This week"s key UK event risk is tomorrow's 09:30GMT disclosure of December inflation figures. Annualized CPI is forecast to rise to 2.8/2.9%--although there is a chance that it might come in as high as 3.1%. BoE Governor King is duty-bound to write a letter of explanation to Chancellor Brown if CPI comes in above 3.0%. CPI rose to 2.7% in November, from 2.4% in October.
The BoE MPC saw an advance estimate of tomorrow's UK inflation figures ahead of last Thursday's unexpected 25bp UK base rate hike to 5.25%. GBP/USD rallied by three-quarters-of-a-cent to 1.9670 offers during the London morning, with buoyancy aided by the M&A news that Smiths Group has sold its aerospace division to GE for $4.8bn in cash (FT website). Noted bull targets north of 1.9670 include 1.9700, 1.9730, 1.9750, 1.9580, 1.9900, and 2.00.
Cable elicited support just below 1.9650 on its pullback from 1.9670. 1.9650 option strikes expire at the 10am NY cuts today and tomorrow. Tomorrow will also see Sentance deliver his first ever speech since joining the BoE MPC last Autumn. Besley speaks Thursday.
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Monday, January 15, 2007
Yen Outlook (15th January 2007)
The market shrugged off rising expectations of a BoJ rate hike. Various media reports out Friday and over the weekend tipped a move in rates at the end of the week. The talk weighed on USD/JPY and the JPY crosses overnight but they bucked the trend in Europe, led by heavy GBP/JPY demand.
Real money names and Middle Eastern accounts were big GBP buyers and this filtered through the cross, with the pair scaling 237.00 after starting the European session at 235.65. EUR/JPY made up ground as a consequence of this activity, with the pair rallying from the mid 155's and extending through 155.85-156.00 offers to record a 156.09 session high. Offers above 156.00 manage to contain price action and the pair hovered around 156.00 for the remainder of the session.
USD/JPY was capped early on by 120.45 but pushed higher amid good cross JPY activity. Interbank demand and real money interest via the legs saw the pair trade up to 120.60. An increase in exporter offers kept the pair within a narrow range, with bid interest offset by Japanese name presence between 120.50-120.60. We expect the crosses to lead action in the European afternoon session.
Real money names and Middle Eastern accounts were big GBP buyers and this filtered through the cross, with the pair scaling 237.00 after starting the European session at 235.65. EUR/JPY made up ground as a consequence of this activity, with the pair rallying from the mid 155's and extending through 155.85-156.00 offers to record a 156.09 session high. Offers above 156.00 manage to contain price action and the pair hovered around 156.00 for the remainder of the session.
USD/JPY was capped early on by 120.45 but pushed higher amid good cross JPY activity. Interbank demand and real money interest via the legs saw the pair trade up to 120.60. An increase in exporter offers kept the pair within a narrow range, with bid interest offset by Japanese name presence between 120.50-120.60. We expect the crosses to lead action in the European afternoon session.
Euro Outlook (15th January 2007)
Into the new week and the US holiday for Marin Luther King Day is expected to keep action tight into the latter portion of the day. However, as one dealer so succinctly put it "this could put a little added spice into the European close". If volatility is to increase then the current range extremities will be pressured and model and algorithmic accounts will be at the forefront of action given the intraday conditions.
Euro Zone industrial data disappointed weighed on the Euro but the EUR/USD appreciation has already choked on the decent sized offers into 1.2955. Offers back from 1.2940 were absorbed in the early European rally but the emergence of a quality name on the offer, and in good size, helped fill the orders pushing spot higher. As a result, until this level is broken we would suggest there is risk of a return to the 1.2900/10 area.
Elsewhere, 1.2950 expiries are noted. On the downside, the 1.2868 low from Friday and the reported 1.2850 option barriers will come into view should the Dollar strengthen further but 1.3000 looks a more interesting dynamic target.
Euro Zone industrial data disappointed weighed on the Euro but the EUR/USD appreciation has already choked on the decent sized offers into 1.2955. Offers back from 1.2940 were absorbed in the early European rally but the emergence of a quality name on the offer, and in good size, helped fill the orders pushing spot higher. As a result, until this level is broken we would suggest there is risk of a return to the 1.2900/10 area.
Elsewhere, 1.2950 expiries are noted. On the downside, the 1.2868 low from Friday and the reported 1.2850 option barriers will come into view should the Dollar strengthen further but 1.3000 looks a more interesting dynamic target.
Friday, January 12, 2007
EUR/USD: ECB's Garganas Turns Table on EU
Greek central banker Garganas has turned the tables on the EU Commission, complaining that they are not doing enough to prompt structural reforms in Europe. Usually it is the EU governments complaining about the ECB, so this looks like one of those "man bites dog" stories.
EUR/USD pushed up as high as 1.2944 on the most recent run, triggering more stops amid reports of heavy reserve diversification from a Mid-Eastern name this morning. With oil prices down about $15 in the last few weeks, they will have less of it to do ahead.
EUR/USD pushed up as high as 1.2944 on the most recent run, triggering more stops amid reports of heavy reserve diversification from a Mid-Eastern name this morning. With oil prices down about $15 in the last few weeks, they will have less of it to do ahead.
GBP/USD: Extends North to New Nine-Day Highs Amid USD Selling
Good size USD selling from a Middle Eastern name has reportedly helped inflate cable to a new nine-day peak of 1.9581. Touted bull targets above include 1.9600, and 1.9650. A large 1.9650 option strike rolls off next Tuesday, post-UK inflation data. 1.9558 (earlier stall point) is now a pullback support point. Lower props include 1.9538 (yesterday's low), and 1.9510.
