline. Prices are rebounding now, trading in the high 1.2950s after falling as low as 1.2940 after the Kyodo report. Offers are seen now in the 1.2960/70 area and again toward 1.2990/00.
US ECON: Empire State Index Dropped to 9.13 from 22.19 Dec
Manufacturing activity in New York state slowed in January as the Empire State index slipped to 9.13 from a revised 22.19 (prev 23.13). The reading compared to expectations for a print around 20.0. The indexes for new orders and shipments fell sharply but remained well above the zero mark. Unfilled orders remained in negative territory and inventories fell further into negative territory. Prices paid increased slightly. Note that the data have undergone an annual benchmark revision. All historical data have been revised and new seasonal factors were released.
It is important to note that this index is not a composite index like the ISM but rather a query about general business activity. The numbers are also centered on zero rather than 50, so any positive number represents expanding business conditions while negative numbers represent softening conditions. If the components were weighted like the ISM (but centered on zero) the Empire index would have posted at 5.77, it lowest reading in 19 months vs. 15.86 in December. The slippage casts a softer tone on the manufacturing sector at the start of the year but other regional reports will be needed before drawing any firm conclusions. It does suggest the potential for a slightly softer reading than initially expected on the Philly Fed index (due Thursday, January 18). Expectations were for a reading of 3.0 vs. -2.3 in December. This could mean the index remains below the zero-mark.
The new orders index fell to 10.26 from 222.52. The shipments index fell to 16.11 from 27.60. The unfilled orders index posted at -8.51 vs. -14.61 in December while the delivery time index slipped to -5.32 from 1.12. The inventories index also slipped to -19.15 from -7.87. It was the lowest reading on the inventories since July 2002 (-20.0). The prices received index rose to 19.15 from 13.48 while the prices paid index jumped to 35.11 from 28.09.
The employment index fell to 6.91 from 14.13. It remains well below its Q4 average of 19.34. The average employee workweek dropped to -1.06 from 7.87. It was the first negative reading on the index since July 2005 (-3.92). Outlook indexes were mixed and seemed to imply expectations for more modest growth ahead. The future general business conditions, new orders, and shipments indexes each fell. The general business conditions outlook index fell to 32.54 from 41.85 while the new orders outlook index slipped to 34.14 from 44.62. The shipments outlook index fell to 28.47 from 40.73. Future price indexes were little changed from December. The outlook index for the number of employees also rose to 31.12 from 30.37. The capital expenditures index was 31.91 vs. 39.33.
It is important to note that this index is not a composite index like the ISM but rather a query about general business activity. The numbers are also centered on zero rather than 50, so any positive number represents expanding business conditions while negative numbers represent softening conditions. If the components were weighted like the ISM (but centered on zero) the Empire index would have posted at 5.77, it lowest reading in 19 months vs. 15.86 in December. The slippage casts a softer tone on the manufacturing sector at the start of the year but other regional reports will be needed before drawing any firm conclusions. It does suggest the potential for a slightly softer reading than initially expected on the Philly Fed index (due Thursday, January 18). Expectations were for a reading of 3.0 vs. -2.3 in December. This could mean the index remains below the zero-mark.
The new orders index fell to 10.26 from 222.52. The shipments index fell to 16.11 from 27.60. The unfilled orders index posted at -8.51 vs. -14.61 in December while the delivery time index slipped to -5.32 from 1.12. The inventories index also slipped to -19.15 from -7.87. It was the lowest reading on the inventories since July 2002 (-20.0). The prices received index rose to 19.15 from 13.48 while the prices paid index jumped to 35.11 from 28.09.
The employment index fell to 6.91 from 14.13. It remains well below its Q4 average of 19.34. The average employee workweek dropped to -1.06 from 7.87. It was the first negative reading on the index since July 2005 (-3.92). Outlook indexes were mixed and seemed to imply expectations for more modest growth ahead. The future general business conditions, new orders, and shipments indexes each fell. The general business conditions outlook index fell to 32.54 from 41.85 while the new orders outlook index slipped to 34.14 from 44.62. The shipments outlook index fell to 28.47 from 40.73. Future price indexes were little changed from December. The outlook index for the number of employees also rose to 31.12 from 30.37. The capital expenditures index was 31.91 vs. 39.33.
EUR/USD: Backing and Filling; Rebound Stalls Near 10-Day Avg
EUR/USD opens the North American session in consolidation mode after rallying into the low 1.2990s following a very strong ZEW survey. The 10-day moving average at 1.2994 managed to arrest the rally before began to consolidate. Empire State Manufacturing data from the New York Fed is the only data of note this morning.
In the big picture, EUR/USD looks to have put in a medium-term bottom and an extended period of sideways action looks at hand. The US economy is rebounding nicely after a soft patch and the Eurozone economy continues to grow at a relatively strong pace. US deficits are shrinking and interest rates are rising, two factors that were not expected early in 2007. Look for 1.2860/1.3060 to contain the price action this week.
In the big picture, EUR/USD looks to have put in a medium-term bottom and an extended period of sideways action looks at hand. The US economy is rebounding nicely after a soft patch and the Eurozone economy continues to grow at a relatively strong pace. US deficits are shrinking and interest rates are rising, two factors that were not expected early in 2007. Look for 1.2860/1.3060 to contain the price action this week.
US ECON: Data on Tap - Jan Empire State Mfg Survey
[Empire State Mfg Survey (Jan)]
IFR looks for the Empire State index to slip to 19.0 from 23.1 in December. Such a reading would be in line with its six month average and consistent with respectable, albeit more modest growth in factory activity in the region. Look for further slippage in the price indexes and more modest growth in new orders and shipments.
Recall that the headline figure is not a composite index but a query of general business activity. This release should help set the tone for the Philly Fed release later in the week as well as solidify expectations for the national ISM report two weeks later.
IFR looks for the Empire State index to slip to 19.0 from 23.1 in December. Such a reading would be in line with its six month average and consistent with respectable, albeit more modest growth in factory activity in the region. Look for further slippage in the price indexes and more modest growth in new orders and shipments.
Recall that the headline figure is not a composite index but a query of general business activity. This release should help set the tone for the Philly Fed release later in the week as well as solidify expectations for the national ISM report two weeks later.
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