Offers into the 1.2245/50 area have been reinforced by macro names in the wake of the KoF hitting 1.79 in February. Economists had expected the previous 1.71 headline to steady around 1.70, however, the previous number was revised to 1.74 and February continued this rich vein to rally back to just shy of 1.8.
As noted, in the wake of the UBS consumption data the topside was eyed in the index and some had looked for a reading in the 1.80's. USD/CHF looks slightly offered in the wake of the publication but bids in the 1.2220's are stalling any drop back towards the 1.2200 mark.
In other news, the Franc has today benefited from the news that the German State of Berlin is issue its first foreign currency bond this year. The Ministry has confirmed the issue will be in the CHF.
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Wednesday, February 28, 2007
USD/JPY: In A Narrow Range Amid Reduced Speculative Flows
USD/JPY trades in a narrow range amid reduced speculative flows. The pair has tested both sides of the market, yet with little success. Large size offers are noted from 118.70 up to the 118.90 region from speculative accounts and hedge funds, while the downside is underpinned by Japanese retail demand and light intra-day bids out of Asia.
Yesterday's sharp gains in JPY caught a number of accounts offside and this resulted in a dearth of interest today. Downside pressure in USD/JPY has not had the momentum to clear decent size bids, while a number of players have favoured the sidelines after steep losses on speculative positions.
Global risk aversion should continue to pressurise carry trades, although today's stabilisation in prices and recovery in the Chinese stock market has allayed fears of a revisit to a 1998 liquidity crunch.
Yesterday's sharp gains in JPY caught a number of accounts offside and this resulted in a dearth of interest today. Downside pressure in USD/JPY has not had the momentum to clear decent size bids, while a number of players have favoured the sidelines after steep losses on speculative positions.
Global risk aversion should continue to pressurise carry trades, although today's stabilisation in prices and recovery in the Chinese stock market has allayed fears of a revisit to a 1998 liquidity crunch.
EUR/USD: More Stops Triggered As Data & Flows Dent Euro
Stops in EUR/USD around 1.3185 have been tripped as the Euro continues to be sold in the wake of the recent Euro Zone data. EZ HICP was confirmed at -0.5% M/M but on an annualized basis the index fell further, from the +1.9% initially reported to +1.8% Y/Y. Unemployment fell to a fresh all-time series low at 7.4%, from 7.5% in December, but it is the inflation fall that has dented the Euro.
Elsewhere, the news that US Consumer giant Procter & Gamble has withdrawn the Euro tranche of its USD4Bln USD and EUR bond issues will have dented the Euro. Leads cite "unstable market conditions" behind the writing off of the 10 and 20-Year bonds.
As a result the estimated 2Bln portion of the USD 4Bln total will have gone unused and could have to be unloaded back into the market as players look to use the liquidity elsewhere. EUR/USD has printed 1.3182 in the latest move lower but bids into 1.3180 are still attempting to limit further weakness. A break below 1.3175 will be seen as the next short-term trigger to further weakness.
Elsewhere, the news that US Consumer giant Procter & Gamble has withdrawn the Euro tranche of its USD4Bln USD and EUR bond issues will have dented the Euro. Leads cite "unstable market conditions" behind the writing off of the 10 and 20-Year bonds.
As a result the estimated 2Bln portion of the USD 4Bln total will have gone unused and could have to be unloaded back into the market as players look to use the liquidity elsewhere. EUR/USD has printed 1.3182 in the latest move lower but bids into 1.3180 are still attempting to limit further weakness. A break below 1.3175 will be seen as the next short-term trigger to further weakness.
GBP/USD: Runs into Resistance pre-1.9566, Lomax Speaks Later
Cable has run into resistance just shy of 1.9566 (earlier stall point) after pushing its recovery envelope from a stop loss-fuelled six-day low of 1.9519. 1.9600 and 1.9620 are resistance levels north of 1.9566. Stops below both levels were tripped in early European trade.
1.9619 was today's Asian session base. February's GfK UK consumer confidence gauge will be disclosed at 10:30GMT. It is forecast at minus 7, unchanged from January. The UK Land Registry's January house price index ensues at 11:00GMT.
BoE Deputy Governor Rachel Lomax will deliver a speech at DeMontfort University in Leicester at 18:00GMT. Lomax voted against the 25bp UK rate hikes delivered in January and last November. An article in Monday's Telegraph touted Lomax as a possible future BoE Governor.
1.9619 was today's Asian session base. February's GfK UK consumer confidence gauge will be disclosed at 10:30GMT. It is forecast at minus 7, unchanged from January. The UK Land Registry's January house price index ensues at 11:00GMT.
BoE Deputy Governor Rachel Lomax will deliver a speech at DeMontfort University in Leicester at 18:00GMT. Lomax voted against the 25bp UK rate hikes delivered in January and last November. An article in Monday's Telegraph touted Lomax as a possible future BoE Governor.
USD/CHF: Dollar Benefits From Risk Aversion, EUR/CHF Steady
A rebound in the Shanghai Stock Index may have helped stall the unwinding of carry trades for the moment but it has also brought with it an unease over the perceived "more risky trades". At the latest publication the UBS risk aversion index fell to -0.39 (Vs -0.71 on Feb. 26).
Global risk aversion has ensued as a result and this has caused a move back towards yield and this given the Dollar the edge intraday. USD/CHF continues to look bid on dips with the 1.2220's now looking comfortable with the offers into 1.2245/50 now in sight above. Elsewhere, offers in EUR/CHF into 1.6140/50 continue to cap with a drop back below 1.6120 putting the cross on course to retest the 1.6095/6100 area.
Global risk aversion has ensued as a result and this has caused a move back towards yield and this given the Dollar the edge intraday. USD/CHF continues to look bid on dips with the 1.2220's now looking comfortable with the offers into 1.2245/50 now in sight above. Elsewhere, offers in EUR/CHF into 1.6140/50 continue to cap with a drop back below 1.6120 putting the cross on course to retest the 1.6095/6100 area.
EUR/USD: Upside German Jobless Surprise Helps Underpins
The upside surprise seen in the latest German unemployment numbers has given the Euro a small boost. February seasonally adjusted numbers came in at 9.3%, against the previous 9.5% headline and the expectations for a 9.4% reading. The data has helped underpin EUR/USD in the short-run but selling into the rebound to 1.3200 has limited any knee-jerk spot bounce.
In other news, the German Labour Office notes they "do not expect a further pick up in the labour market in the spring". A UK Clearer notes in their recent research that while EUR/USD remains below 1.3250 the pair looks a "technical sell". They tip selling with a 1.34+ stop for a return towards 1.30 mark with an eventual target in the 1.2525 area.
Looking ahead, 10:00 GMT Euro Zone data is still eyed but so are the 1.3185 stops with talk now circulating of an Asian C/B buying into the lows. Bids also seen into the 1.3180 area trailing back to more good size into 1.3175 and option related demand circa-1.3150.
In other news, the German Labour Office notes they "do not expect a further pick up in the labour market in the spring". A UK Clearer notes in their recent research that while EUR/USD remains below 1.3250 the pair looks a "technical sell". They tip selling with a 1.34+ stop for a return towards 1.30 mark with an eventual target in the 1.2525 area.
Looking ahead, 10:00 GMT Euro Zone data is still eyed but so are the 1.3185 stops with talk now circulating of an Asian C/B buying into the lows. Bids also seen into the 1.3180 area trailing back to more good size into 1.3175 and option related demand circa-1.3150.
Swiss Outlook (28th February 2007)
USD/CHF opened in New York around 1.2235 and slipped off the face of the earth, assaulted by a combination of risk aversion, carry trade liquidation, falling stock markets, and declining US Treasury yields. The catalyst was the China meltdown which set a negative tone on global markets, and with the US being the largest global market, negativity had a larger cumulative effect; knocking the stuffing out of the Dow, the S&P, and the Nasdaq - all down 3%.
Latin American markets also got clobbered, lending a generally soft tone to the hemisphere. USD/CHF swooned after poor US durable goods data (-7.8%) had a brief reprise on existing home sales (6,640 vs 6,300 median) then just melted, the close was 1.2175, after a volatile last half hour that saw 1.2145 trade. Carry trade liquidation drove Swissy higher against everything other than JPY.
EUR/CHF closed down 60pts at 1.6120; GBP/CHF closed down 160pts at 2.3875; CAD/CHF closed down a big figure at 1.0435; CHF/JPY the lone standout closed at 96.85, down 65pts. The SNB and BOJ have been warning of a carry trade liquidation, and after many months it has finally arrived.
Latin American markets also got clobbered, lending a generally soft tone to the hemisphere. USD/CHF swooned after poor US durable goods data (-7.8%) had a brief reprise on existing home sales (6,640 vs 6,300 median) then just melted, the close was 1.2175, after a volatile last half hour that saw 1.2145 trade. Carry trade liquidation drove Swissy higher against everything other than JPY.
EUR/CHF closed down 60pts at 1.6120; GBP/CHF closed down 160pts at 2.3875; CAD/CHF closed down a big figure at 1.0435; CHF/JPY the lone standout closed at 96.85, down 65pts. The SNB and BOJ have been warning of a carry trade liquidation, and after many months it has finally arrived.
Sterling Outlook (28th February 2007)
BoE Deputy Governor Rachel Lomax is due to speak at DeMontfort University in Leicester at 18:00GMT. Lomax voted against the 25bp UK rate hikes delivered in January and last November. A raft of US data, plus slated 15:00GMT comments from Fed chairman Ben Bernanke, are due pre-Lomax.
That raft of data includes the 13:30GMT second estimate of Q4 GDP, the 14:45GMT unveiling of February's Chicago PMI index, and the 15:00GMT disclosure of January new home sales. GDP is forecast at 2.3%. The Chicago PMI index is forecast at 50.0. New home sales are forecast at 1080k. Tripped stops below 1.9620, 1.9600, 1.9590 and 1.9540 helped depress GBP/USD to an intra-week low of 1.9519 during the European morning, amid talk that about half-a-yard of GBP would be sold today re: an MSCI re-weighting.
Highs just shy of 1.9590 have been notched on the recovery rally from 1.9519. Upper obstacles include 1.9603 (yesterday's NY session base), 1.9619 (today's Asian session floor), 1.9644 (today's Asian session top), 1.9674 (yesterday's 12-day high), and 1.9700.
That raft of data includes the 13:30GMT second estimate of Q4 GDP, the 14:45GMT unveiling of February's Chicago PMI index, and the 15:00GMT disclosure of January new home sales. GDP is forecast at 2.3%. The Chicago PMI index is forecast at 50.0. New home sales are forecast at 1080k. Tripped stops below 1.9620, 1.9600, 1.9590 and 1.9540 helped depress GBP/USD to an intra-week low of 1.9519 during the European morning, amid talk that about half-a-yard of GBP would be sold today re: an MSCI re-weighting.
Highs just shy of 1.9590 have been notched on the recovery rally from 1.9519. Upper obstacles include 1.9603 (yesterday's NY session base), 1.9619 (today's Asian session floor), 1.9644 (today's Asian session top), 1.9674 (yesterday's 12-day high), and 1.9700.
Yen Outlook (28th February 2007)
USD/JPY and JPY crosses traded up for the most part in Asia on the back of strong demand out of Japan. From an early low in the 117.85/90 area, USD/JPY traded back above 118.00. It looked to have topped out initially around 118.25 but rallied further to 118.70/75 before edging back.
Interest was especially strong ahead of the Tokyo fix with Japanese importers buying quite a bit for month-end settlements. Investment trust-related demand was also strong on fresh and on-going launches. Retail margin players were also big buyers. With USD/JPY at levels not seen since mid-December, demand today was not all that surprising. Shorts taking profits were also seen as well as foreign investors squaring up long Japanese equity positions.
The bias does look to remain to the downside near-term however with more carry trade liquidation eyed ahead. Some Japanese institutional investors were also see putting on fresh hedges. EUR/JPY rose from early lows around 156.15 to as high as 156.85/90 before easing back, GBP/JPY from 231.40 to 233, AUD/JPY from around 92.80 towards 93.50 and NZD/JPY from 82.40 to 83.20.
Interest was especially strong ahead of the Tokyo fix with Japanese importers buying quite a bit for month-end settlements. Investment trust-related demand was also strong on fresh and on-going launches. Retail margin players were also big buyers. With USD/JPY at levels not seen since mid-December, demand today was not all that surprising. Shorts taking profits were also seen as well as foreign investors squaring up long Japanese equity positions.
The bias does look to remain to the downside near-term however with more carry trade liquidation eyed ahead. Some Japanese institutional investors were also see putting on fresh hedges. EUR/JPY rose from early lows around 156.15 to as high as 156.85/90 before easing back, GBP/JPY from 231.40 to 233, AUD/JPY from around 92.80 towards 93.50 and NZD/JPY from 82.40 to 83.20.
Euro Outlook (28th February 2007)
The EUR/USD opened in Asia around 1.3240 after breaking higher on USD weakness emanating from rising risk-aversion that was the Dow fall as much as 500 pts at one stage. The EUR/USD gains were contained by heavy EUR/JPY selling that saw the cross fall from 159.00 to 155.75 at one stage.
After trading at 1.3242 in early Asia the EUR/USD eased back to 1.3212 on USD/JPY led USD strength and heavy demand for US Treasuries by Asian investors. The EUR/USD couldn't bounce and hung between 1.3210/20 for the balance of the session. The EUR gained ground against the JPY today with the EUR/JPY trading up to 156.85 from the opening level around 156.15, but lost ground against the GBP with the EUR/GBP falling from 0.6748 to 0.6730.
Sentiment towards the EUR/USD is generally bullish due to lower US yields and growing risk aversion. Analysts feel that that the EUR might suffer from extreme risk aversion if heavy unwinding of JPY-funded carry trades leads to EUR/JPY selling on a large scale. EZ HICP and Unemployment data will be out later today followed by US GDP.
After trading at 1.3242 in early Asia the EUR/USD eased back to 1.3212 on USD/JPY led USD strength and heavy demand for US Treasuries by Asian investors. The EUR/USD couldn't bounce and hung between 1.3210/20 for the balance of the session. The EUR gained ground against the JPY today with the EUR/JPY trading up to 156.85 from the opening level around 156.15, but lost ground against the GBP with the EUR/GBP falling from 0.6748 to 0.6730.
Sentiment towards the EUR/USD is generally bullish due to lower US yields and growing risk aversion. Analysts feel that that the EUR might suffer from extreme risk aversion if heavy unwinding of JPY-funded carry trades leads to EUR/JPY selling on a large scale. EZ HICP and Unemployment data will be out later today followed by US GDP.
Tuesday, February 27, 2007
EUR/USD: Edging Towards 1.3200, Talk Of Stops Above
The EUR/USD is well bid in early Asia and is approaching the difficult 1.3200 level where an option barrier is rumoured to be, but there is some talk that the barrier expired at 3 PM NY cut yesterday. Stops are eyed above 1.3200 before more selling emerges between 1.3220/30. The EUR/USD trades 1.3191/96.
FX OPTIONS: EUR/USD 1.3300 Barriers include DNT Peak
Exotic option exposure at 1.3300 includes the peak trigger of a Double No Touch option. EUR/USD last traded at 1.3300 on December 8 last year. 1.3297 defines the 2007 high-to-date (Jan 2).
Additional exotic barriers are located up at 1.3400, 1.3450, 1.3500, 1.3550, 1.3600, 1.3650 and 1.3700+. Spot scaled a 21-month high of 1.3370 on December 4 last year. 1.3667 defines the euro lifetime high (30 Dec 2004). Expiry-wise: a large 1.3240 strike rolls off at today's 10am EST NY cut (15:00GMT).
Additional exotic barriers are located up at 1.3400, 1.3450, 1.3500, 1.3550, 1.3600, 1.3650 and 1.3700+. Spot scaled a 21-month high of 1.3370 on December 4 last year. 1.3667 defines the euro lifetime high (30 Dec 2004). Expiry-wise: a large 1.3240 strike rolls off at today's 10am EST NY cut (15:00GMT).
US ECON: Case Shiller Price Index Falls 0.8% in Dec
* Follows 0.4% drop in November
* Accelerates from 0.3% average decline in last three months
The S&P/Case Shiller home price index fell a further 0.8% between November and December. This is simply further evidence of price declines following weak sales and high inventory. From a year ago, the index was up 0.4%.
* Accelerates from 0.3% average decline in last three months
The S&P/Case Shiller home price index fell a further 0.8% between November and December. This is simply further evidence of price declines following weak sales and high inventory. From a year ago, the index was up 0.4%.
EUR/USD: Bulls Frustrated; Short the Wrong USD
Lots of grousing this morning from EUR/USD bulls as they are not being rewarded amid the fresh USD slump. Unwinding of EUR/JPY is helping keep a lid on the pair, as are protective sales ahead of barriers rumored in the 1.3245/50 region.
Dealers do note interest from EUR/JPY longs to only sell the USD/JPY leg of the trade, but this just adds to the long position the market is nursing in EUR/USD. Central bank sales are rumored now at 1.3245, dealers report. Dealers also note a fresh report from a US consulting firm taking a hawkish stance on the ECB.
Not surprising given today's comments and M3 data. Next data point for the market is existing home sales from the US at 15:00 GMT. Economists expect a 1.3% rise in January. Traders hope for a fall to confirm other weak US releases of late and to further fuel the USD slide. EUR/USD trades at 1.3238.
Dealers do note interest from EUR/JPY longs to only sell the USD/JPY leg of the trade, but this just adds to the long position the market is nursing in EUR/USD. Central bank sales are rumored now at 1.3245, dealers report. Dealers also note a fresh report from a US consulting firm taking a hawkish stance on the ECB.
Not surprising given today's comments and M3 data. Next data point for the market is existing home sales from the US at 15:00 GMT. Economists expect a 1.3% rise in January. Traders hope for a fall to confirm other weak US releases of late and to further fuel the USD slide. EUR/USD trades at 1.3238.
FX OPTIONS: EUR/USD Risk Reversal Bias for EUR Calls Rises
The risk reversal curve's EUR call premium has been subject to inflation on the back of today's EUR/USD rise to an eight-week high of 1.3245. The 1-mth 25 delta R/R is now 0.1/0.2 EUR calls over, having been 0.0/0.15 EC over at today's European open.