US ECON: Business Inventories Rise 0.4%; As Expected
Business inventories rose as expected by 0.4% in November while sales rose 0.5%.
EUR/USD: Former Range Lows Tested; Mid-East Blamed for Rally
EUR/USD has tested the mid-1.2930s twice so far but has not been able to overcome it as yet. Dealers are blaming the bulk of the EUR rally on Mid-East buying of EUR/USD, with talk of upwards of EUR 3 bln taken out of the market. The buying has helped turn the crosses higher as well, fueling the surge. Offers are seen through 1.2950 while an hourly downtrend comes in at 1.2965. Expect more short-covering if broken.
USD/JPY: Dollar Profit Taking Fuels Further Losses
Broad dollar profit taking has sent USD/JPY to a fresh session low of 120.21. Progress is slow as standing bids soak up steady dollar supply. Price action has turned a little corrective after USD/JPY struggles to reassert itself on the topside despite the healthy US retail sales data.
Speculative account selling picked up after some decent dollar buying ran into quasi-official selling above 120.50. A long weekend in the US and waning upside momentum should encourage a small offered tone into the London close. Fresh dollar buyers may be cautious given the "semi-official" selling toward the highs.
However, there is no reason to believe there is anything unusual in this interest. Japanese selling of treasuries was prevalent yesterday and as spot extends gains we would expect to see ongoing interest as Asian accounts take advantage of considerable currency returns.
Speculative account selling picked up after some decent dollar buying ran into quasi-official selling above 120.50. A long weekend in the US and waning upside momentum should encourage a small offered tone into the London close. Fresh dollar buyers may be cautious given the "semi-official" selling toward the highs.
However, there is no reason to believe there is anything unusual in this interest. Japanese selling of treasuries was prevalent yesterday and as spot extends gains we would expect to see ongoing interest as Asian accounts take advantage of considerable currency returns.
GBP/USD: Runs into Resistance Ahead of 1.9560 Fibo Level
Cable has run into resistance just shy of 1.9560 following its approximate one-cent rally from post-US retail sales data lows. 1.9560 is an approximate 61.8% Fibo retracement point of the fall from 1.9752 (Jan 2 high) to 1.9260 (Monday's six-week low). 1.9538 (yesterday's post-UK rate hike high) is now a pullback support point.
Lower props include 1.9510 (pre-US retail sales data peak), and 1.9460. 1.9600 and 1.9650 are among touted bull targets north of 1.9560. Large 1.9650 option strikes roll off today and next Tuesday (post-UK CPI). 1.9849 was last month's 14-year high (Dec 1).
Lower props include 1.9510 (pre-US retail sales data peak), and 1.9460. 1.9600 and 1.9650 are among touted bull targets north of 1.9560. Large 1.9650 option strikes roll off today and next Tuesday (post-UK CPI). 1.9849 was last month's 14-year high (Dec 1).
USD/CHF: EUR/USD Bounce Adds To Profit-Taking
The Dollar has initially failed to hold its post-US data gains as a host of profit-takers emerged just ahead of 1.2530. Earlier we noted that the long week-end caused by the US holiday on Monday could force such actions into the latter half of the day and such action in USD/CHF has also been aided by the bounce in EUR/USD. Looking ahead 1.2530 is still seen as the next key topside trigger with 1.2550 & 1.2580 then coming into view but into the European close and further stalling around the 1.2500 mark could be witnessed.
EUR/USD: Returns to Seen of Crime but Falters
EUR/USD rebounded to the 1.2925/30 area that had contained dips until yesterday's ECB press conference but so far has been unable to overcome it. Stops are clustered in the 1.2935 but remain intact. Intraday specs have gotten burned by the resilience in EUR/USD below 1.2870 and are less short as a result. 1.2900 expiries this morning appear to be providing supply on rallies.
Swiss Outlook (12th January 2007)
USD/CHF opened NY near the lows of an unexpected BOE rate hike that drove all the major currencies higher against the USD; then collapsed as the ECB's Trichet failed to include the much anticipated hawkish tone to his post ECB meeting speech - with no foreshadowing of a February hike.
EUR/USD commenced its collapse and the mayhem that followed was quite astounding. Bulls and bears were slaughtered in this vicious whiplash, and wicked cross rate shifts triggered stops in all sorts of currency pairs. The US session high in USD/CHF was 1.2508; the low was near the open at 1.2415 and the close was 1.2500. Crosses re-aligned sharply today, with Swissy suffering against almost all currencies except the Euro.
EUR/CHF dropped from 1.6175 at 7.00 AM NY time to 1.6098 the US session low, and closed at 1.6110. GBP/CHF soared from 2.4165 to 2.4315 over the same time frame, and closed at 2.4305. CHF/JPY opened at 96.80 and closed at 96.25. AUD/CHF & NZD/CHF closed up 35pts & 60pts at 0.9762, and 0.8647 respectively. CAD/CHF traded in a 1.0530/1.0630 range and closed 1.0620.
EUR/USD commenced its collapse and the mayhem that followed was quite astounding. Bulls and bears were slaughtered in this vicious whiplash, and wicked cross rate shifts triggered stops in all sorts of currency pairs. The US session high in USD/CHF was 1.2508; the low was near the open at 1.2415 and the close was 1.2500. Crosses re-aligned sharply today, with Swissy suffering against almost all currencies except the Euro.
EUR/CHF dropped from 1.6175 at 7.00 AM NY time to 1.6098 the US session low, and closed at 1.6110. GBP/CHF soared from 2.4165 to 2.4315 over the same time frame, and closed at 2.4305. CHF/JPY opened at 96.80 and closed at 96.25. AUD/CHF & NZD/CHF closed up 35pts & 60pts at 0.9762, and 0.8647 respectively. CAD/CHF traded in a 1.0530/1.0630 range and closed 1.0620.