Late last Autumn, the 1-mth 25 delta R/R was bid at a three-year high of 0.8 pct for EUR calls (Nov 28). Spot scaled a 21-month peak of 1.3370 less than a week later (Dec 4).
Late last Autumn, the 1-mth 25 delta R/R was bid at a three-year high of 0.8 pct for EUR calls (Nov 28). Spot scaled a 21-month peak of 1.3370 less than a week later (Dec 4).
GBP/USD: Lagging the Gainers, post-US Durables
The pound has only notched up only modest gains against the USD on the back of January's 7.8% plunge in US durable goods orders unlike the JPY, CHF, and EUR. Unwinding of long GBP carry trades versus the JPY and CHF helps explain the underperformance. Asian Central Bank offers are touted at 1.9670/75, with some stops tipped above 1.9680. Sterling support points include 1.9626 (today's Asian session base), 1.9610, and 1.9590.
USD/JPY: Finding Support After 119.00 Prints
USD/JPY is finding support after printing a 119.00 low in the wake of a plunge in US durable goods. The pair is currently hovering around 119.05/07, yet is struggling to carve out a decent recovery, which should eventually result in a test of interest just below 119.00. Option names and Japanese institutional investors are noted at the lows and we would expect to hear quasi-official names touted if this price action continues.
EUR/USD: Runs up Toward Barrier as Durables Slide
More fuel for the fire as durable goods orders slip badly in January. US yields are falling as well, taking 10-years back below 4.60%. Dealers are keying off a sustained break of the 119.00 level in USD/JPY to throw their weight behind further USD losses. The "r" word was raised yesterday by Greenspan and calls will rise exponentially if existing home sales are weak at 15:00 GMT, given the ripple effect on the sub-prime and floating rate mortgage market. EUR/USD trades at 1.3235 after brushing 1.3245.
Swiss Outlook (27th February 2007)
A good early European session for the Swiss unit as a number of factors shake the forex market from its Monday lethargy. The Taliban in Afghanistan targeted the US Vice President in a suicide bomb attack on a US military base. The dollar was already looking vulnerable as the Iran issue brought fresh uncertainty and geopolitical risk.
The market and investment community had already absorbed the Greenspan "recession" chatter from Monday but the Dollar was still jittery first thing Tuesday. The carry trade issue also had a say in the morning's activity. The emerging markets took a hit and the Yen and Swissy found favour. From the Swiss domestic perspective the market is waiting for a speech from SNB's Thomas Jordan.
The central banker is due to talk from 17:30 GMT today. The market will again be looking for hints on the speed of the SNB"s tightening cycle. USD/CHF has fallen from 1.2305 to 1.2227 and remains heavy. EUR/CHF topped at 1.6212 in late Asia and recorded 1.6170 lows.
The market and investment community had already absorbed the Greenspan "recession" chatter from Monday but the Dollar was still jittery first thing Tuesday. The carry trade issue also had a say in the morning's activity. The emerging markets took a hit and the Yen and Swissy found favour. From the Swiss domestic perspective the market is waiting for a speech from SNB's Thomas Jordan.
The central banker is due to talk from 17:30 GMT today. The market will again be looking for hints on the speed of the SNB"s tightening cycle. USD/CHF has fallen from 1.2305 to 1.2227 and remains heavy. EUR/CHF topped at 1.6212 in late Asia and recorded 1.6170 lows.
Sterling Outlook (27th February 2007)
Demand at 1.9630 is currently propping cable, following its retreat from European morning 12-day highs just shy of 1.9675. Asian Central Bank offers (from 1.9670) helped to cap GBP/USD at those 12-day highs. Some stops are touted above 1.9680. A pre-1.9680 peak was scaled on February 15.
Sub-1.9630 support points include 1.9610 (yesterday's NY session base) and 1.9590. Intra-week lows just shy of 1.9590 were plumbed in early European trade. EUR/GBP offers are flagged at 0.6730, with some stops tipped above 0.6735. News-wise: US Vice President Dick Cheney escaped injury when a suicide bomber attacked an Afghan airbase he was visiting (Sky News website). US January durable goods orders are due at 13:30GMT. Forecast: down 3.0% m/m. February's US consumer confidence gauge and January existing home sales ensue at 15:00GMT.
These are respectively forecast at 108.5 and 6.24 million. February's Nationwide UK house price survey will be published at 07:00GMT tomorrow. GfK's February UK consumer confidence index follows at 10:30GMT. BoE Deputy Governor Rachel Lomax also speaks tomorrow.
Sub-1.9630 support points include 1.9610 (yesterday's NY session base) and 1.9590. Intra-week lows just shy of 1.9590 were plumbed in early European trade. EUR/GBP offers are flagged at 0.6730, with some stops tipped above 0.6735. News-wise: US Vice President Dick Cheney escaped injury when a suicide bomber attacked an Afghan airbase he was visiting (Sky News website). US January durable goods orders are due at 13:30GMT. Forecast: down 3.0% m/m. February's US consumer confidence gauge and January existing home sales ensue at 15:00GMT.
These are respectively forecast at 108.5 and 6.24 million. February's Nationwide UK house price survey will be published at 07:00GMT tomorrow. GfK's February UK consumer confidence index follows at 10:30GMT. BoE Deputy Governor Rachel Lomax also speaks tomorrow.
Yen Outlook (27th February 2007)
Global risk reduction fueled broad JPY gains. A constellation of events was the trigger for heavy JPY gains. Comments on carry trades from IMF's head Rato and Eurogroup's Juncker were flagged, although they deviated little from the recent theme. These added to the general tone, along with the recent US-sub prime weakness and the geopolitical risk associated with Iran.
High yielding currencies were sold off as a consequence and heavy fund demand was noted for JPY across the board. USD/JPY made a push on 120.00 and broke through stops to record an eventual low of 119.29. Heavy US name selling was noted, along with good investment house interest out of Europe. Bids at 119.70 and 119.50 were filled with ease and it took a very good name ahead of a large 119.25 option position to stabilise price action.
EUR/JPY was equally soft and printed a low of 157.64 from a 159.26 Asian high. AUD/JPY and NZD/JPY also moved lower as did GBP/JPY, reinforcing the talk that some de-leveraging was under way on rising risk premiums. Focus turns to US durable goods and consumer confidence. Analysts look for a further deterioration in US data.
High yielding currencies were sold off as a consequence and heavy fund demand was noted for JPY across the board. USD/JPY made a push on 120.00 and broke through stops to record an eventual low of 119.29. Heavy US name selling was noted, along with good investment house interest out of Europe. Bids at 119.70 and 119.50 were filled with ease and it took a very good name ahead of a large 119.25 option position to stabilise price action.
EUR/JPY was equally soft and printed a low of 157.64 from a 159.26 Asian high. AUD/JPY and NZD/JPY also moved lower as did GBP/JPY, reinforcing the talk that some de-leveraging was under way on rising risk premiums. Focus turns to US durable goods and consumer confidence. Analysts look for a further deterioration in US data.
Euro Outlook (27th February 2007)
EUR/USD opened in Asia at 1.3185 as lower US yields weighed on USD sentiment and allowed EUR/USD to recover from the 1.3150 level. There was talk that the 1.3200 option barrier had expired and the market pushed EUR/USD up to 1.3205 to trigger a few stops.
EUR/JPY selling out of Tokyo helped to cap EUR/USD at 1.3205 and the pairing drifted down to 1.3173 as the cross fell from 159.25 to 158.60. Also helping to cap EUR/USD just above 1.3200 was talk that the same sovereign name that bought EUR/USD around 1.3150 was selling around 1.3200. Into Europe and a calm start lulled the market into a very slight EUR/USD bear drift.
Talk that Russia was a good buyer of EUR/USD set off a slight short cover rally and then a scramble to get back on the bull side caught the market wrong footed as news of a Taliban attack on a US base in Afghanistan, at the time visited by Dick Cheney, hit the screens. EUR/USD raced to 1.3230, tripping stops on route. The Cheney attack plus the Iran-US rift clearly unsettled the Dollar and helped put the European Ccy"s on a better footing.
EUR/JPY selling out of Tokyo helped to cap EUR/USD at 1.3205 and the pairing drifted down to 1.3173 as the cross fell from 159.25 to 158.60. Also helping to cap EUR/USD just above 1.3200 was talk that the same sovereign name that bought EUR/USD around 1.3150 was selling around 1.3200. Into Europe and a calm start lulled the market into a very slight EUR/USD bear drift.
Talk that Russia was a good buyer of EUR/USD set off a slight short cover rally and then a scramble to get back on the bull side caught the market wrong footed as news of a Taliban attack on a US base in Afghanistan, at the time visited by Dick Cheney, hit the screens. EUR/USD raced to 1.3230, tripping stops on route. The Cheney attack plus the Iran-US rift clearly unsettled the Dollar and helped put the European Ccy"s on a better footing.
Monday, February 26, 2007
Sterling Outlook (26th February 2007)
The GBP/USD opened in Asia around 1.9635/40 after breaking higher on Friday on broad USD weakness and hawkish comments from the MPC's Sentence. The GBP/USD moved up to 1.9654 when the USD/JPY led the USD broadly lower, but slipped back down again when EUR/GBP buying flows weighed on the GBP/USD. The GBP/USD eased 1.9625 at one stage before settling between 1.9630/40 for the balance of the quiet session.
There were decent EUR/GBP flows going through in Asia today with the cross opening around 0.6705 and moving as high as 0.6720 at one stage. The weekend press in the UK threw out a few potential GBP-negatives including the leaked intelligence report saying that Britain was more exposed to home-grown, Al Qaeda terrorism than at any time since Sept 11.
UK Chancellor Brown was quoted as saying that UK inflation was set to fall and that may have sparked some of the EUR/GBP buying. There isn't any data out of the US or the UK later today so the market will focus on US yields, commodity prices and the performance of the US stock market after it wobbled on growing concerns over the mortgage sector.
There were decent EUR/GBP flows going through in Asia today with the cross opening around 0.6705 and moving as high as 0.6720 at one stage. The weekend press in the UK threw out a few potential GBP-negatives including the leaked intelligence report saying that Britain was more exposed to home-grown, Al Qaeda terrorism than at any time since Sept 11.
UK Chancellor Brown was quoted as saying that UK inflation was set to fall and that may have sparked some of the EUR/GBP buying. There isn't any data out of the US or the UK later today so the market will focus on US yields, commodity prices and the performance of the US stock market after it wobbled on growing concerns over the mortgage sector.
Euro Outlook (26th February 2007)
The EUR/USD opened in Asia around 1.3165 after moving higher on Friday due to broad USD weakness emanating from growing geo-political concerns, higher oil prices and growing concerns that US subprime mortgage lenders might be in trouble. After a quiet start in Asia this morning the EUR/USD started to grind higher and was helped along by solid buying of EUR/GBP and EUR/CHF.
The EUR/USD grinded up to 1.3199 with option related selling at every level pip along the way. There was talk of an option barrier at 1.3200, and it definitely traded that way with the EUR/USD falling back to 1.3180/85 after 1.3199 kept the stops above that level safe for the time being. There is talk of decent stops building above 1.3200 and a break above targets the Jan 3 high around 1.3290.
German GFK and inflation data will be released later today, but the main driver for EUR/USD moves is likely to be US yields, commodity prices and the US stock market. Hourly support has built up around 1.3155/60 and a break below 1.3150 is needed to relieve the upward pressure.
The EUR/USD grinded up to 1.3199 with option related selling at every level pip along the way. There was talk of an option barrier at 1.3200, and it definitely traded that way with the EUR/USD falling back to 1.3180/85 after 1.3199 kept the stops above that level safe for the time being. There is talk of decent stops building above 1.3200 and a break above targets the Jan 3 high around 1.3290.
German GFK and inflation data will be released later today, but the main driver for EUR/USD moves is likely to be US yields, commodity prices and the US stock market. Hourly support has built up around 1.3155/60 and a break below 1.3150 is needed to relieve the upward pressure.
Friday, February 23, 2007
GBP/USD: Stops Above 1.9600 Tripped, Eight-Day Peak Scaled
Tripped stops above 1.9600 and 1.9615 have helped inflate cable to eight-day highs just shy of 1.9625. Noted bull targets north of that level include 1.9640, 1.9650, 1.9675, and 1.9700.
Highs circa 1.9675 were notched ahead of the February 15 disclosure of January's very poor UK retail sales data. 1.9615 is now a pullback support point. Lower props include 1.9600, 1.9570 (today's Asian session top), and 1.9540.
Highs circa 1.9675 were notched ahead of the February 15 disclosure of January's very poor UK retail sales data. 1.9615 is now a pullback support point. Lower props include 1.9600, 1.9570 (today's Asian session top), and 1.9540.
EUR/USD: Desperately Seeking a Catalyst
EUR/USD finds itself trapped in an uninteresting 1.3105/30 range in early US, desperately search for a theme on which to grab hold. Ifo was good but not great this morning but does not change the backdrop for the ECB one bit as they continue to steadily remove monetary accommodation.
News that Russia has canceled an order with Boeing is seen as a USD negative this morning as tensions between the US and Russia rise. Also at play is the fact that Russia has been seeking a significant equity stake in Airbus of late.
Tensions with Iran remain a concern bubbling just below the surface, though concerns over any imminent US military action are wildly overblown given the political landscape in Washington, not withstanding recent comments from VP Cheney, who says all options remain on the table. UK buyers are seen on dips to the 1.3100/05 area while offers lie at 1.3130/35/40/45.
News that Russia has canceled an order with Boeing is seen as a USD negative this morning as tensions between the US and Russia rise. Also at play is the fact that Russia has been seeking a significant equity stake in Airbus of late.
Tensions with Iran remain a concern bubbling just below the surface, though concerns over any imminent US military action are wildly overblown given the political landscape in Washington, not withstanding recent comments from VP Cheney, who says all options remain on the table. UK buyers are seen on dips to the 1.3100/05 area while offers lie at 1.3130/35/40/45.
USD/JPY: Little Changed In Lacklustre Trade
USD/JPY is little changed at the start of the US session after a lacklustre European morning. The pair is tied to a very narrow trading range, finding support around 121.30, yet struggling to progress beyond 121.50. Option positions at 121.50 may be influencing price action, with little on the data front for traders to focus on.
Bias is still on the upside but there are reports of sizeable selling interest from 121.60 up to 121.80, which may hamper progress. Another failure at 121.60 could increase the risk of a pullback, with a number of accounts happy to book profits after a decent run higher over the last few sessions.
Japanese name interest has been noted at the highs and could accelerate at we enter the weekend. Strikes to note for today NY options cut include 120.00, 120.50, 121.20, 121.50, 122.00 and 122.25.
Bias is still on the upside but there are reports of sizeable selling interest from 121.60 up to 121.80, which may hamper progress. Another failure at 121.60 could increase the risk of a pullback, with a number of accounts happy to book profits after a decent run higher over the last few sessions.
Japanese name interest has been noted at the highs and could accelerate at we enter the weekend. Strikes to note for today NY options cut include 120.00, 120.50, 121.20, 121.50, 122.00 and 122.25.
USD/CHF: Stops Touted Below 1.2370, Swiss KOF Survey Next Week
Some stops reportedly reside below 1.2370 (Wednesday's NY session low). USD/CHF plumbed an intra-day low a couple of pips shy of 1.2370 yesterday, after the International Atomic Energy Agency revealed that Iran had failed to stop enriching uranium by a UN-imposed deadline.
1.2382-1.2410 defines the intra-day range-to-date. Yesterday's pre-1.2370 low also marks the base since yesterday's eight-day high of 1.2437. The latter level approximates to a 50% Fibo retracement point of the fall from 1.2552 (Feb 12 high) to 1.2314 (Tuesday's seven-week low). Some buy stops are touted up at 1.2450, with more tipped at 1.2480.
Looking ahead to next week: SNB board member Jordan is slated to deliver a Tuesday speech entitled "Does the SNB"s monetary policy concept prove its value?". February's Swiss KOF survey will be disclosed on Wednesday. February's Swiss manufacturing PMI is due Thursday.
1.2382-1.2410 defines the intra-day range-to-date. Yesterday's pre-1.2370 low also marks the base since yesterday's eight-day high of 1.2437. The latter level approximates to a 50% Fibo retracement point of the fall from 1.2552 (Feb 12 high) to 1.2314 (Tuesday's seven-week low). Some buy stops are touted up at 1.2450, with more tipped at 1.2480.
Looking ahead to next week: SNB board member Jordan is slated to deliver a Tuesday speech entitled "Does the SNB"s monetary policy concept prove its value?". February's Swiss KOF survey will be disclosed on Wednesday. February's Swiss manufacturing PMI is due Thursday.
Swiss Outlook (23rd February 2007)
The Swiss Franc has had a mixed Friday so far with CHF/JPY recording a new eight year high of 98.21 and EUR/CHF also holding close to an eight-year high. The end result for USD/CHF has been fairly tight price action. Swiss accounts remain, on balance, buyers of the Swissy and have reportedly held the line in USD/CHF at 1.2410.
Further offers out of Europe, including a large German order, are rumoured to run from 1.2415 through 1.2430. On the buy side the Dollar has found friends in US players and the bounce from the London low at 1.2383-86 is blamed on a reasonable bid from a US investment name.
The "carry trade" continues to provide a useful handle to hang the Swiss weakness on and going forward into the new week the low yield environment is likely to keep the Swiss and Japanese units on the defensive. With the Swiss National Bank in no apparent rush to intensify rate increases we could see the EUR cross crack the 1.6300 level and extend its bull run, which started in December 2004.
Further offers out of Europe, including a large German order, are rumoured to run from 1.2415 through 1.2430. On the buy side the Dollar has found friends in US players and the bounce from the London low at 1.2383-86 is blamed on a reasonable bid from a US investment name.
The "carry trade" continues to provide a useful handle to hang the Swiss weakness on and going forward into the new week the low yield environment is likely to keep the Swiss and Japanese units on the defensive. With the Swiss National Bank in no apparent rush to intensify rate increases we could see the EUR cross crack the 1.6300 level and extend its bull run, which started in December 2004.
Sterling Outlook (23rd February 2007)
Sell interest at 1.9600 capped an early Europe half-cent cable rally from 1.9550. Prior selling at the figure kept a lid on the pair yesterday, following model fund-assisted gains. Sterling's subsequent pullback extended through 1.9550 to 1.9540 bids after the 09:30GMT second estimate of UK Q4 GDP.
Although the GDP numbers were left unrevised as expected, there was some disappointment that an upward revision did not occur, re: yesterday's disclosure of a much larger than expected 11.1% rise in UK Q4 business investment. Some topside stops are touted above 1.9605 (downtrend line drawn from last month's 15-year high of 1.9917).
Further topside stops are tipped above 1.9615. Sub-1.9540 support points are noted at 1.9520, 1.9490, 1.9460, and 1.9430. In an interview published in today's Times, BoE MPC member Andrew Sentence agrees with the description that he is a "pragmatic hawk". Sentance, the newest member of the committee, voted for a 25bp UK rate earlier this month (Feb 8), along with Tim Besley (they were outvoted 7-2).
Although the GDP numbers were left unrevised as expected, there was some disappointment that an upward revision did not occur, re: yesterday's disclosure of a much larger than expected 11.1% rise in UK Q4 business investment. Some topside stops are touted above 1.9605 (downtrend line drawn from last month's 15-year high of 1.9917).
Further topside stops are tipped above 1.9615. Sub-1.9540 support points are noted at 1.9520, 1.9490, 1.9460, and 1.9430. In an interview published in today's Times, BoE MPC member Andrew Sentence agrees with the description that he is a "pragmatic hawk". Sentance, the newest member of the committee, voted for a 25bp UK rate earlier this month (Feb 8), along with Tim Besley (they were outvoted 7-2).
Yen Outlook (23rd February 2007)
USD/JPY and the JPY crosses consolidated off the overnight levels in quiet European trade. EUR/JPY after recording a 159.63 overnight high traded defensively. The pair drifted lower early on and remained in the 159.20 area for a large part of the European session. Profit taking and position adjustment was behind the move lower, with a Japanese securities house and a couple of Tokyo names noted on the offer.
The downside was underpinned amid Japanese retail demand and bid interest from US fund names. USD/JPY experienced sideways movement after drifting from the 121.50 area. The pair traded into 121.30 and then recovered on small bid interest to hover around the 121.40 area ahead of the US open. Bias for both pairs remains on the topside amid reports of further investment trust demand as we enter March.
Activity is not expected to be as heavy as February, although a number of dates have been tipped for early March for possible JPY outflows. EUR/JPY will target 160.00, while USD/JPY will have to clear the 122.20 failure high before we can say with confidence that a move on the 124/125 area is in the offing.
The downside was underpinned amid Japanese retail demand and bid interest from US fund names. USD/JPY experienced sideways movement after drifting from the 121.50 area. The pair traded into 121.30 and then recovered on small bid interest to hover around the 121.40 area ahead of the US open. Bias for both pairs remains on the topside amid reports of further investment trust demand as we enter March.
Activity is not expected to be as heavy as February, although a number of dates have been tipped for early March for possible JPY outflows. EUR/JPY will target 160.00, while USD/JPY will have to clear the 122.20 failure high before we can say with confidence that a move on the 124/125 area is in the offing.
Euro Outlook (23rd February 2007)
A steady trickle lower for the EUR this week but the price action has been disappointing. For want of any better reasons for the EUR's fall the US inflation data, stronger than expected, appears to have set the tone. Subdued price action has taken the EUR away from 1.3190 highs, reached on Tuesday, and tripped small stop loss orders on route to 1.3082 lows, Thursday.
The latest German IFO release had very little impact and was not worthy of the more optimistic in the market who were looking for a fresh injection of EUR/USD volatility. The main index fell in February to 107 from January's 107.9. There had been the usual market rumours, which straddled the actual result by quite a margin.
EUR/USD has been confined to a 1.3105 to 1.3130 range with the advantage held by the bears. In other news Trichet again hunted at higher rates by suggesting that EZ citizens want the ECB to do its job of ensuring price stability.
The latest German IFO release had very little impact and was not worthy of the more optimistic in the market who were looking for a fresh injection of EUR/USD volatility. The main index fell in February to 107 from January's 107.9. There had been the usual market rumours, which straddled the actual result by quite a margin.
EUR/USD has been confined to a 1.3105 to 1.3130 range with the advantage held by the bears. In other news Trichet again hunted at higher rates by suggesting that EZ citizens want the ECB to do its job of ensuring price stability.
Thursday, February 22, 2007
FX OPTIONS: EUR/USD 1-Year Vol Pivoting 6.1% All-Time Low
Implied volatilities remain extremely heavy, with the 1-year pivoting the 6.1 pct level at which an ATM option strike was given during the London morning. That 6.1 pct level represents a new all-time traded low.
At the front of the curve: the 1-mth is perched a fraction above last Autumn's euro lifetime low indication of 5.3/5.5 (Oct 27). 5.0 pct is a touted support point below.
At the front of the curve: the 1-mth is perched a fraction above last Autumn's euro lifetime low indication of 5.3/5.5 (Oct 27). 5.0 pct is a touted support point below.
USD/JPY: On A Firm Footing, Yet Struggling To Extend Gains
USD/JPY is on a firm footing, yet struggles to extend beyond the European morning high of 121.38. Good two way interest is noted around the 121.20-40 zone, leaving a narrow trading range. Carry trades interest and investor demand remains a background influence, while the topside is being hampered by model fund offers, exporters and outstanding option positions.
Today's NY option cut sees large size 121.25 expiries rolling off. These have provided support into the US session and continue to underpin ahead of the 15:00GMT expiries. The topside should be hampered as we trade into the cut but beyond there prices may begin there uptrend.
Technical watcher note mildly overbought reading on the hourly studies, which may provide further sideways to corrective movement. Overall though there appears to be little standing in the way of this uptrend, with both technical and fundamentals supporting further JPY losses.
Today's NY option cut sees large size 121.25 expiries rolling off. These have provided support into the US session and continue to underpin ahead of the 15:00GMT expiries. The topside should be hampered as we trade into the cut but beyond there prices may begin there uptrend.
Technical watcher note mildly overbought reading on the hourly studies, which may provide further sideways to corrective movement. Overall though there appears to be little standing in the way of this uptrend, with both technical and fundamentals supporting further JPY losses.
USD/CHF: Tech Levels & EUR/CHF Barriers Cap Rally
US traders were quite surprised to find USD/CHF at the lofty heights of 1.2430 when they arrived at their desks, so they did what any reactionary inter-bank trader would do hit the bid. USD/CHF has not survived in this rarified atmosphere for the past week; with gold still looking perky and precious metals strategists calling for $700 per oz, USD/CHF dropped to 1.2415 before eliciting any support.
Early pressure on EUR/USD emanating from Chicago, who sold around E50mn at the open-modest but directional has helped USD/CHF rally back to 1.2425. Tech traders note that the top of today's European action 1.2439 coincided with the 20-day moving average, however the lows have been supported by the 100-day at 1.2380 and the 200-day below that at 1.2365.
Whilst traders remain bearish USD, this pair will struggle to earn higher highs, and exotic option barrier defence at 1.6290, ahead of the 1.6300 triggers is also capping topside potential. If USD/CHF is to breaks higher either the option defence has to fail, or EUR/USD has to drop.
Early pressure on EUR/USD emanating from Chicago, who sold around E50mn at the open-modest but directional has helped USD/CHF rally back to 1.2425. Tech traders note that the top of today's European action 1.2439 coincided with the 20-day moving average, however the lows have been supported by the 100-day at 1.2380 and the 200-day below that at 1.2365.
Whilst traders remain bearish USD, this pair will struggle to earn higher highs, and exotic option barrier defence at 1.6290, ahead of the 1.6300 triggers is also capping topside potential. If USD/CHF is to breaks higher either the option defence has to fail, or EUR/USD has to drop.
EUR/USD: Business Sentiment Remains High across Europe
Italy and France reported firm business sentiment surveys earlier today and now Belgium has done the same, reporting a rise to 3.5 in February from 2.1 in January. This sets the stage for a firm Ifo from Germany tomorrow. EUR/USD is dipping again after holding below resistance in the 1.3110/15 area on the recent rebound. Support lies down at 1.3075/80.
FOREX: Central Bank Summary
The next central bank decision will come from the Bank of Canada on March 6th with rate expected to be steady. Last night, BOJ Fukui retained a cautious tone on rates noting that CPI is likely to dip due to the fall in oil prices, already attempting to dissuade criticism for the current rate hike ahead of the Japan CPI release on March 1st. Analysts are now looking for the BOJ to hike rates again in August, or maybe September but definitely after the July Upper House elections.
For the latest central banker comments please go to our website at www.ifrmarkets.com. Look under "Forex Watch" then "Central Bank Summary."
For the latest central banker comments please go to our website at www.ifrmarkets.com. Look under "Forex Watch" then "Central Bank Summary."
EUR/USD: Claims Create Little Stir
EUR/USD is little changed in the wake of jobless claims data which deviated only slightly from the consensus. One factor worth noting is that this week is a survey week for the employment report, and claims are running about 20k higher than they were a few weeks ago which has the potential to translate into a weaker employment report down the road. Offers are seen to 1.3115 in EUR/USD while small stops are eyed at 1.3115/20. EUR/USD trades at 1.3107.
Swiss Outlook (22nd February 2007)
The legacy of Wednesday's US inflation data was a factor early in the session and USD/CHF spiked from the top of a shallow Asian bull run at 1.2394 to 1.2434. There was talk of stops being tripped at 1.2415 and 1.2420 and these look to have accelerated the Dollar push. Swiss Q4 employment data showed the strongest rise in five-years with non-farm payrolls rising 1.6% on the year to 3.7 mln in the fourth quarter.
The data looks to have helped stall the Dollar's advance at 1.2434 and price action has been moving sideways between 1.2420 and 1.2435. Technically the Dollar pair is a buy as the 10-day moving average gives way at 1.2410 and a challenge is made on the 21-day line at 1.2440. Swiss names have been seen on the offer but trading conditions have been thin and lacking in depth.
EUR/CHF continues to put pressure on the 1.63 level although the cross has not bettered Wednesday's 1.6289, multi-year highs. Again the charts are against the Swissy and a break above 1.63 is looked for. Good bids are expected to surface in the 1.6245-55 area on any corrective pullbacks.
The data looks to have helped stall the Dollar's advance at 1.2434 and price action has been moving sideways between 1.2420 and 1.2435. Technically the Dollar pair is a buy as the 10-day moving average gives way at 1.2410 and a challenge is made on the 21-day line at 1.2440. Swiss names have been seen on the offer but trading conditions have been thin and lacking in depth.
EUR/CHF continues to put pressure on the 1.63 level although the cross has not bettered Wednesday's 1.6289, multi-year highs. Again the charts are against the Swissy and a break above 1.63 is looked for. Good bids are expected to surface in the 1.6245-55 area on any corrective pullbacks.
Sterling Outlook (22nd February 2007)
Tripped stops helped depress cable to three-day lows just shy of 1.9460 in early European trade. Sterling's subsequent recovery to 1.9516 (today's Asian session base) was aided by good size UK clearer selling of EUR/GBP. That selling deflated the cross to a one-week low of 0.6708. Touted offers at 1.9550 are a bull target/appreciation obstacle north of 1.9516.
1.9547 was today's Asian session top. 1.9549 was yesterday's post-MPC minutes peak. 1.9592 was yesterday's pre-MPC minutes high. 1.9430 and 1.9400 are support points south of 1.9460. Lows just shy of 1.9430 were plumbed on Monday. BoE Chief Economist Charles Bean says that upside and downside risks to the UK inflation outlook are dividing MPC members and making it difficult to predict where the base rate goes next.
Bean, who voted against January's UK rate hike to 5.25%, predicts a sharp drop in CPI this year, saying it could even fall "well below" the BoE's 2.0% target level (Reuters). Today's key US event risk is the 13:30GMT disclosure of weekly US jobless claims. Forecast: 325k.
1.9547 was today's Asian session top. 1.9549 was yesterday's post-MPC minutes peak. 1.9592 was yesterday's pre-MPC minutes high. 1.9430 and 1.9400 are support points south of 1.9460. Lows just shy of 1.9430 were plumbed on Monday. BoE Chief Economist Charles Bean says that upside and downside risks to the UK inflation outlook are dividing MPC members and making it difficult to predict where the base rate goes next.
Bean, who voted against January's UK rate hike to 5.25%, predicts a sharp drop in CPI this year, saying it could even fall "well below" the BoE's 2.0% target level (Reuters). Today's key US event risk is the 13:30GMT disclosure of weekly US jobless claims. Forecast: 325k.
Yen Outlook (22nd February 2007)
JPY continued to grind lower in the European session. USD/JPY pressed through 121.25/30 offers and moved towards the 121.40 area. Price action was choppy amid option expiries at 121.25 in modest size and an overhang of offers from exporters. Japanese retail investor demand was noted on dips, which helped to underpin the pair throughout the session.
EUR/JPY benefited from the investor activity, keeping the topside in focus despite the pair drifting off the 159.00 handle in early European trade. A corrective EUR/USD tone contributed to EUR/JPY's consolidation but the pair remained within close proximity to the fresh 159.12 high recorded in the Asian session. Interest for carry trades is expected to continue but there has been a slowdown in gains.
Fed's Yellen and other European officials raised concerns over the carry trade, while Japan MOF's Fujii said FX should reflect fundamentals. These comments did little to change direction, yet do highlight the background risk. Currently, speculative accounts appear willing to take on more risk, indicated by lower vols and an increase in the high yielders.
EUR/JPY benefited from the investor activity, keeping the topside in focus despite the pair drifting off the 159.00 handle in early European trade. A corrective EUR/USD tone contributed to EUR/JPY's consolidation but the pair remained within close proximity to the fresh 159.12 high recorded in the Asian session. Interest for carry trades is expected to continue but there has been a slowdown in gains.
Fed's Yellen and other European officials raised concerns over the carry trade, while Japan MOF's Fujii said FX should reflect fundamentals. These comments did little to change direction, yet do highlight the background risk. Currently, speculative accounts appear willing to take on more risk, indicated by lower vols and an increase in the high yielders.
Euro Outlook (22nd February 2007)
The EUR/USD opened in Asia around 1.3135 after spending most of Wednesday sidelined while the USD/JPY and JPY crosses hogged all of the market action surrounding the BOJ decision to hike rates. The EUR/USD traded up to 1.3144 in early Asia on the back of EUR/JPY demand, which made a new all-time high at 159.13 before settling between 158.90/159.00 for the balance of the session.
The EUR/USD settled around 1.3130 with very little changing hands in a very quiet session. The market's attention has slightly shifted away from central bank expectations as evidenced by the muted reaction to the higher than expected US CPI data yesterday. The EUR/USD was supported by the rise in the gold price and the unyielding demand for JPY funded carry trades.
There is talk of central banks bids ahead of 1.3100 and central bank sellers lined up ahead of 1.3200. A break below 1.3090 or above 1.3200 is needed to break the lethargic tone of the EUR/USD and most favour a topside break at some stage. German GDP is out later today along with EZ Industrial Orders.
The EUR/USD settled around 1.3130 with very little changing hands in a very quiet session. The market's attention has slightly shifted away from central bank expectations as evidenced by the muted reaction to the higher than expected US CPI data yesterday. The EUR/USD was supported by the rise in the gold price and the unyielding demand for JPY funded carry trades.
There is talk of central banks bids ahead of 1.3100 and central bank sellers lined up ahead of 1.3200. A break below 1.3090 or above 1.3200 is needed to break the lethargic tone of the EUR/USD and most favour a topside break at some stage. German GDP is out later today along with EZ Industrial Orders.
Wednesday, February 21, 2007
USD/JPY: Back At Session Highs Following US CPI Data
The Yen is extending its losses again as the Dollar receives a boost from stronger than expected US inflation data. USD/JPY has climbed back to the 120.95-00 area, where price failed earlier in the session. The current push appears to have more weight behind it and with a good amount of option and exporter related selling having already passed through the market the way might be open for a clear break of 121.00. In terms of a topside target we have the lows from February 9 at 121.40.
EUR/USD: Higher Core CPI Boosting USD
EUR/USD is pulling back after the unexpected rise in core CPI. All the hawkish Fed rhetoric of late is being viewed in a new light as inflation appears to be moderating a bit less rapidly than expected. Buyers remain on dips to the 1.3120s but small stops are building in the 1.31-teens. Offers remain at 1.3150 and 1.3165. EUR/USD trades at 1.3135 after a dip to 1.3120.
US ECON: Data on Tap - CPI, Real Earnings, Leaders, FOMC Mins
[Consumer Prices (Jan)] IFR sees no change in the all-items CPI between December and January but a 0.2% increase in the core rate. Despite a 0.4% monthly increase in December, CPI was still below its August 2006 peak. Core CPI growth had been very benign in the four quarter and the 3-month annualized rate fell to 1.5%, its lowest in 16 months. Non-energy services CPI continues to be threatening to the overall inflation outlook but this category too is moving back toward the Fed's comfort zone.
In January, look for decreases in costs for transportation (vehicles and fuel) to offset small gains food and beverages, housing and medical care.
Note. Effective with the release of the January 2007 CPI, the Bureau of Labor Statistics will display CPI index values to three decimal places. Percent changes will be computed based upon the three decimal place indexes but percent changes will continue to be rounded to one decimal place.
[Leading Indicators (Jan)] IFR sees a 0.1% rise in January's index of leading economic indicators. The drop in average workweek hours and building permits should push the index down. However, the rise in Michigan's consumer confidence index and lower jobless claims should leave the total index slightly positive. Among other contributing gains will be the M2 money supply and higher stock prices.
Growth in the leading index has been flat for the past several months but the coincident indicator continues to advance Growth in the leading index has been flat for the past several months but the coincident indicator continues to advance.