Sterling Outlook (12th January 2007)
Sterling sated sell interest at 1.9490 and 1.9500 en route to a London morning of 1.9505, as the pound continued to elicit benefit from yesterday's 25bp UK base rate rise to 5.25%. That unexpected hike, and the BoE's accompany statement of explanation, has raised fears of a topside shock re: next Tuesday's UK December inflation figures (Jan 16).
If annualized UK CPI comes in above 3.0%, BoE Governor Mervyn King is duty bound to write a letter of explanation to Chancellor Gordon Brown. CPI rose to 2.7% in November. 2.0% is the BoE's target level. Further GBP/USD offers are touted at 1.9520 and 1.9540. Eight-day highs just shy of 1.9540 were notched yesterday, on the back of the UK rate hike.
1.9393 was the pullback low from those pre-1.9540 highs. Good size selling from a US investment house helped depress EUR/GBP to a new 19-month low of 0.6618 during the London morning. Today's key US event risk is the 13:30GMT disclosure of December retail sales. Forecast: +0.7% m/m, ex-autos +0.5% m/m.
If annualized UK CPI comes in above 3.0%, BoE Governor Mervyn King is duty bound to write a letter of explanation to Chancellor Gordon Brown. CPI rose to 2.7% in November. 2.0% is the BoE's target level. Further GBP/USD offers are touted at 1.9520 and 1.9540. Eight-day highs just shy of 1.9540 were notched yesterday, on the back of the UK rate hike.
1.9393 was the pullback low from those pre-1.9540 highs. Good size selling from a US investment house helped depress EUR/GBP to a new 19-month low of 0.6618 during the London morning. Today's key US event risk is the 13:30GMT disclosure of December retail sales. Forecast: +0.7% m/m, ex-autos +0.5% m/m.
Yen Outlook (12th January 2007)
JPY experienced consolidation in quieter trading conditions. The main driver of price action was a pick up in Japanese rate speculation. New articles from the Nikkei and MNSI indicated that BOJ may be considering a hike at next week's policy meeting. USD/JPY's failure to move beyond 120.73 encouraged profit taking, with the rate speculation causing some concern among those overextended on the topside.
The pair edged lower and eventually filled in 120.30 bids to record a 120.26 low. Background dollar support and a positive technical picture saw a slew of buyers emerge and the pair was underpinned into the US session. This tone might continue, with decent bids seen into 120.00 and the market still focused on yield. Option strikes at 120.00, 120.50 and 120.75 grabbed some attention, with price action a little choppy due to ongoing gamma related activity.
EUR/JPY was underpinned, yet well off its highs after tripping 155.85 stops at the European open. The pair also traded defensively, with persistent pressure on 155.10/15 bids. Flight to yield by Japanese investors should continue to support in the near-term.
The pair edged lower and eventually filled in 120.30 bids to record a 120.26 low. Background dollar support and a positive technical picture saw a slew of buyers emerge and the pair was underpinned into the US session. This tone might continue, with decent bids seen into 120.00 and the market still focused on yield. Option strikes at 120.00, 120.50 and 120.75 grabbed some attention, with price action a little choppy due to ongoing gamma related activity.
EUR/JPY was underpinned, yet well off its highs after tripping 155.85 stops at the European open. The pair also traded defensively, with persistent pressure on 155.10/15 bids. Flight to yield by Japanese investors should continue to support in the near-term.
Euro Outlook (12th January 2007)
Into North American trading and the market is awaiting the latest US retail sales data, due for release at 13:30 GMT. EUR/USD was supported amid the European morning by speculation of a weak number but economists still opt for a monthly headline around +0.5/6%. Also set for release at 13:30 GMT are the December Import/Export numbers.
Ahead of the data and spot trades a rough 1.2905/15 market, as talk of official sellers in the 1.2920's dissuades further buying. Stops are noted above 1.2930 with more offers into 1.2950 while on the downside the 1.29 expiries prop ahead of the 1.2877 low. Technically, the daily/weekly close today is being seen as key to the future direction for the pair. With the outside day candle seen yesterday highlighting the inability of the price to hold higher levels, a break below the 100
Day moving average line at 1.2865 is now seen as key to further downside action. Previous Fibo support at 1.2890 has also not been significantly cleared so any close below this 65/90 zone will spell the end of the uptrend in the pair that has been in place since October 06.
Ahead of the data and spot trades a rough 1.2905/15 market, as talk of official sellers in the 1.2920's dissuades further buying. Stops are noted above 1.2930 with more offers into 1.2950 while on the downside the 1.29 expiries prop ahead of the 1.2877 low. Technically, the daily/weekly close today is being seen as key to the future direction for the pair. With the outside day candle seen yesterday highlighting the inability of the price to hold higher levels, a break below the 100
Day moving average line at 1.2865 is now seen as key to further downside action. Previous Fibo support at 1.2890 has also not been significantly cleared so any close below this 65/90 zone will spell the end of the uptrend in the pair that has been in place since October 06.
USD/JPY: Nikkei Hints BOJ Rate Hike May Still Be Considered
The Nikkei newspaper hinted overnight in their Thursday edition that the BOJ will still be discussing the possibility of a rate hike at their upcoming meeting. The article asserts that the BOJ will stick to its "economic expansion scenario" at the upcoming meeting.
The speculation was seen pushing ten-year JGB yields to 1.76% overnight and two-month highs. The recent rise in US rates, the unexpected BOE rate hike and the weak JPY will help make the decision easier for the BOJ, muting the impact on JPY reaction. And, there is a view growing in the market that a 25 bp will not have much impact, since a rate hike is priced into JGBs and into three-month Libor prices.
The report says that the BOJ board members will be focusing on the "Economy Watchers" data and the Machinery orders data, due Jan 15th, as factors impacting their decision. USD/JPY remains well bid, underpinned by fresh carry trade interest and the rise in US yields today, on the back of the better-than-expected US jobless claims. USD/JPY is at 120.52 with 121.05 the next topside target.
The speculation was seen pushing ten-year JGB yields to 1.76% overnight and two-month highs. The recent rise in US rates, the unexpected BOE rate hike and the weak JPY will help make the decision easier for the BOJ, muting the impact on JPY reaction. And, there is a view growing in the market that a 25 bp will not have much impact, since a rate hike is priced into JGBs and into three-month Libor prices.
The report says that the BOJ board members will be focusing on the "Economy Watchers" data and the Machinery orders data, due Jan 15th, as factors impacting their decision. USD/JPY remains well bid, underpinned by fresh carry trade interest and the rise in US yields today, on the back of the better-than-expected US jobless claims. USD/JPY is at 120.52 with 121.05 the next topside target.
Thursday, January 11, 2007
NEWS: Japan's Abe Says Government And BoJ Working Together
Japan's Abe says government and BoJ are working to beat deflation and achieve stable growth. Abe expects to BoJ to make appropriate decision on monetary policy.
USD/CHF: German Calling For EUR/CHF Drop Towards 1.6000/15
Amid broad based Dollar strength USD/CHF still sits around the 1.2480 area with stabs higher still expected to carry spot towards the 1.2500 once EUR/USD breaks below 1.2900.
Against the Euro the Franc has now dropped back to 1.6109 but bids into 1.60 are still attempting to reserve the bullish bias in the cross. One German is calling for the price to extend the run lower and push back towards 1.6000/15 area in the medium-term as corrective pressure in the CHF forces trading to ease.
Against the Euro the Franc has now dropped back to 1.6109 but bids into 1.60 are still attempting to reserve the bullish bias in the cross. One German is calling for the price to extend the run lower and push back towards 1.6000/15 area in the medium-term as corrective pressure in the CHF forces trading to ease.
EUR/USD: European Institutes See Q1 Slowdown
A report from Ifo, France's Insee and Italy's ISAE forecasts Eurozone growth to slow in Q1 to 0.3% from 0.7% in Q4 of 2006. Growth is seen rebounding to 0.5% in the second quarter. The report does not say so, but perhaps the German VAT hike is responsible for expectations of a slower first quarter.
EUR/USD is under fresh pressure after a bounce to 1.2930. 1.2900 is under attack, but is expected to be defended vigorously. 1.2880 stops are seen below the market.
EUR/USD is under fresh pressure after a bounce to 1.2930. 1.2900 is under attack, but is expected to be defended vigorously. 1.2880 stops are seen below the market.
FX OPTIONS: USD/JPY Vols Trade Off Their Best Levels
USD/JPY vols trade off their best levels, with spot price action slowing into the NY cut. The curve has settled down after moving higher on the rapid spot move up through 120.40. A bout of vol and strike interest was noted on the move up through 120.00 and 120.10. Strikes traded into the 121.00 area for 19th January and 2-wks and 17th January 121.55 strikes dealt at 6.55%. 3-wk 119.50 dealt and 1-mth 122.00 traded up to 6.7% in USD 300 million.
The NY cut has seen a total of USD 1 yard expire at 120.00 and further 120.00 interest is noted tomorrow after O/N dealt at 9% in USD 350 million. The bout of buying has waned, with spot price action slowing after failing to overcome 120.50. Failure to extend on the European morning gains will begin to pressurise the curve, with the market still sensitive to JPY gains despite the recent turn in sentiment.
Risk reversals continue to retain their skew for JPY calls over at 0.15/0.45 in the 1-mth 25-d. These are the lowest levels for some time. 1-wk vols show 7.15/7.90, 1-mth is at 6.50/6.80, 3-mth shows 6.60/6.85, 6-mth is at 6.60/6.85 and the 1-yr is steady at 6.80/7.00.
The NY cut has seen a total of USD 1 yard expire at 120.00 and further 120.00 interest is noted tomorrow after O/N dealt at 9% in USD 350 million. The bout of buying has waned, with spot price action slowing after failing to overcome 120.50. Failure to extend on the European morning gains will begin to pressurise the curve, with the market still sensitive to JPY gains despite the recent turn in sentiment.
Risk reversals continue to retain their skew for JPY calls over at 0.15/0.45 in the 1-mth 25-d. These are the lowest levels for some time. 1-wk vols show 7.15/7.90, 1-mth is at 6.50/6.80, 3-mth shows 6.60/6.85, 6-mth is at 6.60/6.85 and the 1-yr is steady at 6.80/7.00.
GBP/USD: Pullback Extends to Threaten 1.9440
Sterling's retreat from a UK rate hike-fuelled eight-day peak of 1.9538 has extended to lows just shy of 1.9440. Sell interest was previously tipped at the latter level, prior to the UK rate rise shock. Sub-1.9440 support points include 1.9422, 1.9410, and 1.9385. 1.9422 was yesterday's top. Highs just shy of 1.9410 were notched during the London morning (pre-hike).
A quarter-yard+ 1.9410 option strike rolls off at today's 10am EST NY cut (15:00GMT). GBP/USD was trading circa 1.9385 into the UK rate verdict. The unexpected 25bp hike delivered by the MPC, and the content of their accompanying statement of explanation (BoE website), has given rise to conjecture that next Tuesday's UK inflation data may surprise on the upside.