[FOMC Minutes (Jan 30-31)] The steady stream of Fed speakers over the past week or so has had more bearing over monetary policy expectations than will the minutes of the last FOMC meeting. At that, the Committee's last statement was boilerplate and noncommittal while officials on the lecture circuit have been hawkish. There are still four weeks remaining until the March 20-21 FOMC meeting but the market is confident that no policy change is due next month.
In January, look for decreases in costs for transportation (vehicles and fuel) to offset small gains food and beverages, housing and medical care.
Note. Effective with the release of the January 2007 CPI, the Bureau of Labor Statistics will display CPI index values to three decimal places. Percent changes will be computed based upon the three decimal place indexes but percent changes will continue to be rounded to one decimal place.
[Leading Indicators (Jan)] IFR sees a 0.1% rise in January's index of leading economic indicators. The drop in average workweek hours and building permits should push the index down. However, the rise in Michigan's consumer confidence index and lower jobless claims should leave the total index slightly positive. Among other contributing gains will be the M2 money supply and higher stock prices.
Growth in the leading index has been flat for the past several months but the coincident indicator continues to advance Growth in the leading index has been flat for the past several months but the coincident indicator continues to advance.
[FOMC Minutes (Jan 30-31)] The steady stream of Fed speakers over the past week or so has had more bearing over monetary policy expectations than will the minutes of the last FOMC meeting. At that, the Committee's last statement was boilerplate and noncommittal while officials on the lecture circuit have been hawkish. There are still four weeks remaining until the March 20-21 FOMC meeting but the market is confident that no policy change is due next month.
EUR/USD: Buy-the-Dips Still in Vogue ahead of CPI
EUR/USD remains a buy on dips this morning as probes into the 1.3120 area find fresh demand, which some reckon is from sovereigns. Options-related sales ahead of 1.3200 may be being scooped back up on the dips, dealers surmise.
US CPI is next up for the market with a 0.2% rise in the core expected. Offers are seen in the 1.3150 area, followed by more at 1.3165. Small stops are seen in the high 1.31-teens but bids return toward 1.3100.
US CPI is next up for the market with a 0.2% rise in the core expected. Offers are seen in the 1.3150 area, followed by more at 1.3165. Small stops are seen in the high 1.31-teens but bids return toward 1.3100.
Swiss Outlook (21st February 2007)
Into European trading and Swiss dealers looked to the Yen for direction. Offers in USD/CHF into 1.2375 capped the early moves on the topside before the pair spiked down to 1.2340 as the Roth comments emerged. Bids into the 55-Day M/A line propped and spot soon rebounded. With the dip corrected the USD has looked supported intraday with sales into the 1.2380's then limiting a run towards 1.2390/2400.
CHF/JPY attempted to break below 97.00 in the JPY move higher but bids at 96.85 propped and the cross has since rebounded and is looking to break higher with 97.60/65 now eyed. Offers in EUR/CHF at 1.6275 continue to cap but bulls keep the 1.6300 option barriers as a short-term bull target.
Elsewhere, GBP/CHF hit 2.4211 as trading broke higher ahead of the BoE MPC but profit taking and the 7-2 vote soon cemented the pullback. Bids into 2.4245/50 propped for a period but further Sterling weakness has weighed. Looking ahead, US CPI data (due at 13:30 GMT) will give USD/CHF a longer-term bias with a break above 1.24 putting a renewed bull-bias on the charts. Economists look for +0.1% M/M with the core seen at +0.2% M/M.
CHF/JPY attempted to break below 97.00 in the JPY move higher but bids at 96.85 propped and the cross has since rebounded and is looking to break higher with 97.60/65 now eyed. Offers in EUR/CHF at 1.6275 continue to cap but bulls keep the 1.6300 option barriers as a short-term bull target.
Elsewhere, GBP/CHF hit 2.4211 as trading broke higher ahead of the BoE MPC but profit taking and the 7-2 vote soon cemented the pullback. Bids into 2.4245/50 propped for a period but further Sterling weakness has weighed. Looking ahead, US CPI data (due at 13:30 GMT) will give USD/CHF a longer-term bias with a break above 1.24 putting a renewed bull-bias on the charts. Economists look for +0.1% M/M with the core seen at +0.2% M/M.
Sterling Outlook (21st February 2007)
The pound came under selling pressure following the 09:30GMT publication of minutes from the February 7/8 MPC meeting, with cable tumbling by more than half-a-cent to a low of 1.9488. CTA demand had helped inflate GBP/USD to a 6-day high of 1.9591 in early European trade. Sterling bids are tipped at 1.9480 (yesterday's low). Lower prop points include 1.9466 (last Friday's floor), 1.9430 and 1.9400.
Intra-week lows just shy of 1.9430 were notched on Monday. One-month lows just shy of 1.9400 were plumbed eight days ago (Feb 13). Large stops are touted below 1.9390. 1.9520 is now a rebound resistance level. Highs just shy of 1.9520 were notched after the 11:00GMT disclosure that February's CBI manufacturing orders book balance leapt to a 12-year high of +4.
Minus 8 was forecast. Upper obstacles include 1.9550 and 1.9600. US January inflation data is due at 13:30GMT. Headline CPI forecast: +0.1% m/m, +1.9% y/y. Core CPI forecast: +0.2% m/m, +2.6% y/y. January 30/31 FOMC meeting minutes will be published at 19:00GMT.
Intra-week lows just shy of 1.9430 were notched on Monday. One-month lows just shy of 1.9400 were plumbed eight days ago (Feb 13). Large stops are touted below 1.9390. 1.9520 is now a rebound resistance level. Highs just shy of 1.9520 were notched after the 11:00GMT disclosure that February's CBI manufacturing orders book balance leapt to a 12-year high of +4.
Minus 8 was forecast. Upper obstacles include 1.9550 and 1.9600. US January inflation data is due at 13:30GMT. Headline CPI forecast: +0.1% m/m, +1.9% y/y. Core CPI forecast: +0.2% m/m, +2.6% y/y. January 30/31 FOMC meeting minutes will be published at 19:00GMT.
Yen Outlook (21st February 2007)
JPY extended losses after starting the European session on the softer side following the BOJ's decision to raise rates by 0.25%. BOJ Governor Fukui assured the market that rate moves would be gradual and that no consecutive hikes would take place. He cited carry trades as one area when considering policy, yet said that recent JPY weakness was not from carry trades alone.
The market was buoyed by these remarks and speculative accounts and fund names piled into the carry trade. USD/JPY rallied from 120.25/30 towards the 120.50 Asian high. The pair probed 120.60 offers and despite choppy price action managed to clear 120.65 stops and 120.75/80 offers to print a 120.94 high. Large size option strikes at 120.50 and 120.60 supplied the market with good selling, along with standing interest from exporters and other Tokyo based accounts.
Elsewhere, EUR/JPY pushed up towards the 159.00 on reports of leverage fund demand and real money activity. Large selling interest into 159.00 capped, with reports of options interest, exporter activity and commercial based activity from sovereign names. US names bids at 158.65/70 underpinned on any pullback.
The market was buoyed by these remarks and speculative accounts and fund names piled into the carry trade. USD/JPY rallied from 120.25/30 towards the 120.50 Asian high. The pair probed 120.60 offers and despite choppy price action managed to clear 120.65 stops and 120.75/80 offers to print a 120.94 high. Large size option strikes at 120.50 and 120.60 supplied the market with good selling, along with standing interest from exporters and other Tokyo based accounts.
Elsewhere, EUR/JPY pushed up towards the 159.00 on reports of leverage fund demand and real money activity. Large selling interest into 159.00 capped, with reports of options interest, exporter activity and commercial based activity from sovereign names. US names bids at 158.65/70 underpinned on any pullback.
Tuesday, February 20, 2007
USD/CHF: Dip To 10-Hour M/A Line Elicits Support
The drop back to the 10-Hour moving average at 1.2353 saw buyers in USD/CHF emerge. Bids were always likely to be found on a drop to 1.2350/55 and in the wake of the weak Chicago numbers the price tested such levels. Trading has since rebounded and the pair is once more retesting the 1.2370's have worked back through the 1.2360's with comparative ease. The 10-Hour line may now stand as 1.2358 but spot will still be supported into 1.2350 with 1.2390/2400 capping the topside.
FOREX: ECB FX Reserves Rise EUR 0.5Bln To EUR145.3Bln - Feb 16
ECB reserves have risen EUR500 mln in the week ending Feb 16th to EUR 145.3 bln. The rise comes after a five week decline in reserves totaling EUR3.9 bln. Gold reserves declined EUR90mln over the same week due to sales by two Eurosystem central banks. Gold reserves have declined now for 117 out of the last 123 weeks.
FX OPTIONS: GBP/USD 1-mth Vol Pivoting 6.4%, Barriers at 2.00+
1-mth implied option volatility is currently pivoting the 6.4 pct level at which the period was offered yesterday, and given at the end of last week. 6.3/6.5 defines the current market.
On the exotic front: a raft of exposure is touted from 2.0000, inclusive of triggers at 2.0100, 2.0200, 2.0250, and 2.0300. GBP/USD scaled a 15-year peak of 1.9917 last month (Jan 23). 2.0100 was the traded high in September 1992 (pre-Black Wednesday).
On the exotic front: a raft of exposure is touted from 2.0000, inclusive of triggers at 2.0100, 2.0200, 2.0250, and 2.0300. GBP/USD scaled a 15-year peak of 1.9917 last month (Jan 23). 2.0100 was the traded high in September 1992 (pre-Black Wednesday).
EUR/USD: ECB's Mersch Headline Comments Have Little Impact
EUR/USD continues to trade around 1.3150-55 following headlines on Reuters news that Yves Mersch, ECB council member, and president of the Central Bank of Luxemburg who stated that the EU economy is "Edging toward a state where accommodative policy is no longer needed".
He is also looking for possible upward revisions in the ECB's GDP projection, and warned against wage settlements above 4% stating they would be inflationary. He emphasized that the monetary aggregates will continue to need monitoring because "liquidity is ample by any measure". These generally hawkish statements have already been prices in according to spot traders, and once again have been filed under the category "same old, same old".
He is also looking for possible upward revisions in the ECB's GDP projection, and warned against wage settlements above 4% stating they would be inflationary. He emphasized that the monetary aggregates will continue to need monitoring because "liquidity is ample by any measure". These generally hawkish statements have already been prices in according to spot traders, and once again have been filed under the category "same old, same old".
EUR/USD: Little Change In Mood After Chicago Fed Data
EUR/USD has adopted a slightly firmer tone, touching a New York session high of 1.3154 after soft Chicago Fed data (-0.74), but with little change in sentiment. The dollar has been trading with a soft tone in recent sessions, with economic reports registering a slowing US economy, and traders initial response to this data snap is "same old, same old". The big news will be CPI and core CPI tomorrow, and most US based accounts are keeping their powder dry for that.
USD/CHF: Working Back For 1.24 Test, EUR/CHF & GBP/CHF Bought
Ahead of the US return to the action and volumes are increasing with the Dollar back in demand. As a result USD/CHF is stabbing higher and a run towards and retest of the 1.2400 level is now viable.
Elsewhere, EUR/CHF has hit another fresh session high at 1.6278, the historic high at 1.6289 (from February 14th) is still eyed above with dealers once more noting the option barriers at 1.6300. In the wake of the soft Swiss data GBP/CHF has continued to be bought and trading recently broke above 2.4125/30. A run towards 2.4150 is now looked for by short-term accounts with the 2.4200 level eyed in the medium-term.
Elsewhere, EUR/CHF has hit another fresh session high at 1.6278, the historic high at 1.6289 (from February 14th) is still eyed above with dealers once more noting the option barriers at 1.6300. In the wake of the soft Swiss data GBP/CHF has continued to be bought and trading recently broke above 2.4125/30. A run towards 2.4150 is now looked for by short-term accounts with the 2.4200 level eyed in the medium-term.
USD/JPY: Extends Gains As Speculative Accounts Join The Bid
USD/JPY extends gains as some speculative accounts have been notably joining the bid side after the earlier flurry of momentum fund demand after 120.20 stops gave way. The pullback in USD/JPY was brief and very limited as a bout of European based interest came into the market. The pair has traded up to 120.34, helped by straight USD/JPY demand and activity via the JPY crosses.
GBP/JPY has performed particularly well, with some bargain hunting noted after yesterday's downturn. EUR/JPY has been held back by large size 158.00 option strikes but bias is clearly on further gains. USD/JPY will target the previous 122.00 high over the next couple of sessions going by recent sentiment, although there is likely to be a pause in the topside as it moves towards the BOJ policy decision, which is due sometime in the early hours of tomorrow's session.
A steady policy would see acceleration in JPY selling, although most players believe that the BOJ has room to raise rates without drastically changing market sentiment especially if the statement is broadly dovish as many now expect it to be. The market is expected to target the previous the February 14th low at 120.65 initially. Offers are tipped at 120.35/40 and 120.50 ahead.
GBP/JPY has performed particularly well, with some bargain hunting noted after yesterday's downturn. EUR/JPY has been held back by large size 158.00 option strikes but bias is clearly on further gains. USD/JPY will target the previous 122.00 high over the next couple of sessions going by recent sentiment, although there is likely to be a pause in the topside as it moves towards the BOJ policy decision, which is due sometime in the early hours of tomorrow's session.
A steady policy would see acceleration in JPY selling, although most players believe that the BOJ has room to raise rates without drastically changing market sentiment especially if the statement is broadly dovish as many now expect it to be. The market is expected to target the previous the February 14th low at 120.65 initially. Offers are tipped at 120.35/40 and 120.50 ahead.
EUR/USD: Back Testing 1.3130, 1.3100 Options In Focus
As North American open, EUR/USD is back testing the 1.3130 area where good bids are reported. Those awaiting fresh the short-term direction will look to the US entrance for momentum but below 1.3130, the 1.3100 level comes back into sight. Stops may reside below 1.3090 but option related buying, ahead of the EUR 1.2/5Bln 1.3100 expiry, is expected to emerge to help stall further weakness.
Swiss Outlook (20th February 2007)
Into European trading Swiss data was in focus with the initial trade release supporting the Franc. However, the soft CPI numbers soon saw the CHF sold across the board, -0.2% M/M and +2.2% Y/Y. USD/CHF broke above 1.2350 and stops tripped en route to 1.2382. More offers are seen into 1.2400.
Looking ahead, US inflation data, due Wednesday, is still eagerly awaited as the US rate outlook remains the driving force for longer-term directional plays. Intraday, however, only the 13:30 GMT release of January Chicago Fed Activity data is eyed. The index read 0.04 at the previous release. USD/CHF dips target the 1.2300/15 area with stops still tipped sub-1.2285 technical support.
Elsewhere, the Franc continues to feel the pressure on the crosses, with EUR/CHF bought in the wake of the soft Swiss CPI numbers. The price is back within striking distance of the all-time high at 1.6289 (1.6265 the current intraday high) with option barriers into 1.63 seen as a viable short-term targets. Continue to watch GBP/CHF but this cross has only appreciated since the bounce off 2.3980/4000.
Looking ahead, US inflation data, due Wednesday, is still eagerly awaited as the US rate outlook remains the driving force for longer-term directional plays. Intraday, however, only the 13:30 GMT release of January Chicago Fed Activity data is eyed. The index read 0.04 at the previous release. USD/CHF dips target the 1.2300/15 area with stops still tipped sub-1.2285 technical support.
Elsewhere, the Franc continues to feel the pressure on the crosses, with EUR/CHF bought in the wake of the soft Swiss CPI numbers. The price is back within striking distance of the all-time high at 1.6289 (1.6265 the current intraday high) with option barriers into 1.63 seen as a viable short-term targets. Continue to watch GBP/CHF but this cross has only appreciated since the bounce off 2.3980/4000.
Sterling Outlook (20th February 2007)
Demand at 1.9480 is currently propping cable, against a big-picture story of loss consolidation. Further bids are noted at 1.9460/70 and 1.9430/40. 1.9466 was last Friday's floor. 1.9433 was yesterday's six-day low. 1.9420 (last Tuesday's NY session base) and 1.9400 are support points south of 1.9430.
GBP/USD plumbed one-month lows just shy of 1.9400 seven days ago, on the back of January's softer-than-expected UK inflation figures. Cable resistance levels are located at 1.9500, 1.9520 and 1.9550 (today's Asian session top). Sterling ascended to threaten 1.9520, a former stop-loss level, after the 09:30GMT disclosure that annualized UK M4 money supply growth rose by a higher-than-expected 13.0% in January. 12.7% was forecast.
In written evidence for the Commons TSC, the BoE yesterday said that it would be "unwise to ignore money supply data entirely". UK rate hawks are therefore hopeful that the base rate might be hiked to 5.5% next month. Minutes from the February 7/8 BoE MPC meeting will be published at 09:30GMT tomorrow. IFR forecasts a 7-2 vote.
GBP/USD plumbed one-month lows just shy of 1.9400 seven days ago, on the back of January's softer-than-expected UK inflation figures. Cable resistance levels are located at 1.9500, 1.9520 and 1.9550 (today's Asian session top). Sterling ascended to threaten 1.9520, a former stop-loss level, after the 09:30GMT disclosure that annualized UK M4 money supply growth rose by a higher-than-expected 13.0% in January. 12.7% was forecast.
In written evidence for the Commons TSC, the BoE yesterday said that it would be "unwise to ignore money supply data entirely". UK rate hawks are therefore hopeful that the base rate might be hiked to 5.5% next month. Minutes from the February 7/8 BoE MPC meeting will be published at 09:30GMT tomorrow. IFR forecasts a 7-2 vote.
Yen Outlook (20th February 2007)
USD/JPY and the JPY crosses rose again in Europe, extending the Asian trend. Good Importer demand was noted and decent Japanese investment trust-related activity continued in Asia and into the European session, taking USD/JPY up to a 120.22 high. EUR/JPY traded up to the 158.10 area, although price action was choppy.
The pair fell into 157.60 early on in the European session amid option related selling but steady JPY selling pushed the pair higher. Large size 158.00 strikes left the pair in a narrow range around this level ahead of the North American open. USD/JPY was also held back by overstretched technicals and reports of large 120.00 strikes rolling off throughout the week.