Annualized UK CPI rose to 2.7% in November. 2.0% is the BoE's target level. Should CPI come in above 3.0%, BoE Governor Mervyn King is duty bound to write a letter of explanation to Chancellor Gordon Brown.
A quarter-yard+ 1.9410 option strike rolls off at today's 10am EST NY cut (15:00GMT). GBP/USD was trading circa 1.9385 into the UK rate verdict. The unexpected 25bp hike delivered by the MPC, and the content of their accompanying statement of explanation (BoE website), has given rise to conjecture that next Tuesday's UK inflation data may surprise on the upside.
Annualized UK CPI rose to 2.7% in November. 2.0% is the BoE's target level. Should CPI come in above 3.0%, BoE Governor Mervyn King is duty bound to write a letter of explanation to Chancellor Gordon Brown.
USD/CHF: 1.2480 Still Capping Topside
1.2480 continues to cap the topside in USD/CHF but with EUR/USD threatening to break down and re-test 1.2900 a run up towards 1.2500 cannot be discounted just yet.
Swiss Outlook (11th January 2007)
As was expected the USD/CHF run north was halted into the 1.2480 area yesterday and overnight the pair has consolidated the run higher. Into European trading and 1.2480 continued to cap USD/CHF but with markets light ahead of the ECB the pair has easily been propped by the previous 1.2440 base leaving spot tight inside a 1.2440/80 range.
Any break of 1.2480 will eye the 1.2500 mark but intraday and much will depend on the tone set by the ECB's Trichet. The ECB is not expected to hike today (12:45 GMT) but the tone of the Presidents rhetoric will be key to the Euro attempting to bounce. Should any Feb hike be implied then EUR/USD could rally and this will weigh on USD/CHF with 1.2400 then coming back into view.
Despite the SNB being rumoured to be selling [EUR/CHF] across various platforms the cross remains buoyant. Bulls still eye the 1.6175/80 exotic options and the 1.6200 barriers on the topside while 1.6150 props. Model & leveraged players flipped to long positions in [CAD/CHF] in the break above 1.0625 with 1.0650 now eyed en-route towards a test of the 1.0690 area.
Any break of 1.2480 will eye the 1.2500 mark but intraday and much will depend on the tone set by the ECB's Trichet. The ECB is not expected to hike today (12:45 GMT) but the tone of the Presidents rhetoric will be key to the Euro attempting to bounce. Should any Feb hike be implied then EUR/USD could rally and this will weigh on USD/CHF with 1.2400 then coming back into view.
Despite the SNB being rumoured to be selling [EUR/CHF] across various platforms the cross remains buoyant. Bulls still eye the 1.6175/80 exotic options and the 1.6200 barriers on the topside while 1.6150 props. Model & leveraged players flipped to long positions in [CAD/CHF] in the break above 1.0625 with 1.0650 now eyed en-route towards a test of the 1.0690 area.
Sterling Outlook (11th January 2007)
The BoE MPC is expected to leave the UK base rate at 5.0% at 12:00GMT today. Minutes from this week's MPC meeting will be published on January 24. Hawks forecast a 25bp hike to 5.25% next month (Feb 8). Offers within a 1.9400/10 window capped cable gains spurred by the 09:30GMT disclosure of November's better-than-expected UK industrial production data.
Stops above 1.9350 were tripped prior to the data release. 1.9410+ resistance levels include 1.9420 and 1.9450. Sell interest from 1.9420 capped GBP/USD at an intra-day high of 1.9422 yesterday. Sell interest from 1.9450 topped sterling at a five-day peak of 1.9456 on Tuesday. 1.9380 (earlier absorbed offers) is now a pullback support point.
Lower props include 1.9367 (pre-UK IP data top), 1.9350, 1.9341 (today's Asian session peak), 1.9317 (yesterday's two-day low), and 1.9260 (Monday's six-week floor). NY Fed President Geithner is slated to speak at 13:00GMT, with Fed Governor Bies due to talk at 15:15GMT. Weekly US jobless claims will be disclosed at 13:30GMT. Forecast: 320k.
Stops above 1.9350 were tripped prior to the data release. 1.9410+ resistance levels include 1.9420 and 1.9450. Sell interest from 1.9420 capped GBP/USD at an intra-day high of 1.9422 yesterday. Sell interest from 1.9450 topped sterling at a five-day peak of 1.9456 on Tuesday. 1.9380 (earlier absorbed offers) is now a pullback support point.
Lower props include 1.9367 (pre-UK IP data top), 1.9350, 1.9341 (today's Asian session peak), 1.9317 (yesterday's two-day low), and 1.9260 (Monday's six-week floor). NY Fed President Geithner is slated to speak at 13:00GMT, with Fed Governor Bies due to talk at 15:15GMT. Weekly US jobless claims will be disclosed at 13:30GMT. Forecast: 320k.
Yen Outlook (11th January 2007)
JPY is weak across the board again. USD/JPY looks bid on the back of more strong economic data overnight and further moves up in US yields. US investment house demand was aggressive taking out option triggers at 120.00 and 120.10. The pair extended through 120.40 stops to print a 120.42 high.
Option related selling and exporter offers cap gains but the pair remained bid leaving the pair in a narrow range into the US session. The JPY crosses performed well, with macro account and real money demand noted through EUR/JPY, GBP/JPY and AUD/JPY. Appetite for yield remains high, with GPB/JPY buoyed by the surprise hike in UK rates and stronger than expected Australian jobs data overnight.
Official rhetoric from Japan also played down the prospects of a Japanese rate hike, which continued to underpin across the board. Option strikes at 120.00 and 156.00 respectively may contain USD/JPY and EUR/JPY but it is likely that fresh flows will undermine JPY going forward. Market is looking towards the US initial claims data for the US session. Last week's reading of 329,000, which if not reversed, could signal labour market weakness.
Option related selling and exporter offers cap gains but the pair remained bid leaving the pair in a narrow range into the US session. The JPY crosses performed well, with macro account and real money demand noted through EUR/JPY, GBP/JPY and AUD/JPY. Appetite for yield remains high, with GPB/JPY buoyed by the surprise hike in UK rates and stronger than expected Australian jobs data overnight.
Official rhetoric from Japan also played down the prospects of a Japanese rate hike, which continued to underpin across the board. Option strikes at 120.00 and 156.00 respectively may contain USD/JPY and EUR/JPY but it is likely that fresh flows will undermine JPY going forward. Market is looking towards the US initial claims data for the US session. Last week's reading of 329,000, which if not reversed, could signal labour market weakness.
Euro Outlook (11th January 2007)
The 12:45 GMT European Central Bank verdict is not expected to generate a move in Euro Zone rates. However, in the accompanying statement (due at 13:30 GMT) the ECB President is expected to announce further "vigilance" and give the markets a better idea over the potential for a February hike.
25bps is widely expected to be heralded by Trichet and any such comments will underpin the Euro and see EUR/USD attempt to carve a rally. Into the North American open and dealers still see the downside in EUR/USD in focus while spot remains below 1.3000/05 and late Asian/early European trading saw bears eye the 1.2925 & 1.2900 areas.
Decent bids are seen into the 1.2925 level once more, with Asian central bank & option accounts in the frame, before sub-1.2920 are removed en-route to testing bids into 1.2910/15 and below. Elsewhere, Philly Fed data for December is set for revision at 17:00 GMT before the 19:00 GMT unveiling of the December Fed budget announcement. In other news; Gulf State ccy pegs to the USD are back in the spotlight after the earlier UAE C/B Gov comments.
25bps is widely expected to be heralded by Trichet and any such comments will underpin the Euro and see EUR/USD attempt to carve a rally. Into the North American open and dealers still see the downside in EUR/USD in focus while spot remains below 1.3000/05 and late Asian/early European trading saw bears eye the 1.2925 & 1.2900 areas.
Decent bids are seen into the 1.2925 level once more, with Asian central bank & option accounts in the frame, before sub-1.2920 are removed en-route to testing bids into 1.2910/15 and below. Elsewhere, Philly Fed data for December is set for revision at 17:00 GMT before the 19:00 GMT unveiling of the December Fed budget announcement. In other news; Gulf State ccy pegs to the USD are back in the spotlight after the earlier UAE C/B Gov comments.
Wednesday, January 10, 2007
USD/JPY: Holds Firm After Clearing 119.50
USD/JPY holds firm after successfully clearing offers at 119.50/55. The market is targeting the 120.00 handle on a positive fundamental picture and a pick up in speculative activity. Sources have noted a pick up via the options market for 120.00 strikes, which has added to the supportive dollar tone as gamma related activity is pushed through.
The JPY crosses have also come back bid after experiencing some corrective price action in the European morning. Progress on the topside should remain slow given the outstanding offers from 119.75.
The JPY crosses have also come back bid after experiencing some corrective price action in the European morning. Progress on the topside should remain slow given the outstanding offers from 119.75.
EUR/USD: Sovereign Bids Slow Slide
Dealers report fresh buying interest from Eastern European accounts on weakness below 1.2970 this morning. Stops are building below the 1.2940 level, they also report, as short-term traders lean against options-protection and central bank reserve diversification for comfort. Some fear prices could slide later in the day as accounts that set stops below 1.2980 on a closing basis come to market to offload stale EUR/USD longs. EUR/USD trades at 1.2971.
FX OPTIONS: EUR/USD 1-mth Vol Plumbs New Seven-Week Low
1-mth implied volatility has sunk to a new seven-week low of 6.05/6.25 last, amid ongoing option supply. At the start of the week, the 1-mth traded at 6.6 pct in an estimated E500mn. The 1-mth expiry date is still Thursday February 8, as per yesterday and Monday, according to FENICS FX 2002.
Towards the end of November last year (pre-US Thanksgiving), the 1-mth plumbed a lifetime low of 5.4 pct. At the back of the curve: well over a yard of 1-year options have reportedly gone through today, inclusive of the earlier-mentioned ATM strike which traded an all-time low of 6.55 pct.
Towards the end of November last year (pre-US Thanksgiving), the 1-mth plumbed a lifetime low of 5.4 pct. At the back of the curve: well over a yard of 1-year options have reportedly gone through today, inclusive of the earlier-mentioned ATM strike which traded an all-time low of 6.55 pct.
USD/CHF: 1.2450 Still Intact & More Option Sellers Noted
Speculation over the proposed 1.2450 option barriers has resurfaced on the inability of the Dollar to rally above the 1.2450 mark, despite the recent narrower-than-expected US trade boost. Option accounts have also been spotted selling once more and as a result the gamma related sales are being tipped to be protective in nature.
GBP/USD: Weighed Down by Unexpected US Trade Deficit Fall
Cable has fallen by more than a quarter-cent to threaten 1.9343 (today's Asian session, two-day low) on the back of the unexpected fall in the US trade deficit in November. It was forecast to rise to $60.0bn. Some stops reportedly reside below 1.9340. These could spur fresh downward momentum towards 1.9300 if tripped.
Monday's six-week low of 1.9260 is a key sub-figure support point. 1.9365 is now a rebound resistance level. Sterling elicited support ahead of 1.9365 following the 09:30GMT disclosure of November's way above-forecast UK trade deficit.