Tomorrow's BoJ Policy Board decision was shrugged off despite the announcement being finely balanced. Investment houses are erring towards steady policy due to some weak spots in leading indicators, although some see the rate decision as a credibility issue for the BOJ. The central bank may assert its independence by hiking rates, while retaining a dovish statement, which would encourage further JPY selling. This was certainly the case today.
The pair fell into 157.60 early on in the European session amid option related selling but steady JPY selling pushed the pair higher. Large size 158.00 strikes left the pair in a narrow range around this level ahead of the North American open. USD/JPY was also held back by overstretched technicals and reports of large 120.00 strikes rolling off throughout the week.
Tomorrow's BoJ Policy Board decision was shrugged off despite the announcement being finely balanced. Investment houses are erring towards steady policy due to some weak spots in leading indicators, although some see the rate decision as a credibility issue for the BOJ. The central bank may assert its independence by hiking rates, while retaining a dovish statement, which would encourage further JPY selling. This was certainly the case today.
Euro Outlook (20th February 2007)
Another Chinese holiday but the Euro drew some support overnight, as Japanese traders focused on the BoJ. However, this evaporated after the release of weaker German PPI data. EUR/USD was sold back from 1.3189 to 1.3133. Stops were tripped with 1.3160 and 1.3145 tipped as the best levels here.
Eastern European Dollar buying against both the Euro and the Pound is cited as the trigger for the move lower. However, value is noted on a drop to the 1.3130's. Spot now trades near the mid-point of the 1.31/32 comfort-zone. Looking ahead, the US return will be key to S/T direction despite the orders on both sides. US inflation data, due Wednesday, is eagerly awaited as the US rate outlook remains the driving force for longer-term directional plays.
Intraday, however, only the 13:30 GMT release of January Chicago Fed Activity data is eyed. The index read 0.04 at the previous release. On the options front, a EUR 1.2/5Bln 1.3100 strike is due to roll off at the NY cut at 15:00 GMT so expect any drop back to this level to generate option related supply while gamma sellers still protect the 1.3200 barriers.
Eastern European Dollar buying against both the Euro and the Pound is cited as the trigger for the move lower. However, value is noted on a drop to the 1.3130's. Spot now trades near the mid-point of the 1.31/32 comfort-zone. Looking ahead, the US return will be key to S/T direction despite the orders on both sides. US inflation data, due Wednesday, is eagerly awaited as the US rate outlook remains the driving force for longer-term directional plays.
Intraday, however, only the 13:30 GMT release of January Chicago Fed Activity data is eyed. The index read 0.04 at the previous release. On the options front, a EUR 1.2/5Bln 1.3100 strike is due to roll off at the NY cut at 15:00 GMT so expect any drop back to this level to generate option related supply while gamma sellers still protect the 1.3200 barriers.
Monday, February 19, 2007
USD/CHF: 1.2350 Caps As Swiss Players Eye Return To 1.2200
A Swiss based player has today noted that US inflation data, due on Wednesday, will be key to the potential developing of a base in USD/CHF. The break below 1.2350 has (according to most players) put a negative bias on the charts and the above name is of the view that should the figures come in lower than expected there would be a risk of a further move towards the 1.22 threshold.
However, should the numbers meet expectations, or even come in higher than forecast, then the 1.2280/2300 area will look to base spot with a return towards the 1.2380/2400 zone then likely to unfold. In the short-term, bids into 1.2320/25 prop with the local offers into 1.2350 capping.
However, should the numbers meet expectations, or even come in higher than forecast, then the 1.2280/2300 area will look to base spot with a return towards the 1.2380/2400 zone then likely to unfold. In the short-term, bids into 1.2320/25 prop with the local offers into 1.2350 capping.
USD/JPY: Largely Static Amid Holiday Thin US Trade
USD/JPY is largely static in holiday thin US trade. Prices hover across the 119.50 level, which is in the middle of a relatively narrow European trading range. The pair has made a couple of attempts on the topside but has been unable to overcome large offers at 119.80.
European interbank players have sold ahead of this level resulting in a 119.73 session high. Equally, the downside has been underpinned by good Japanese order interest from the 119.30/35 area. There is little to push the pair out of these ranges in the European afternoon, with most players sidelined due to US Presidents Day.
European interbank players have sold ahead of this level resulting in a 119.73 session high. Equally, the downside has been underpinned by good Japanese order interest from the 119.30/35 area. There is little to push the pair out of these ranges in the European afternoon, with most players sidelined due to US Presidents Day.
EUR/USD: Respecting European Range As Long W/E Impacts
The long US weekend is keeping the bulk of the North American market from joining in and as a result the US holiday for Presidents Day has dramatically impacted volumes. EUR/USD continues to respect the late European morning range with 1.3125/50 expected to contain the majority of the pre-European close flows. More offers are seen into 1.3160/65 while on the downside a break below 1.3120 eyes the 1.3100 level where good option related buyers are expected to emerge.
FX OPTIONS: GBP/USD Raft of Exotic Exposure from 2.00
There is a raft of exotic option exposure from 2.0000, inclusive of triggers at 2.0100, 2.0200, 2.0250, and 2.0300. GBP/USD scaled a 15-year peak of 1.9917 last month (Jan 23). 2.0100 was the traded high in September 1992 (pre-Black Wednesday).
FX OPTIONS: EUR/USD Vols Soften, 1-mth Eyeing 12-Week Low
Implied option volatilities have eased through the European session-to-date. The 1-mth is now 5.6/5.75, having been 5.7/5.9 at today's European open. Last Tuesday, the 1-mth was seen as low as 5.55/5.75.
That indication defines the low since last Autumn's double-day all-time low of 5.4/5.6 (Nov 17 & 21). In the mid-dates: the 2-mth is 5.7/5.9 last, having been 5.8/6.0 at today's European open.
That indication defines the low since last Autumn's double-day all-time low of 5.4/5.6 (Nov 17 & 21). In the mid-dates: the 2-mth is 5.7/5.9 last, having been 5.8/6.0 at today's European open.
Swiss Outlook (19th February 2007)
Robust Swiss retail sales were initially overlooked as USD/CHF opened at 1.2365 in New York, ahead of a slew of US economic data releases. The data releases were all disappointing; PPI was lower than expected, CPI was revised lower, housing starts were dreadful and U Mich fell below expectations.
Despite this USD/CHF at 11.00AM New York time was still holding at 1.2360, with relatively no change in the crosses. A late GBP/CHF sell order, accompanied by a CHF/JPY buy order, a black box fund trading off European closes hit the market and finally gravity took over. USD/CHF dropped to a low of 1.233, however heavy bids from tech traders using the 50% Fibo of 1.2110/1.2575 stalled the decline. USD/CHF closed at 1.2340 after trading a 1.2335/85 range.
Most of the Swiss crosses opened and closed with in 10-15 pips of the starting position with the exception of GBP/CHF and CHF/JPY. GBP/CHF opened at 2.4115, got belted down to 2.4060 and closed at 2.4075; CHF/JPY opened near 96.45, surged to 96.70 and closed at 96.65. Traders are flattening positions to core ahead of the US holiday Monday, and Chinese New Year.
Despite this USD/CHF at 11.00AM New York time was still holding at 1.2360, with relatively no change in the crosses. A late GBP/CHF sell order, accompanied by a CHF/JPY buy order, a black box fund trading off European closes hit the market and finally gravity took over. USD/CHF dropped to a low of 1.233, however heavy bids from tech traders using the 50% Fibo of 1.2110/1.2575 stalled the decline. USD/CHF closed at 1.2340 after trading a 1.2335/85 range.
Most of the Swiss crosses opened and closed with in 10-15 pips of the starting position with the exception of GBP/CHF and CHF/JPY. GBP/CHF opened at 2.4115, got belted down to 2.4060 and closed at 2.4075; CHF/JPY opened near 96.45, surged to 96.70 and closed at 96.65. Traders are flattening positions to core ahead of the US holiday Monday, and Chinese New Year.
Sterling Outlook (19th February 2007)
Cable tumbled to a six-day low of 1.9433 during the London morning, on the back of the Treasury Select Committee's release of BoE MPC written evidence suggesting that some GBP depreciation will "probably be necessary" in order to cut the UK current account deficit. EUR/GBP simultaneously rose to a seven-week peak of 0.6756, with GBP/CHF falling to a six-week low just shy of 2.3980. GBP/JPY also lost value. The 106 page MPC report for the TSC can be accessed via www.publications.parliament.uk.
1.9420 (last Tuesday's NY session base) and 1.9400 are GBP/USD support points south of 1.9433. Sterling plumbed one-month lows just shy of 1.9400 last Tuesday, on the back of January's softer-than-expected UK inflation figures. 1.9466 (Friday's floor) is now a rebound resistance level. Upper obstacles include 1.9495 (today's Asian session base), 1.9530, and 1.9567 (today's Asian session peak). This week's key UK event risk is Wednesday's publication of minutes from the February 7/8 MPC meeting.
1.9420 (last Tuesday's NY session base) and 1.9400 are GBP/USD support points south of 1.9433. Sterling plumbed one-month lows just shy of 1.9400 last Tuesday, on the back of January's softer-than-expected UK inflation figures. 1.9466 (Friday's floor) is now a rebound resistance level. Upper obstacles include 1.9495 (today's Asian session base), 1.9530, and 1.9567 (today's Asian session peak). This week's key UK event risk is Wednesday's publication of minutes from the February 7/8 MPC meeting.
Yen Outlook (19th February 2007)
USD/JPY and the JPY crosses were mixed in the European morning session. USD/JPY traded on a supportive footing after finding good support from the 119.35 area from importers and Japanese retail investors. European names pushed the pair up to 119.60. There was a small period of consolidation before the pair challenged large size 119.80 offers.
Good size cross-JPY selling limited USD/JPY to a 119.73 high. Interest went through GBP/JPY and EUR/JPY. A sharp correction in the value of GBP was the catalyst for the move and GBP/JPY fell from 233.40 down to 232.20. EUR/JPY was also corrective in the wake of the GBP/JPY losses. The 157.35 resistance capped and the pair traded back into the 157.00 region.
In general there was limited directional bias, with interest limited ahead of the BOJ meeting which starts tomorrow. The market is still 50-50 on whether there will be a move, although Asian sources are erring towards a hike. Some suggest that the market is already discounting a hike to a degree after last week's pick-up in JPY. In the near-term, USD/JPY should hold a 119.00-120.00 range.
Good size cross-JPY selling limited USD/JPY to a 119.73 high. Interest went through GBP/JPY and EUR/JPY. A sharp correction in the value of GBP was the catalyst for the move and GBP/JPY fell from 233.40 down to 232.20. EUR/JPY was also corrective in the wake of the GBP/JPY losses. The 157.35 resistance capped and the pair traded back into the 157.00 region.
In general there was limited directional bias, with interest limited ahead of the BOJ meeting which starts tomorrow. The market is still 50-50 on whether there will be a move, although Asian sources are erring towards a hike. Some suggest that the market is already discounting a hike to a degree after last week's pick-up in JPY. In the near-term, USD/JPY should hold a 119.00-120.00 range.
Euro Outlook (19th February 2007)
Offers into 1.3160 capped the early European EUR/USD rally but with talk of central bank supply into the 1.3170's the topside looked thick from the outset. Deeper into the European morning and Asian account selling weighed but bids into 1.3140 initially looked to stall further downside actions.
However, cable selling offset EUR/GBP strength and the pair was forced lower inline with broader Dollar strength. Bids into 1.3120 were eyed as a key short-term trigger but these remained intact as spot finally bounced. Liquidity remains tight and volumes low but offers into 1.3150 are eyed amid the late morning rebound. Any break below 1.3120 eyes 1.3100 support with talk of stops built below 1.3090.
A break here will see follow-through increase with talk of gamma related two-way into the 1.31 area linked to the 1.31 maturity tomorrow. Looking ahead, the Asian holiday may have sucked a large chunk of liquidity from the market but with the US holiday for Presidents Day keeping the US markets in weekend mode, risk appetites are likely to remain subdued for the remainder of the day.
However, cable selling offset EUR/GBP strength and the pair was forced lower inline with broader Dollar strength. Bids into 1.3120 were eyed as a key short-term trigger but these remained intact as spot finally bounced. Liquidity remains tight and volumes low but offers into 1.3150 are eyed amid the late morning rebound. Any break below 1.3120 eyes 1.3100 support with talk of stops built below 1.3090.
A break here will see follow-through increase with talk of gamma related two-way into the 1.31 area linked to the 1.31 maturity tomorrow. Looking ahead, the Asian holiday may have sucked a large chunk of liquidity from the market but with the US holiday for Presidents Day keeping the US markets in weekend mode, risk appetites are likely to remain subdued for the remainder of the day.
Friday, February 16, 2007
GBP/USD: Buoyed by Rumour of Weak Michigan Sentiment Index
Cable has pushed its recovery envelope from a two-day low of 1.9464 towards 1.9500 on a rumour that February's preliminary Michigan Sentiment index may come in well below the 96.5 forecast.
EUR/USD: Intraday Shorts Cover Before Last Number of Week
EUR/USD has bounced to the mid-1.13-teens after flushing out stops in the 1.3095/00 area. Intraday shorts are seeking cover ahead of the Michigan sentiment survey at 15:00 GMT. Sentiment is seen little changed at 97.0. Offers remain eyed at 1.3125, dealers report.
GBP/USD: Elicits Support pre-1.9460, Michigan Index Looms
Cable elicited support ahead of 1.9460 following its earlier drop through 1.9475 to fresh two-day lows. A UK clearer was a good size buyer from 1.9460 on Wednesday, prior to the publication of a less dovish-than-expected BoE inflation report.
Sell interest at 1.9515 (yesterday's low) kept a lid on GBP/USD after a bout of USD weakness spurred by the 13:30GMT disclosure of January's 14.3% tumble in US housing starts. February's preliminary Michigan Sentiment index will be unveiled at 15:00GMT. Forecast: 96.5.
Sell interest at 1.9515 (yesterday's low) kept a lid on GBP/USD after a bout of USD weakness spurred by the 13:30GMT disclosure of January's 14.3% tumble in US housing starts. February's preliminary Michigan Sentiment index will be unveiled at 15:00GMT. Forecast: 96.5.
FX OPTIONS: EUR/USD 1-mth Vol Pivoting 5.75% Given Level
1-mth implied option volatility is currently pivoting the 5.75 pct level at which an ATM strike was reportedly given earlier today. 5.65/5.85 is the current market. Earlier this week, the 1-mth posted a 12-week low of 5.55/5.75 (Tuesday). Last Autumn (pre-US Thanksgiving Day), the 1-mth plumbed an all-time double-day low of 5.4/5.6 (Nov 17 & 21).
USD/CHF: Bounce Forces Spec Players Offside
Several speculative accounts have been caught in the bounce off 1.2336 in USD/CHF. The names in question are said to have sold into the lows before the spot bounce on news of solid bids into the 1.2330 mark. Stops are reported to range from 1.2390 back to above 1.240 with the above names said to be getting jittery on a run at the figure.
However, selling into strength is likely to perforate the North American morning ahead of the early close and long-weekend. As a result, we expect the price to remain sub-1.24 with a retest of the 1.2400 level viable once the Franc buying back accelerates.
However, selling into strength is likely to perforate the North American morning ahead of the early close and long-weekend. As a result, we expect the price to remain sub-1.24 with a retest of the 1.2400 level viable once the Franc buying back accelerates.
EUR/USD: Rebounds after Dip Below 1.3100
The market today has degenerated into a search-and-destroy mission: search for stops, destroy them, than move on. Prices dipped below 1.3100, triggering a few small stops but missing another crop at 1.3095. Dealers note talk of Eastern European bids at 1.3085, just above chart support at 1.3075. Larger stops are seen if prices fall below that level. Offers are eyed in the 1.3125 area on rebounds near-term. Expect very whippy price action for the balance of the European session followed by a quiet US afternoon. EUR/USD trades at 1.3108.
USD/JPY: Bounces On Quasi-Official Cooperation
Dealers report at least two quasi-official entities on the bid into the 119.00 level to help protect the downside in USD/JPY. As a result of this solid bid-wall spot has bounced and the price is now looking to re-test the 119.55 European morning high. This bounce has forced EUR/JPY to attempt a rebound and the Euro cross has snapped back from the 156.25 lows only to find renewed sellers into the 156.50 area.
FX OPTIONS: EUR/USD 1-Year ATM versus 10 Delta EUR Put Spread
One of my sources have informed that at a 1-year ATM option was spread traded against a 1-year 10 delta EUR put option at 0.465 pct for the lower strike in an estimated E1.2bn by vega neutral amount earlier today. The 1-year is currently 6.3/6.5, having traded at an all-time low of 6.375 pct earlier this week (Tuesday).
EUR/USD: Gives Up Ghost, Makes New Lows
EUR/USD quickly pulled back from the mid-1.3030s to fresh session lows at 1.3102 amid talk of central bank USD buying. A furious rally in USD/JPY after barriers at 119.00 were wiped away helped undercut EUR/USD as well.
Small stops are seen at the 1.3095 level in EUR/USD near-term while more are eyed at the 1.3075 level. EUR/USD trades at 1.3105. Expect markets to thin out very quickly as disgusted intraday specs call it a week.
Small stops are seen at the 1.3095 level in EUR/USD near-term while more are eyed at the 1.3075 level. EUR/USD trades at 1.3105. Expect markets to thin out very quickly as disgusted intraday specs call it a week.
Swiss Outlook (16th February 2007)
Into European trading and the pair has worked steadily higher as speculative accounts squared shorts and the general Dollar bid tone impacted. Robust Swiss retail sales were overlooked as the pair broke above 1.2365. 1.2380 has printed thus far but more sellers trail to 1.2390/2400.
Elsewhere, a decent order in GBP/CHF is reported to have been worked by a notable German name but as they depressed the Sterling cross back from 2.4133 to 2.4065 a lumpy 1.6210 bid in EUR/CHF emerged to offset any longer-term knock-on. The Sterling order is linked to further buying back of the CHF on carry trade unwinding. However, GBP/CHF steadied around 2.4080 as EUR/CHF nudged higher. US data will drive USD/CHF volatility into North American trading.