Monday's six-week low of 1.9260 is a key sub-figure support point. 1.9365 is now a rebound resistance level. Sterling elicited support ahead of 1.9365 following the 09:30GMT disclosure of November's way above-forecast UK trade deficit.
EUR/USD: Modest Dip as Trade Posts Continued Improvement
The US trade gap fell to its lowest level since before Hurricane Katrina helped push up oil prices. The deficit fell to $58.25, its third drop in a row. This should help push up Q4 GDP forecasts a bit. Options-related buying is seen in the 1.2950 region this morning, both to protect options and linked to large 1.3000 vanilla expiries this morning. EUR/USD trades at 1.2972.
USD/CHF: Dollar Rallies On Trade Narrowing, 1.2450 Key
The lowest US trade data reading since November 2005 has helped the Dollar gain further support. Some had expected "structural concern" worries to again weigh on the USD in the wake of the release, however, the headline USD 58.23Bn has in fact given the Greenback cause to be bought further.
USD/CHF has hit 1.2440 in the wake of the data but sellers are seen trailing back to 1.2450 so it will take a break above this latter level before the pair gaps higher or volumes increase significantly. 1.2480 is then eyed with some technicians suggesting that any close intraday above 1.2365/70 (which looks pretty viable at this stage) will put the pair on course for a rally towards 1.2535/80 then 1.2770.
USD/CHF has hit 1.2440 in the wake of the data but sellers are seen trailing back to 1.2450 so it will take a break above this latter level before the pair gaps higher or volumes increase significantly. 1.2480 is then eyed with some technicians suggesting that any close intraday above 1.2365/70 (which looks pretty viable at this stage) will put the pair on course for a rally towards 1.2535/80 then 1.2770.
Swiss Outlook (10th January 2007)
The Swiss player that officially upgraded their SNB forecasts for 2007 helped the Franc elicit support into European trading. The player is now calling for two hikes in H1, from 1x25bp move in H1 (Q1) previously. They look for a total of 50bps extra this year, with rates on hold in H2, promptly followed by another 25bp hike in Q1 2008.
USD/CHF eased back to 1.2400 into early European trading having printed 1.2449 in Asia. The failure surmount 1.2450 and subsequent talk of option related sales has produced speculation of 1.2450 option barriers but the Franc failed to break higher and trading has since consolidated the new 1.2400/50 comfort-zone. On the downside, stops are seen below 1.2400/10 bids with 1.2350 then seen as the next big downside level.
In the longer-term, on German suggests that a close above 1.2365/70 today will put the pair on course for a run at 1.2535/80 with other bulls claiming 1.2770 could be eyed. On the crosses, the news was little comfort to EUR/CHF bears as 1.6170/75 continues to be targeted. Offers into 1.6150 have capped thus far today.
USD/CHF eased back to 1.2400 into early European trading having printed 1.2449 in Asia. The failure surmount 1.2450 and subsequent talk of option related sales has produced speculation of 1.2450 option barriers but the Franc failed to break higher and trading has since consolidated the new 1.2400/50 comfort-zone. On the downside, stops are seen below 1.2400/10 bids with 1.2350 then seen as the next big downside level.
In the longer-term, on German suggests that a close above 1.2365/70 today will put the pair on course for a run at 1.2535/80 with other bulls claiming 1.2770 could be eyed. On the crosses, the news was little comfort to EUR/CHF bears as 1.6170/75 continues to be targeted. Offers into 1.6150 have capped thus far today.
Sterling Outlook (10th January 2007)
Sell interest from 1.9420 capped cable at an intra-day peak of 1.9422 following its early Europe break through 1.9401 (today's Asian session top). GBP/USD then retreated to lows circa 1.9388 (yesterday's pullback floor from 1.9456) ahead of the 09:30GMT disclosure of November's much higher than expected UK trade deficit.
Further quarter-cent sterling losses ensued on the back of that UK trade deficit blow-out. Demand ahead of 1.9365 based those losses. Stops below 1.9365 were tripped during today's Asian session, en route to a two-day low of 1.9343. Further stops are touted sub-1.9340. The size of November's US trade deficit will be disclosed at 13:30GMT.
Forecast: $60.0bn, from $58.9bn in October. The BoE MPC is expected to keep the UK base rate at 5.0% when it delivers its monthly rate verdict tomorrow, despite a majority of the "Shadow" MPC recommending a hike. A prime US investment house has this week joined hawks tipping a 25bp UK rate rise next month (Feb 8).
Further quarter-cent sterling losses ensued on the back of that UK trade deficit blow-out. Demand ahead of 1.9365 based those losses. Stops below 1.9365 were tripped during today's Asian session, en route to a two-day low of 1.9343. Further stops are touted sub-1.9340. The size of November's US trade deficit will be disclosed at 13:30GMT.
Forecast: $60.0bn, from $58.9bn in October. The BoE MPC is expected to keep the UK base rate at 5.0% when it delivers its monthly rate verdict tomorrow, despite a majority of the "Shadow" MPC recommending a hike. A prime US investment house has this week joined hawks tipping a 25bp UK rate rise next month (Feb 8).
Yen Outlook (10th January 2007)
The JPY crosses look to be under pressure today after their recent rally. EUR/JPY broke back below 155.00 overnight and pressured the downside throughout the European morning amid selling by Japanese trust banks and fund sales via GBP/JPY. EUR/JPY tested 154.70 but was unable to overcome bid interest from proprietary names and leverage funds.