Offers into 1.2390/2400 will again look to protect 1.24+ stops with the downside opening should 1.2280 yield. US PPI and Housing Starts are due at 13:30 GMT. Both January numbers will need to support the Dollar if further sales are to be negated with a fall of 0.5% M/M currently expected. The core headline is forecast up 0.2% with a lesser reading likely to hurt the US unit.
Elsewhere, a decent order in GBP/CHF is reported to have been worked by a notable German name but as they depressed the Sterling cross back from 2.4133 to 2.4065 a lumpy 1.6210 bid in EUR/CHF emerged to offset any longer-term knock-on. The Sterling order is linked to further buying back of the CHF on carry trade unwinding. However, GBP/CHF steadied around 2.4080 as EUR/CHF nudged higher. US data will drive USD/CHF volatility into North American trading.
Offers into 1.2390/2400 will again look to protect 1.24+ stops with the downside opening should 1.2280 yield. US PPI and Housing Starts are due at 13:30 GMT. Both January numbers will need to support the Dollar if further sales are to be negated with a fall of 0.5% M/M currently expected. The core headline is forecast up 0.2% with a lesser reading likely to hurt the US unit.
Sterling Outlook (16th February 2007)
The pound is continuing to suffer on the back of January's very poor UK retail sales figures, which have cast doubt on the BoE inflation report's suggestion that another 25bp UK rate hike is in the pipeline. GBP/USD fell by more than half-a-cent to two-day lows just shy of 1.9475 in early European trade, with EUR/GBP ascending to a new six-week peak just shy of 0.6740, amid good size German name selling of the pound.
Sterling support points south of 1.9475 include 1.9455/60, 1.9420, and 1.9400. A UK clearer was a good size buyer of GBP/USD from 1.9460 on Wednesday. 1.9500 (former prop) is now a resistance level. Upper obstacles include 1.9515 (yesterday's low), 1.9535 (today's Asian session top), and 1.9550.
News-wise: UK wage settlements rose to an eight-year high of 3.5% in the three months through January, according to a report for IRS (Bloomberg). US January PPI is due at 13:30GMT, alongside housing starts and building permits. Core PPI forecast: +0.2% m/m. February's preliminary Michigan Sentiment survey ensues at 15:00GMT. Forecast: 96.5.
Sterling support points south of 1.9475 include 1.9455/60, 1.9420, and 1.9400. A UK clearer was a good size buyer of GBP/USD from 1.9460 on Wednesday. 1.9500 (former prop) is now a resistance level. Upper obstacles include 1.9515 (yesterday's low), 1.9535 (today's Asian session top), and 1.9550.
News-wise: UK wage settlements rose to an eight-year high of 3.5% in the three months through January, according to a report for IRS (Bloomberg). US January PPI is due at 13:30GMT, alongside housing starts and building permits. Core PPI forecast: +0.2% m/m. February's preliminary Michigan Sentiment survey ensues at 15:00GMT. Forecast: 96.5.
Yen Outlook (16th February 2007)
USD/JPY and the JPY crosses recovered in Asia today from the lows, however, movement was skewed the downside in the European morning. Any gains were sold into as speculative players and macro accounts looked to pare back exposure. USD/JPY traded up to 119.57 on importer demand and buying from fund names. A quasi-official account and a US fund was also noted but the pair was stopped by good 119.60 offers, leaving movement close to the 119.35/40 area.
EUR/JPY pushed up to 157.00 but was unable to overcome good size offers, leaving stops at 157.05/10 intact. Bids at 156.60 from Japanese funds gave way and the pair traded into 156.50, with focus on the 156.05 trend line. Price action to remain choppy are to be expected, with the attention on next week's BOJ policy meeting. Fresh investment trust launches may alleviate some downside pressure amid a return of good Japanese interest on dips.
However, the risk of BOJ move in rates increases risk reduction and position squaring. Some economists point towards weak spots on the Japanese economy but many now feel Japanese officials have enough reasons to adjust their policy without damaging the growth outlook.
EUR/JPY pushed up to 157.00 but was unable to overcome good size offers, leaving stops at 157.05/10 intact. Bids at 156.60 from Japanese funds gave way and the pair traded into 156.50, with focus on the 156.05 trend line. Price action to remain choppy are to be expected, with the attention on next week's BOJ policy meeting. Fresh investment trust launches may alleviate some downside pressure amid a return of good Japanese interest on dips.
However, the risk of BOJ move in rates increases risk reduction and position squaring. Some economists point towards weak spots on the Japanese economy but many now feel Japanese officials have enough reasons to adjust their policy without damaging the growth outlook.
Euro Outlook (16th February 2007)
Into European trading and more option related sales in the 1.3140's kept the topside capped. These are linked to another EUR 400Mln 1.3150 strike and with the topside looking limited, when you add more official sellers into 1.3170/75, the downside came into view. M&A sales were then noted as the price drifted lower with BBVA/Compass cited as the deal behind the flows.
Euro Zone data underpinned the Euro ahead of 1.3100 as the trade surplus continued. Bids into 1.3110 now look to prop dips with eyes now turning to the EUR TWI as Trade Weighted Euro hit a 2-month high at 105.76. Looking ahead, US data will drive volatility into North American trading. US PPI and Housing Starts are due at 13:30 GMT and both the January numbers will need to support the Dollar if further sales are to be negated with a fall of 0.5% M/M currently expected.
The core headline is forecast up 0.2% with a lesser reading likely to hurt the US unit. Following this 15:00 GMT sees weekly ECRI numbers and the latest Michigan Sentiment numbers. Stops in EUR/USD are noted below 1.3095 and 1.3075 while on the topside a break of 1.32 adds momentum.
Euro Zone data underpinned the Euro ahead of 1.3100 as the trade surplus continued. Bids into 1.3110 now look to prop dips with eyes now turning to the EUR TWI as Trade Weighted Euro hit a 2-month high at 105.76. Looking ahead, US data will drive volatility into North American trading. US PPI and Housing Starts are due at 13:30 GMT and both the January numbers will need to support the Dollar if further sales are to be negated with a fall of 0.5% M/M currently expected.
The core headline is forecast up 0.2% with a lesser reading likely to hurt the US unit. Following this 15:00 GMT sees weekly ECRI numbers and the latest Michigan Sentiment numbers. Stops in EUR/USD are noted below 1.3095 and 1.3075 while on the topside a break of 1.32 adds momentum.
Thursday, February 15, 2007
EUR/USD: Fuel for the Fire as Industrial Production Falls
EUR/USD has edged through 1.3165 trend resistance and is eyeing the 61.8% Fibo from the drop from 1.3365 at 1.3175 after a big drop in the TIC surplus and a dip in US industrial production.
Talk of barriers at 1.3175 and 1.3200 is making the rounds this morning, helping slow what most would have expected to be a furious rally. Stops are being snugged higher with dealers likely to cut longs if 1.3120 is lost.
Talk of barriers at 1.3175 and 1.3200 is making the rounds this morning, helping slow what most would have expected to be a furious rally. Stops are being snugged higher with dealers likely to cut longs if 1.3120 is lost.
US ECON: IP Falls 0.5% in January, Cap U Slips 0.6 pp to 81.2%
Once again, looking on the data has caught some of us. Industrial production fell by 0.5% in January versus consensus calling for no change and IFR calling for a 0.2% advance. Capacity use backed off suddenly from inflationary levels, falling by 0.6 pips to 81.2%.
GBP/USD: Buoyed by TIC Data Shock, Resistance at 1.9622
Cable has pushed its recovery envelope from a post-UK retail sales data London morning low of 1.9547 to-and-through 1.9600 on the back of the disclosure that there was an $11.0bn TIC outflow in December. This compared to a $70.5bn inflow in November.
1.9600+ resistance levels are located at 1.9622 (today's Asian session base), 1.9650 (today's Asian session peak), and 1.9680. One-week highs just shy of 1.9680 were notched in early European trade, prior to the unveiling of very weak UK January retail sales figures.
1.9600+ resistance levels are located at 1.9622 (today's Asian session base), 1.9650 (today's Asian session peak), and 1.9680. One-week highs just shy of 1.9680 were notched in early European trade, prior to the unveiling of very weak UK January retail sales figures.
USD/CHF: Dollar Dips As Inflows Turn To Outflows
The US unit has dipped further on news that the December Capital Inflow reading stood at USD -11Bln. With inflows turning to outflows the US unit is likely to remain under pressure and bids into 1.2350 are in for an examination. Any break below 1.2350 will eye a return towards 1.2300 and the 1.2280 area where technicians point to key downside levels.
USD/JPY: US TIC Data Adds Weight On The Dollar
US TIC data posted a net capital outflow of $11 billion in December, which was much lower than expectations. The dollar has immediately come back under pressure, with USD/JPY pressurising levels below the 120.00 handle.
Japanese bid interest has limited the pace of the decline, along with option activity. The challenge to look into is the session lows at 119.79 but prices may hold up ahead of the 15:00GMT options cut amid a large size 120.00 expiry.
Japanese bid interest has limited the pace of the decline, along with option activity. The challenge to look into is the session lows at 119.79 but prices may hold up ahead of the 15:00GMT options cut amid a large size 120.00 expiry.
EUR/USD: Weak TIC Data prompts Topside Probe
EUR/USD made a run into the high 1.3150s after TIC data came in far below expectations. Dealers typically get nervous if capital inflows fall below the monthly trade deficit and in December, they fell well short, only $15.6 bln versus $84.9 bln in November.
Central bank selling from Eastern Europe and Asia has been rumored near 1.3150 since yesterday and it is helping keep a lid on rallies. Trendline and fibo resistance comes in at 1.3165/75. EUR/US trades at 1.3146.
Central bank selling from Eastern Europe and Asia has been rumored near 1.3150 since yesterday and it is helping keep a lid on rallies. Trendline and fibo resistance comes in at 1.3165/75. EUR/US trades at 1.3146.
US GOVTS: US Saw Modest Net Foreign Purchase of $15.6B in Dec
Net foreign purchases of US securities totaled $15.6 bln in December, the smallest net purchase since July 2000 ($8.1 bln). Excluding short-term securities, the net purchase was even more meager at $2.5 bln.
Net purchases of Treasuries totaled $10.6 bln in December, compared with a net purchase of $34.1 bln in November. Private foreign investors bought a net $4.6 bln, after making a net purchase of $32.5 bln the previous month.
Meanwhile, foreign official institutions made a net purchase of $6.1 blnup from $1.0 bln in November. While Fed custody holdings were strong, some pullback was inevitable given the bear market of December. Yields on the 10-year note backed up a good 35-40 bps.
Net purchases of Treasuries totaled $10.6 bln in December, compared with a net purchase of $34.1 bln in November. Private foreign investors bought a net $4.6 bln, after making a net purchase of $32.5 bln the previous month.
Meanwhile, foreign official institutions made a net purchase of $6.1 blnup from $1.0 bln in November. While Fed custody holdings were strong, some pullback was inevitable given the bear market of December. Yields on the 10-year note backed up a good 35-40 bps.
Swiss Outlook (15th February 2007)
The fall in February Swiss ZEW to -17.3 failed to grip the markets in European trading as dealers looked to the broader Dollar outlook to generate market momentum. Offers around 1.2400 capped USD/CHF and the stops above 1.2410 failed to be triggered in the wake of the poor sentiment reading.
Swiss names see a break above 1.2420 as an intraday trigger towards 1.2475/80 but we look for 1.2350/2450 to be worked with Swiss name demand at the lows. Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). December Capital inflow data is then eyed at 14:00 GMT but unless the US has struggled to fund the higher USD72.5Bln deficit the fundamental story will remain price pressures. Bernanke is set to speak again at 15:00 GMT but his rhetoric is widely expected to echo his recent sentiment.
Swiss names see a break above 1.2420 as an intraday trigger towards 1.2475/80 but we look for 1.2350/2450 to be worked with Swiss name demand at the lows. Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). December Capital inflow data is then eyed at 14:00 GMT but unless the US has struggled to fund the higher USD72.5Bln deficit the fundamental story will remain price pressures. Bernanke is set to speak again at 15:00 GMT but his rhetoric is widely expected to echo his recent sentiment.
Sterling Outlook (15th February 2007)
Cable tumbled by over a cent to a low of 1.9547 after the 09:30GMT disclosure of January's very poor UK retail sales figures. These plummeted by 1.8% m/m, against a forecast rise of 0.2%. The annualized rise of 3.3% came in well below the expected increase of 5.4%.
The unexpectedly soft UK retail sales data has cast doubt on the BoE inflation report's suggestion that another 25bp UK rate hike is in the pipeline. GBP/USD scaled a one-week peak just shy of 1.9680 prior to the data release. 1.9575/80 (earlier absorbed bids) is now a rebound resistance window. Upper obstacles include 1.9600, 1.9622 (today's Asian session base), and 1.9650.
Sub-1.9547 support points are located at 1.9538 (yesterday's pre-BoE inflation report high), 1.9510 (a former stop-loss level), 1.9495 (Wednesday's Asian session peak), 1.9455 (yesterday's low), 1.9420, and 1.9400. There are a raft of US data releases today, inclusive of the 14:00GMT unveiling of December TIC inflows.
Forecast: $60.0bn. Bernanke's monetary policy testimony, part two, begins at 15:00GMT.
The unexpectedly soft UK retail sales data has cast doubt on the BoE inflation report's suggestion that another 25bp UK rate hike is in the pipeline. GBP/USD scaled a one-week peak just shy of 1.9680 prior to the data release. 1.9575/80 (earlier absorbed bids) is now a rebound resistance window. Upper obstacles include 1.9600, 1.9622 (today's Asian session base), and 1.9650.
Sub-1.9547 support points are located at 1.9538 (yesterday's pre-BoE inflation report high), 1.9510 (a former stop-loss level), 1.9495 (Wednesday's Asian session peak), 1.9455 (yesterday's low), 1.9420, and 1.9400. There are a raft of US data releases today, inclusive of the 14:00GMT unveiling of December TIC inflows.
Forecast: $60.0bn. Bernanke's monetary policy testimony, part two, begins at 15:00GMT.
Yen Outlook (15th February 2007)
USD/JPY and the JPY crosses recovered some of the deep Asian losses. Good interest from Asian sovereigns and a quasi-official account marked a recovery from the lows. USD/JPY found support at 119.80, with standing bids noted from importers, sovereign names and a quasi-official account.
The recovery was limited to 120.35 though, with speculative selling persistent, along with option related activity. Large 120.00 strikes reduced volatility and this lack of movement continued into the North American session. EUR/JPY traded in a similar pattern, recovering from 157.40 up to 158.00. However, bond related selling from a German and a French account pushed the pair back towards the 157.70 region.
Near-term bias for both pairs remains on the downside after the much stronger-than-expected Q4 GDP. However, Japanese political pressure has increased urging BOJ to look at the weak spots that remain in the economy. JPY commentators note weakness in some leading indicators, which could influence BOJ's hand at next week's policy meeting. The risk of rate move is 50-50 now, which will result in choppy price action into Tuesday"s meeting.
The recovery was limited to 120.35 though, with speculative selling persistent, along with option related activity. Large 120.00 strikes reduced volatility and this lack of movement continued into the North American session. EUR/JPY traded in a similar pattern, recovering from 157.40 up to 158.00. However, bond related selling from a German and a French account pushed the pair back towards the 157.70 region.
Near-term bias for both pairs remains on the downside after the much stronger-than-expected Q4 GDP. However, Japanese political pressure has increased urging BOJ to look at the weak spots that remain in the economy. JPY commentators note weakness in some leading indicators, which could influence BOJ's hand at next week's policy meeting. The risk of rate move is 50-50 now, which will result in choppy price action into Tuesday"s meeting.
Euro Outlook (15th February 2007)
EUR/USD was bought up to a fresh 1-month high at 1.3153 into early European trading to erase any potential option barriers at 1.3150. However, option related sales continued to rebuff the advance and the price soon eased lower on this failure. The 1% M/A band top at 1.3155 also added weight as cross sales and the cable sell-off (in the wake of the poor UK data) took the attention off the Euro.
Bids into 1.3120 prop but more sit at 1.3100, stops noted under 1.31 (circa 1.3090 & sub-1.3075). Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). On the options front, the 1.3150 strike set for expiry at the NY cut-off at 15:00 GMT is accompanied by a similar EUR400Mln 1.3150 strike tomorrow.
Bids into 1.3120 prop but more sit at 1.3100, stops noted under 1.31 (circa 1.3090 & sub-1.3075). Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). On the options front, the 1.3150 strike set for expiry at the NY cut-off at 15:00 GMT is accompanied by a similar EUR400Mln 1.3150 strike tomorrow.
Wednesday, February 14, 2007
GBP/USD: Consolidating Gains pre-US Retail Sales
Cable is consolidating gains from yesterday's post-UK CPI one-month low just shy of 1.9400 as the market awaits the looming 13:30GMT disclosure of US January retail sales figures.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Highs just shy of 1.9570 were notched during the London morning, following the 10:30GMT publication of a BoE inflation report which was less dovish than the market was expecting.
Good size stops are touted above 1.9570. These could boost GBP/USD towards 1.9600 if tripped. Sterling support points include 1.9538 (pre-BoE inflation report high), 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), and 1.9455 (today's Asian session base).
Today's key US event risk is Ben Bernanke's semi-annual monetary policy testimony (part one), from 15:00GMT. The Fed Governor is expected to strike a broadly hawkish tone.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Highs just shy of 1.9570 were notched during the London morning, following the 10:30GMT publication of a BoE inflation report which was less dovish than the market was expecting.
Good size stops are touted above 1.9570. These could boost GBP/USD towards 1.9600 if tripped. Sterling support points include 1.9538 (pre-BoE inflation report high), 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), and 1.9455 (today's Asian session base).
Today's key US event risk is Ben Bernanke's semi-annual monetary policy testimony (part one), from 15:00GMT. The Fed Governor is expected to strike a broadly hawkish tone.
EUR/USD: Backing and Filling After 1.3100 Stall
EUR/USD is consolidating gains after breaking higher overnight, overcoming resistance in the 1.3050 area and again toward 1.3070/75. 1.3100 barrier options attracted prices and now 1.3110s are rumored as well. 1.3120 is a technical hurdle, the 50% retracement of the 1.3365/1.2865 drop.
Yesterday's wider trade deficit in the US is prompting downward revisions to Q4 GDP while Eurozone GDP forecasts are being raised. A steady Fed and a proactive ECB are the medium-term status quo barring any surprises from Bernanke today.
US retail sales are set for release shortly. A 0.4% rise is expected. The consensus seems low considering the very strong chain store sales data reported for January, so watch for an upside surprise. 1.3050/60 is support on dips near-term.
Yesterday's wider trade deficit in the US is prompting downward revisions to Q4 GDP while Eurozone GDP forecasts are being raised. A steady Fed and a proactive ECB are the medium-term status quo barring any surprises from Bernanke today.
US retail sales are set for release shortly. A 0.4% rise is expected. The consensus seems low considering the very strong chain store sales data reported for January, so watch for an upside surprise. 1.3050/60 is support on dips near-term.
US ECON: Data on Tap - Retail Sales and Business Inventories
There are two data points today, with retail sales perhaps the most important indicator of this week. In addition to the data, Bernanke heads to Capitol Hill for the first of two days of semi-annual Congressional testimony. The BLS also publishes revised seasonal adjustment factors for PPI. January PPI data are slated for Friday.
[Retail Sales (Jan)] IFR sees total retail sales rising by 0.9% in January, the same advance as in December but less than a third of the jump in January 2006 (3.1%). Net of an anticipated 0.1% increase in sales by motor vehicle and parts dealers, we see sales rising by 1.1%, the best in 12 months.
Gains in retail sales and food services should come across the board, led by an anticipated 4.4% rise in sales of electronics and appliances, a 3.0% rise in gasoline station receipts and a 2.9% rebound in sales at miscellaneous stores. Clothing and accessory stores should have their best sales month since September while trend suggests a 1.0% rise in sales at health and personal care stores. Net of autos and gasoline, sales should be higher by 0.9%, also the highest since last January (2.5%). After excluding building materials, autos and gasoline, sales of 0.9% would be the same as in December.
The anticipated result would leave the 3-month annualized rate of total retail sales at 9.5%, the best since March 2006 (11.6%). There's a great deal riding on this indicator, as it sets the stage for GDP growth in Q1 if not the entire year.
[Business Inventories (Dec)] Provided retail inventories fall on trend (down 0.2%), the factory order rise of 0.1% and the wholesale inventories drop of 0.5% should drop business inventories by 0.3% in December. This would be the slowest growth rate in 17 months and the slowest year-ago rate (5.9%) since May 2006.
However, business sales will have risen by 1.3%, the fastest since May 2006. The year-ago change should rise 4.3%, highest since September 2006. The I/S ratio should then taper to 1.281, the lowest since August 2006.
[Retail Sales (Jan)] IFR sees total retail sales rising by 0.9% in January, the same advance as in December but less than a third of the jump in January 2006 (3.1%). Net of an anticipated 0.1% increase in sales by motor vehicle and parts dealers, we see sales rising by 1.1%, the best in 12 months.
Gains in retail sales and food services should come across the board, led by an anticipated 4.4% rise in sales of electronics and appliances, a 3.0% rise in gasoline station receipts and a 2.9% rebound in sales at miscellaneous stores. Clothing and accessory stores should have their best sales month since September while trend suggests a 1.0% rise in sales at health and personal care stores. Net of autos and gasoline, sales should be higher by 0.9%, also the highest since last January (2.5%). After excluding building materials, autos and gasoline, sales of 0.9% would be the same as in December.
The anticipated result would leave the 3-month annualized rate of total retail sales at 9.5%, the best since March 2006 (11.6%). There's a great deal riding on this indicator, as it sets the stage for GDP growth in Q1 if not the entire year.
[Business Inventories (Dec)] Provided retail inventories fall on trend (down 0.2%), the factory order rise of 0.1% and the wholesale inventories drop of 0.5% should drop business inventories by 0.3% in December. This would be the slowest growth rate in 17 months and the slowest year-ago rate (5.9%) since May 2006.
However, business sales will have risen by 1.3%, the fastest since May 2006. The year-ago change should rise 4.3%, highest since September 2006. The I/S ratio should then taper to 1.281, the lowest since August 2006.
USD/JPY: Looking To Test The Topside In Early US Trade
USD/JPY is looking to test the topside in early US trade, with the pair drifting up towards 121.15. Dollar shorts were frustrated in the European morning, with the pair unable to extend losses despite a clean break of 121.00. It makes sense that intra-day players would favour profit taking ahead of today's US Bernanke testimony.
However, Bernanke is widely expected to acknowledge that inflation risks remain on the topside, which provides little in the way of fresh insight for the dollar direction. The surprise could come from the growth outlook after a series of below trend readings.
The dollar could come back under pressure if Bernanke cites growth concerns, further reinforcing the soft landing scenario. These risks will undoubtedly reduce speculative activity and we do not think that USD/JPY has much upside potential ahead of the 15:00GMT testimony. Offers at 121.30/35 remain intact; and even if stops give way above there is another batch of good sell orders at 121.50.
Recent risk reduction and positioning adjustment favours further USD/JPY losses, reinforced by the bearish technical picture now and defensive JPY trading ahead of tomorrow"s Japanese GDP release. In this respect we see potential for a test of 120.70-80 bids and further interest below at 120.50/55.
However, Bernanke is widely expected to acknowledge that inflation risks remain on the topside, which provides little in the way of fresh insight for the dollar direction. The surprise could come from the growth outlook after a series of below trend readings.
The dollar could come back under pressure if Bernanke cites growth concerns, further reinforcing the soft landing scenario. These risks will undoubtedly reduce speculative activity and we do not think that USD/JPY has much upside potential ahead of the 15:00GMT testimony. Offers at 121.30/35 remain intact; and even if stops give way above there is another batch of good sell orders at 121.50.
Recent risk reduction and positioning adjustment favours further USD/JPY losses, reinforced by the bearish technical picture now and defensive JPY trading ahead of tomorrow"s Japanese GDP release. In this respect we see potential for a test of 120.70-80 bids and further interest below at 120.50/55.
EUR/USD: Patchy Selling Interest Out Of New York
Talk of frustrated US held Dollar longs bailing out following the failure at 1.3100, during the European morning. Reports of patchy selling interest out of New York in the 1.3085-90 area and talk of offers building tight around 1.3100.
Option related offers ahead of further exotics at 1.3110 also touted. On the stop front a leading European player is rumoured to have orders tight under 1.3050. 1.3135 priceline is something to scope into, a 1% moving average band, but tight price action ahead of the Bernanke testimony is likely to limit direction.
Option related offers ahead of further exotics at 1.3110 also touted. On the stop front a leading European player is rumoured to have orders tight under 1.3050. 1.3135 priceline is something to scope into, a 1% moving average band, but tight price action ahead of the Bernanke testimony is likely to limit direction.
Swiss Outlook (14th February 2007)
Into European trading and the drop in the Dollar index and the talk of reserve manager US unit sales put the downside in USD/CHF in view ahead of the key Bernanke testimony (15:00 GMT). Spot was sold back from just shy of 1.2480 to 1.2416 in the move.
Bids into 1.2400 are now eyed despite the fresh historic high in EUR/CHF (1.6280), while the previous support turned resistance at 1.2445 is now seen as the initial hurdle for any correction. In other news, dealers cite the renewed assault on the topside in EUR/CHF as a product of the news that the EU has called for the abolition of the Swiss corporate tax haven. A Swiss privateer today noted in their research that 1.65 may be "the line in the sand as far as the SNB is concerned".
They tip an aggressive 50bp rate hike from Roth if such rates print ahead of the mid-March meeting. This is above the 25bps currently priced in. The name in question is also looking for a further 75bps to be added to Swiss rates into 2008. Looking ahead, Swiss inflation may be near Zero but economists still look to the domestic retail sales data due tomorrow (Some eye a 2.5% drop).
Bids into 1.2400 are now eyed despite the fresh historic high in EUR/CHF (1.6280), while the previous support turned resistance at 1.2445 is now seen as the initial hurdle for any correction. In other news, dealers cite the renewed assault on the topside in EUR/CHF as a product of the news that the EU has called for the abolition of the Swiss corporate tax haven. A Swiss privateer today noted in their research that 1.65 may be "the line in the sand as far as the SNB is concerned".
They tip an aggressive 50bp rate hike from Roth if such rates print ahead of the mid-March meeting. This is above the 25bps currently priced in. The name in question is also looking for a further 75bps to be added to Swiss rates into 2008. Looking ahead, Swiss inflation may be near Zero but economists still look to the domestic retail sales data due tomorrow (Some eye a 2.5% drop).
Sterling Outlook (14th February 2007)
Cable rallied to highs just shy of 1.9570 on the back of the quarterly BoE inflation report's touting of a tightening bias, and an inflation warning from Mervyn King. The BoE Governor told a press conference that the UK CPI outlook is "highly uncertain" (Reuters).
GBP/USD also notched highs just shy of 1.9570 on Monday. Good size stops reportedly reside above 1.9570. 1.9538 (early Europe high) is now a pullback support point. Lower props include 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), 1.9455 (today's Asian session base), 1.9420, and 1.9400. German name demand for EUR/GBP, and good size EUR buying from a UK clearer, helped buoy the cross to a European morning five-week peak of 0.6717. Small stops are tipped below 0.6690. Further stops are noted under 0.6680. US January retail sales will be disclosed at 13:30GMT.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Ben Bernanke will deliver part one of his semi-annual US monetary policy testimony from 15:00GMT.
GBP/USD also notched highs just shy of 1.9570 on Monday. Good size stops reportedly reside above 1.9570. 1.9538 (early Europe high) is now a pullback support point. Lower props include 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), 1.9455 (today's Asian session base), 1.9420, and 1.9400. German name demand for EUR/GBP, and good size EUR buying from a UK clearer, helped buoy the cross to a European morning five-week peak of 0.6717. Small stops are tipped below 0.6690. Further stops are noted under 0.6680. US January retail sales will be disclosed at 13:30GMT.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Ben Bernanke will deliver part one of his semi-annual US monetary policy testimony from 15:00GMT.
Yen Outlook (14th February 2007)
JPY was mixed in the European morning. USD/JPY retained a heavier tone continuing the theme set in Asia, while EUR/JPY made modest gains. EUR/JPY was buoyed by good demand for EUR/USD, encouraging speculative demand and interest from technical accounts after the move through the 158.24 Asian high. The pair extended to 158.72, yet failed to extend gains amid an overhang of Japanese selling and sovereign based interest.
The cross retraced some of the gains amid real money sales coupled with a USD/JPY fall into the 121.00. USD/JPY was subjected to selling throughout the session amid a broadly softer dollar tone and some interest relating to USD 27 billion worth of coupon payments due tomorrow. The pair filled in stops below 121.00 and 120.90 but was unable to extend losses due to good Japanese demand.
Importers, real money names and a quasi-official name were mooted. Both pairs are relatively stable ahead of the North American open, with USD/JPY steady around 121.00 and EUR/JPY finding support around 158.35/40. Attention will turn to Bernanke's testimony and any remarks on growth prospects and medium-term inflation risks.
The cross retraced some of the gains amid real money sales coupled with a USD/JPY fall into the 121.00. USD/JPY was subjected to selling throughout the session amid a broadly softer dollar tone and some interest relating to USD 27 billion worth of coupon payments due tomorrow. The pair filled in stops below 121.00 and 120.90 but was unable to extend losses due to good Japanese demand.
Importers, real money names and a quasi-official name were mooted. Both pairs are relatively stable ahead of the North American open, with USD/JPY steady around 121.00 and EUR/JPY finding support around 158.35/40. Attention will turn to Bernanke's testimony and any remarks on growth prospects and medium-term inflation risks.
Euro Outlook (14th February 2007)
Factors have conspired to support EUR/USD intraday. EUR cross buying (EUR/JPY, GBP & CHF), the positive EZ rate outlook, a drop in the USD Index and the emergence of official support for the Euro were all publicized into the European morning. Early trading saw Mid-East Dollar sales pressure the US unit before Russian interest sparked a EUR/USD rally to 1.3100.
Offers into the figure have since capped but tight topside stops are eyed. Looking ahead, better sized stops sit above 1.3150 but with the Bernanke testimony on the horizon (15:00 GMT) the spot move higher may stall until the FOMC Chairman has had his say. Ahead of this, US retail sales data will be eyed.
On the options front, 1.29/31 DNT's were erased by the early move higher but dealers now talk of 1.3110 barriers with potential for further short-term 1.3100 exposure as traders hedged amid the European morning rally. Elsewhere, the German DIHK noted that a 25bp increase by the ECB "is to be expected in March and another increase after that is not to be ruled out". The institute also noted the potential for further strength in the Euro.
Offers into the figure have since capped but tight topside stops are eyed. Looking ahead, better sized stops sit above 1.3150 but with the Bernanke testimony on the horizon (15:00 GMT) the spot move higher may stall until the FOMC Chairman has had his say. Ahead of this, US retail sales data will be eyed.
On the options front, 1.29/31 DNT's were erased by the early move higher but dealers now talk of 1.3110 barriers with potential for further short-term 1.3100 exposure as traders hedged amid the European morning rally. Elsewhere, the German DIHK noted that a 25bp increase by the ECB "is to be expected in March and another increase after that is not to be ruled out". The institute also noted the potential for further strength in the Euro.
USD/CHF: Cross Action Dominates, Market Digests G7 Implications
USD/CHF opened in NY at 1.2470, and traded down to 1.2443 following the poor US trade data, however a heavy oversold condition on the hourly studies (RSI below 20) prompted some profit taking. Underlying the rally was also a news story that emanated from AFX news in Europe that the European Commission is at loggerheads with some of the Cantons in Switzerland that offer business tax breaks to multi-nationals to headquarter their companies within their domain.
The European Commission say that the disputed tax breaks are illegal under the bloc's aid rules. The Commission stated that Cantons allowing the "holding, mixed and management companies" breach a bilateral free trade agreement going back to 1972. The EU is particularly upset with schemes offering unfair tax advantages to companies established in Switzerland, for profits generated primarily in the EU. The commission is demanding that Switzerland amend these tax schemes to bring them back in line with the terms of the agreement.
Spokespeople for the Commission also stated that while the commission is not against tax competition or low tax rates, it cannot accept schemes that differentiate between domestic and foreign source income.Traders note that if the EU is successful in reducing the benefits afforded these companies, it will have a deleterious effect on tax collection, and business formation in Switzerland, and may put further upward pressure on EUR/CHF. USD/CHF has traded up to 1.2500 and EUR/CHF up to 1.6265 with this as aleitmotif.
The European Commission say that the disputed tax breaks are illegal under the bloc's aid rules. The Commission stated that Cantons allowing the "holding, mixed and management companies" breach a bilateral free trade agreement going back to 1972. The EU is particularly upset with schemes offering unfair tax advantages to companies established in Switzerland, for profits generated primarily in the EU. The commission is demanding that Switzerland amend these tax schemes to bring them back in line with the terms of the agreement.
Spokespeople for the Commission also stated that while the commission is not against tax competition or low tax rates, it cannot accept schemes that differentiate between domestic and foreign source income.Traders note that if the EU is successful in reducing the benefits afforded these companies, it will have a deleterious effect on tax collection, and business formation in Switzerland, and may put further upward pressure on EUR/CHF. USD/CHF has traded up to 1.2500 and EUR/CHF up to 1.6265 with this as aleitmotif.
USD/JPY: Intra-day Shorts Cover Positions Ahead Of London Close
Intra-day shorts cover USD/JPY positions ahead of the London close,forcing a move back into the 121.30/35 area. Early US pressure on the downside failed to overcome 121.00/10 bids, fueling profit taking by players that sold atthe start of the European session.
Sentiment wise little has changed as USD/JPY remains hemmed in by good two-way flows and a lack of directional bias. There was a distinct lack of interest fromhedge funds today but Japanese investors were evident in the JPY crosses. The interest failed to turn the pair higher though, with the topside weighed on by option sales and bond related hedging.
The 121.00 handle remains the key pivot in the near-term. Bids are in good size at this level and stops are noted below. The market will play the range until wesee a clean break of this level or spot can build enough momentum to break the recent trend high at 122.20.
Sentiment wise little has changed as USD/JPY remains hemmed in by good two-way flows and a lack of directional bias. There was a distinct lack of interest fromhedge funds today but Japanese investors were evident in the JPY crosses. The interest failed to turn the pair higher though, with the topside weighed on by option sales and bond related hedging.
The 121.00 handle remains the key pivot in the near-term. Bids are in good size at this level and stops are noted below. The market will play the range until wesee a clean break of this level or spot can build enough momentum to break the recent trend high at 122.20.
GBP/USD: Consolidating Losses, BoE Inflation Report Tomorrow
Cable is consolidating softer-than-expected UK CPI-fuelled losses to one-month lows just shy of 1.9400, as market thoughts turn towards tomorrow's 10:30GMT quarterly BoE inflation report release. The report could spur fresh GBPselling if its content is perceived as being relatively dovish. 1.9385, a 38.2% Fibo retracement point of the ascent from 1.8525 (mid-Oct low) to 1.9917 (Jan 23, 15-year high), is a sub-figure bear target.
Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base). Sterling resistance levels are located at 1.9450, 1.9461 (today's Asian session base), 1.9475, 1.9491, 1.9505, 1.9525, 1.9550, and 1.9570. UK unemployment and earnings data will be disclosed at 09:30GMT tomorrow. Annualized average earnings are forecast up 4.1% in the three months to December.
Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base). Sterling resistance levels are located at 1.9450, 1.9461 (today's Asian session base), 1.9475, 1.9491, 1.9505, 1.9525, 1.9550, and 1.9570. UK unemployment and earnings data will be disclosed at 09:30GMT tomorrow. Annualized average earnings are forecast up 4.1% in the three months to December.
Tuesday, February 13, 2007
FX OPTIONS STRATEGY: Buy 1-mth AUD/USD 0.7630 One Touch
AUD/USD has posted an impressive recovery from the 0.7706 Asian session low. Broad dollar losses coupled with an improvement in the JPY crosses has seen out-performance, with the pair extending to a 0.7770 high. However, there are fundamental reasons why AUD/USD may not be able to continue in this vein.
Yesterday's dovish RBA statement could mark an end to the aggressive hedge fund/investment flows into Aussie. Some weak spots have started to appear in thedomestic economy, with the real estate market showing signs of a slowdown coupled with a softening in commodity prices. This comes after a benign inflation release and is supported by a weakening price outlook. In this environment rates are expected to remain on hold for the foreseeable future. AUD/USD's propensity to trade as a barometer for global growth could also work against the pair, along with the domestic economic issues already highlighted.
Something to be expected is the reduced carry trade interest and macro positioning to add downside pressure over the next month and see potential for a move into the low 0.76's. Using a One Touch strategy, we might get more than two times your return on a 0.7630 target. Using FENICS FX 2002, a 1-mth 0.7630 One Touch comes in at 42.14%.
Vols at 7.60% are used, which included 0.75% premium for AUD puts and forward rates of 5.70/5.50 and a spot rate of 0.7762. Here is something to look at is that 0.7630 is a viable target, although it is noted that prices will need to clear key support a 0.7700 to reinforce this developing trend.
Yesterday's dovish RBA statement could mark an end to the aggressive hedge fund/investment flows into Aussie. Some weak spots have started to appear in thedomestic economy, with the real estate market showing signs of a slowdown coupled with a softening in commodity prices. This comes after a benign inflation release and is supported by a weakening price outlook. In this environment rates are expected to remain on hold for the foreseeable future. AUD/USD's propensity to trade as a barometer for global growth could also work against the pair, along with the domestic economic issues already highlighted.
Something to be expected is the reduced carry trade interest and macro positioning to add downside pressure over the next month and see potential for a move into the low 0.76's. Using a One Touch strategy, we might get more than two times your return on a 0.7630 target. Using FENICS FX 2002, a 1-mth 0.7630 One Touch comes in at 42.14%.
Vols at 7.60% are used, which included 0.75% premium for AUD puts and forward rates of 5.70/5.50 and a spot rate of 0.7762. Here is something to look at is that 0.7630 is a viable target, although it is noted that prices will need to clear key support a 0.7700 to reinforce this developing trend.
US TECHS: Commodities Outlook; Gold and Oil
In spite of losses on Monday, Apr [Gold] upticked on IFR's proprietary Trend Intensity indicator and is set to do so again today with any price recovery. The entire $675-80 band shows up on multiple charts as a tough zone to crack, but a push past would then leave technical objectives of $695-700.
With all time frame trend models pointed higher, pullbacks to $664-66 should find buying interest. Key weekly support is at $656-58 this week. Divergent daily momentum readings are a continuing concern that point to a coming correction.
Bears got a boost yesterday in Mar [Oil] as prices plummeted. The market has major measured supports at $56-57, and needs to break below $57 just to extend February's range. Prices have firmed a bit today and are above very short-term supports to either side of $58 Mar.
Daily momentum is barely above neutral, though, and as pointed out repeatedly, relative strength studies are stuck in bear market readings of 20-60 as opposed to bullish parameters of 40- 80. The inability to hold above 50-day moving averages or even test 100-day measures keeps the pressure on bulls. A break of weekly swing point supports at $57 will further the bearish case.
With all time frame trend models pointed higher, pullbacks to $664-66 should find buying interest. Key weekly support is at $656-58 this week. Divergent daily momentum readings are a continuing concern that point to a coming correction.
Bears got a boost yesterday in Mar [Oil] as prices plummeted. The market has major measured supports at $56-57, and needs to break below $57 just to extend February's range. Prices have firmed a bit today and are above very short-term supports to either side of $58 Mar.
Daily momentum is barely above neutral, though, and as pointed out repeatedly, relative strength studies are stuck in bear market readings of 20-60 as opposed to bullish parameters of 40- 80. The inability to hold above 50-day moving averages or even test 100-day measures keeps the pressure on bulls. A break of weekly swing point supports at $57 will further the bearish case.
USD/CHF: Rebound Aided By Data But Renewed Sales Hamper
The USD/CHF rebound has been aided by the generally upbeat Philly Fed quarterly report (Philly Fed - UNEMPLOYMENT RATE TO AVERAGE 4.7 PCT 2007 VS PVS FORECAST OF 4.8 PCT). Consumer confidence fell but still the US unit has elicited more support.
However, renewed sales in USD/CHF into the 1.2500 level are hampering the potential for higher levels into the European close. Should EUR/CHF break above 1.6265 and re-test the historic high at 1.6277 then further Franc weakness will follow, with USD/CHF eyeing 1.2525 back to the 1.2550 offers. Option related sales are still tipped in the Euro cross ahead of potential 1.6280 exotics with confirmed option barriers at 1.6300 and above.
However, renewed sales in USD/CHF into the 1.2500 level are hampering the potential for higher levels into the European close. Should EUR/CHF break above 1.6265 and re-test the historic high at 1.6277 then further Franc weakness will follow, with USD/CHF eyeing 1.2525 back to the 1.2550 offers. Option related sales are still tipped in the Euro cross ahead of potential 1.6280 exotics with confirmed option barriers at 1.6300 and above.
EUR/USD: Europeans Selling EUR Rally
Dealers note selling from a pair of the more active European central banks in the low 1.3020s, but are not sure if there is any intent to be gleaned from the sales. Most suspect they are just playing the range like everyone else.
IBD/TIPP consumer optimism dipped in its latest release to 52.7, its lowest since October, but the market is paying it little heed. Offers remain on rallies toward 1.3045/50 and again toward 1.3065/75. 1.31000 barriers are reportedly in play while whispers of 1.3050s have made the rounds today as well. Bids are eyedat 1.3010 and 1.2990/95.
IBD/TIPP consumer optimism dipped in its latest release to 52.7, its lowest since October, but the market is paying it little heed. Offers remain on rallies toward 1.3045/50 and again toward 1.3065/75. 1.31000 barriers are reportedly in play while whispers of 1.3050s have made the rounds today as well. Bids are eyedat 1.3010 and 1.2990/95.
US ECON: IBD/TIPP Economic Optimism Index Cools to 52.7
* IBD/TIPP falls one point to 52.7, now lowest since October 2006 (52.4)
* Lower than expectations of 53.0 but above trailing averages
* Declines in all three components in February
The IBD/TIPP Economic Optimism Index fell by one point to 52.7 in February, the lowest reading since October 2006. The decline was larger than expected butthe index remained above both the 6-month and 12-month trailing averages.
The 6-month economic outlook index fell by 1.7 points to 46.4, the lowest since December (45.4). The index on the 6-month personal financial outlook fellby 0.4 point to 60.8, the lowest since October 2006. Ditto for the index on federal policies, off 0.9 point.
Given the close correlation to the University of Michigan index of consumer sentiment, we have lowered our forecast on the latter to 94.0.
* Lower than expectations of 53.0 but above trailing averages
* Declines in all three components in February
The IBD/TIPP Economic Optimism Index fell by one point to 52.7 in February, the lowest reading since October 2006. The decline was larger than expected butthe index remained above both the 6-month and 12-month trailing averages.
The 6-month economic outlook index fell by 1.7 points to 46.4, the lowest since December (45.4). The index on the 6-month personal financial outlook fellby 0.4 point to 60.8, the lowest since October 2006. Ditto for the index on federal policies, off 0.9 point.
Given the close correlation to the University of Michigan index of consumer sentiment, we have lowered our forecast on the latter to 94.0.
GBP/USD: Weighed Down by Talk of Hawkish Tone from Bernanke
Conjecture that Fed Governor Bernanke will strike a hawkish tone when he delivers his semi-annual monetary policy testimony (part one) in just over 24 hours has helped depress GBP/USD from post-US trade data highs north of 1.9450.
A consulting shop is touted as the source of the Bernanke conjecture.1.9400 is a sterling support point. One-month lows just shy of 1.9400 were plumbed during the London morning, after the 09:30GMT disclosure of January's softer-than-forecast UK inflation figures.
These have cast doubt on the expectation that another UK base rate hike is in the pipeline. Sub-1.9400 bear targets/prop points include 1.9385, 1.9317 (Jan 10 floor), 1.9280, and 1.9260.
A consulting shop is touted as the source of the Bernanke conjecture.1.9400 is a sterling support point. One-month lows just shy of 1.9400 were plumbed during the London morning, after the 09:30GMT disclosure of January's softer-than-forecast UK inflation figures.
These have cast doubt on the expectation that another UK base rate hike is in the pipeline. Sub-1.9400 bear targets/prop points include 1.9385, 1.9317 (Jan 10 floor), 1.9280, and 1.9260.
EUR/USD: Price Action Elicits Talk of Fresh 1.3050 Barriers
With EUR/USD backing away after stalling in the mid-1.3040s, the inevitable talk of central bank sales coupled with rumors of fresh exotic triggers at 1.3050 are making the rounds. Though there is no confirmation at present, the range bound nature of the market would make this highly plausible.
Talk of 1.29/1.31 DNTS with lumpy payouts are making the rounds as well. An analysis from one of the high-profile consulting shops that caters to the leveraged community suggests a hawkish tone from Bernanke tomorrow, another factor that helped stall the EUR advance.
Upbeat Eurozone data keeps the ECB on a tightening path for the foreseeable future while the Fed is expected to stay sidelined but with a clear bias to tighten given tight labor markets. This argues for more range trade ahead until the status quo shifts.
Talk of 1.29/1.31 DNTS with lumpy payouts are making the rounds as well. An analysis from one of the high-profile consulting shops that caters to the leveraged community suggests a hawkish tone from Bernanke tomorrow, another factor that helped stall the EUR advance.
Upbeat Eurozone data keeps the ECB on a tightening path for the foreseeable future while the Fed is expected to stay sidelined but with a clear bias to tighten given tight labor markets. This argues for more range trade ahead until the status quo shifts.
Swiss Outlook (13th February 2007)
The Franc has followed the trends set by the broader market intraday. USD/CHF followed the tone set by EUR/USD while GBP/CHF was impacted by the weaker UK numbers. Bids into 1.2460 in USD/CHF look to prop.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to huge numbers but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
Local players expect the Franc to continue to trade in synch with broader marketmomentum (and to a lesser extent - Dollar momentum) until after the Swiss data set for release Thursday. Swiss inflation is expected near Zero so retail sales will give the next big indication as to the direction of interest rates in Q1. These are expected to come in at -2.5%, pointing to lower consumer spending, however, many still opt to price in a 25bp hike from the SNB in mid-March.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to huge numbers but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
Local players expect the Franc to continue to trade in synch with broader marketmomentum (and to a lesser extent - Dollar momentum) until after the Swiss data set for release Thursday. Swiss inflation is expected near Zero so retail sales will give the next big indication as to the direction of interest rates in Q1. These are expected to come in at -2.5%, pointing to lower consumer spending, however, many still opt to price in a 25bp hike from the SNB in mid-March.
Sterling Outlook (13th February 2007)
Speculative and real-money account selling helped depress cable by a cent to new one-month lows just shy of 1.9400 after the 09:30GMT disclosure of January's softer-than-expected UK inflation data. CPI fell to 2.7%, from an 11-year high of 3.0% in December. A more modest drop to 2.9% was expected.
RPI fell to 4.2%, from 4.4%. A rise to 4.5% was expected.The sub-forecast UK inflation figures are good news for doves arguing that the peak of the UK base rate tightening cycle has already been reached.1.9385, a 38.2% Fibo retracement point of the ascent from 1.8525 (mid-Oct low) to 1.9917 (Jan 23, 15-year high), is a sub-figure bear target. Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base).
1.9425 (earlier stall point) is now a rebound resistance level. Upper obstacles include 1.9438 (yesterday's low), and 1.9461 (today's Asian session base). Today's key US event risk is the 13:30GMT unveiling of the size of December's UStrade deficit.
Forecast: $59.7bn, from $58.2bn in November. The quarterly BoE inflation report is out tomorrow.
RPI fell to 4.2%, from 4.4%. A rise to 4.5% was expected.The sub-forecast UK inflation figures are good news for doves arguing that the peak of the UK base rate tightening cycle has already been reached.1.9385, a 38.2% Fibo retracement point of the ascent from 1.8525 (mid-Oct low) to 1.9917 (Jan 23, 15-year high), is a sub-figure bear target. Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base).
1.9425 (earlier stall point) is now a rebound resistance level. Upper obstacles include 1.9438 (yesterday's low), and 1.9461 (today's Asian session base). Today's key US event risk is the 13:30GMT unveiling of the size of December's UStrade deficit.
Forecast: $59.7bn, from $58.2bn in November. The quarterly BoE inflation report is out tomorrow.
Yen Outlook (13th February 2007)
JPY was mixed in the European morning. A stream of strong European data releases set the tone. This saw EUR/JPY break higher after opening the European session at 157.45. The pair extended gains after stops weretriggered through 157.70 on the way up to a 158.06 session high. Selling was noted from real money names and exporters.
Forthcoming Euro Zone redemption payments saw steady selling, which helped to reduce volatility and keep the pairin a narrow range. The pair drifted between 157.70 and 157.85 for a large part of the European morning. USD/JPY was unable to make much headway, trading sideways early on and then turning lower on Japanese selling. Some interest was linked to US coupon payments due on February 15th.
The downside found support ahead of 121.20 stops, leaving a relatively stable feel into the North American open. Near-term bias is a little mixed after JPY shorts got caught out in Asia yesterday. Carry trade interest has been mild since the G7 meeting, which has reduced activity. Price action will be driven by Thursday's Japanese GDP release, particularly with the BOJ policy meeting due on February 20-21.
Forthcoming Euro Zone redemption payments saw steady selling, which helped to reduce volatility and keep the pairin a narrow range. The pair drifted between 157.70 and 157.85 for a large part of the European morning. USD/JPY was unable to make much headway, trading sideways early on and then turning lower on Japanese selling. Some interest was linked to US coupon payments due on February 15th.
The downside found support ahead of 121.20 stops, leaving a relatively stable feel into the North American open. Near-term bias is a little mixed after JPY shorts got caught out in Asia yesterday. Carry trade interest has been mild since the G7 meeting, which has reduced activity. Price action will be driven by Thursday's Japanese GDP release, particularly with the BOJ policy meeting due on February 20-21.
Euro Outlook (13th February 2007)
Into North American trading and EUR/USD is steady around the 1.30 mark. The price failed to find follow-through on the initial push and some are said to have been caught in the move but longs may not yet be worried as further stabs higher are expected. Euro zone 4Q GDP was +0.9% Q/Q andthis "above-trend growth" has forced some to look for March and June ECB hikes.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to the hugenumbers involved but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and Consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
On the options front, the EUR 300Mln+ 1.3000 strike that is due to roll off at the NY cut at 15:00 GMT should act as a pivot point for any chop with offers from 1.3020 backing to 1.3040 while stops sit below 1.2980 with more bids noted into the 1.2950 area.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to the hugenumbers involved but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and Consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
On the options front, the EUR 300Mln+ 1.3000 strike that is due to roll off at the NY cut at 15:00 GMT should act as a pivot point for any chop with offers from 1.3020 backing to 1.3040 while stops sit below 1.2980 with more bids noted into the 1.2950 area.
Monday, February 12, 2007
EUR/USD: Modest Rallies; Market in Sell-Strength Mode
EUR/USD managed a rally into the high 1.2960s before easing back to the mid1.2950s. The market remains focused on key resistance levels in the US dollarindex near-term after brushing up against important resistance earlier in the session.
A sustained break of 85.16 is seen leading to further US strength across the board. As always, dealers remain reluctant to sell EUR/USD too aggressively below the 1.2940/50 area owing to near-constant central bank demand for reserve diversification.
A break and close below the 100-day average at 1.2917 today could prompt central banks to pull in their horns and wait for better buying levels ahead. Until then, most will be content to trade ranges. EUR/USD trades at 1.2957.
A sustained break of 85.16 is seen leading to further US strength across the board. As always, dealers remain reluctant to sell EUR/USD too aggressively below the 1.2940/50 area owing to near-constant central bank demand for reserve diversification.
A break and close below the 100-day average at 1.2917 today could prompt central banks to pull in their horns and wait for better buying levels ahead. Until then, most will be content to trade ranges. EUR/USD trades at 1.2957.
FOREX: Central Bank Summary Updated
The latest central bank summary has been updated with highlights from the RBA monetary policy and comments from ECB Draghi. The summary can be found on this website at www.ifrmarkets.com. Look under "Forex Watch" then "Central Bank Summary".
The next central bank meeting is the BOJ on the 21st of February with surveys in Japan still showing only a 50% chance of a rate hike. Japan GDP data due this week is expected to be a key factor in BOJ board deliberations.
The next central bank meeting is the BOJ on the 21st of February with surveys in Japan still showing only a 50% chance of a rate hike. Japan GDP data due this week is expected to be a key factor in BOJ board deliberations.
US TECHS: S&P Pulls Back But Remains Above Key Support
After trying to get through the 1454 area for several sessions, Mar S&P encountered more aggressive selling on Friday. The dip was fairly harsh, given the tight range seen over the preceding few sessions but current price action remains above important support references. Two of those supports include the 50-day moving average and an ascending trendline, both at 1430. It would take a close below that level before any significant warning bells went off.
Friday's sharp turn in some of the daily momentum studies will likely be enough to see the contract remain under pressure for the near term. Also there is a slight bearish seasonal period heading into President's week vacation so the recent highs will be a hurdle until the seasonals start to favor the bullishcamp again closer to the end of the month.
Friday's sharp turn in some of the daily momentum studies will likely be enough to see the contract remain under pressure for the near term. Also there is a slight bearish seasonal period heading into President's week vacation so the recent highs will be a hurdle until the seasonals start to favor the bullishcamp again closer to the end of the month.
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