The pair recovered towards 154.95/00 but met selling interest from 155.00. USD/JPY experienced very narrow ranges. The pair ticked up to 119.30 and experienced a wave of selling pressure, with Japanese trust banks and exporters noted. The pair held up amid good size bids at 119.15, leaving the pair in a very narrow range. Coupon and redemption payments out of the Eurozone are expected to influence in the near-term.
Flows are noted on Friday and Monday, which should add pressure on the EUR/JPY downside in the near-term. The cross sees next support in the low-154 area, 154.13 the low in New York Monday. USD/JPY may take some of its lead from a softer EUR/USD tone. However, talk of offers of some $4+ yards from 119.80 will stymie gains in the near-term.
The pair recovered towards 154.95/00 but met selling interest from 155.00. USD/JPY experienced very narrow ranges. The pair ticked up to 119.30 and experienced a wave of selling pressure, with Japanese trust banks and exporters noted. The pair held up amid good size bids at 119.15, leaving the pair in a very narrow range. Coupon and redemption payments out of the Eurozone are expected to influence in the near-term.
Flows are noted on Friday and Monday, which should add pressure on the EUR/JPY downside in the near-term. The cross sees next support in the low-154 area, 154.13 the low in New York Monday. USD/JPY may take some of its lead from a softer EUR/USD tone. However, talk of offers of some $4+ yards from 119.80 will stymie gains in the near-term.
Euro Outlook (10th January 2007)
Into European trading and EUR/USD had managed to attain a slight bid-tone. Asian trading saw sizable stops removed on the break below 1.2970 and 1.2953 printed. However, the emergence of central bank bids and option related interest (linked to 1.2950 option barriers) helped trading bounce.
Yet selling into the rebound strength was always expected and the early European bull-run was soon overcome by the standing supply into the 1.30 level. Talk of official sellers from the 1.3005 level back to 10 has also dissuaded buyers and into the North American open and the price is holding near 1.3000. Solid two-way continues but a break above 1.3010 now looks needed to instigate decent follow-through with stops then found en-route to 1.3020.
Should 1.3010 remain intact then a return to the 1.2975/85 comfort area is likely. Looking ahead, the 13:30 GMT release of the latest US Trade data (Nov), expected at a deficit of USD 59.9Bln, is widely expected to garner the direction for the pair for the latter part of the session. Elsewhere, the 1.2900 & 1.3000 strikes could also impact trading into the NY cut at 15:00 GMT.
Yet selling into the rebound strength was always expected and the early European bull-run was soon overcome by the standing supply into the 1.30 level. Talk of official sellers from the 1.3005 level back to 10 has also dissuaded buyers and into the North American open and the price is holding near 1.3000. Solid two-way continues but a break above 1.3010 now looks needed to instigate decent follow-through with stops then found en-route to 1.3020.
Should 1.3010 remain intact then a return to the 1.2975/85 comfort area is likely. Looking ahead, the 13:30 GMT release of the latest US Trade data (Nov), expected at a deficit of USD 59.9Bln, is widely expected to garner the direction for the pair for the latter part of the session. Elsewhere, the 1.2900 & 1.3000 strikes could also impact trading into the NY cut at 15:00 GMT.
Tuesday, January 09, 2007
EUR/USD: Greenback Consolidating Gains; IBD Upbeat
EUR/USD is consolidating losses just above 1.3000 after a few modest probes below that level this morning. Soft oil prices are the latest catalyst for USD strength as they help cut the US's imports significantly. Dealers are reluctant to push EUR/USD aggressively lower, however, mindful of the bounce yesterday from the 1.3970/80 region whether central bank bids were in evidence.
The market continues to buy dips, leaning on the central bank bids for support. If a rebound does not materialize in the next day or two, further downside looks in the cards, however. Supporting the buck near-term was an upbeat IBD/TIPP consumer sentiment report. The index rose to 53.7, its second highest since March 2005, according to Investors Business Daily.
The market continues to buy dips, leaning on the central bank bids for support. If a rebound does not materialize in the next day or two, further downside looks in the cards, however. Supporting the buck near-term was an upbeat IBD/TIPP consumer sentiment report. The index rose to 53.7, its second highest since March 2005, according to Investors Business Daily.
US TECHS: Commodities Outlook; Gold and Oil
Following last Friday's strong drop, [gold] is forming a flag this week with downside resolution anticipated. Daily trendline support is at $597 Feb, though pivot supports at $605.50 would first have to give way. Trend Intensity has latched on to a steady bearish trend signal in this market that commenced Friday from excellent levels and should uptick bearishly again today. Larger downside targets for gold are a shade below $575. Monthly trend models were working on a bullish setup before the break, and can still pull it out with a Jan close above $625. As before, 200-day moving averages at $616 are an upside barrier now.
The latest weakness in [oil] is setting Trend Intensity up for its fifth consecutive double uptick, a phenomenon not recently seen given that bear market runs of this extent have been a rarity in the energy markets. The parabolic drop is feeding on itself, and having hit new recent lows, Elliott wave targets on nearest futures target the $50.00-52.50 zone as closest major support. 200-week moving averages are just above there at $52.60. On monthly charts, major support at $54.50 has been broken intraday. Any short-term lift today should stumble near $55.00 Feb.
The latest weakness in [oil] is setting Trend Intensity up for its fifth consecutive double uptick, a phenomenon not recently seen given that bear market runs of this extent have been a rarity in the energy markets. The parabolic drop is feeding on itself, and having hit new recent lows, Elliott wave targets on nearest futures target the $50.00-52.50 zone as closest major support. 200-week moving averages are just above there at $52.60. On monthly charts, major support at $54.50 has been broken intraday. Any short-term lift today should stumble near $55.00 Feb.
US TECHS: Mar. S&P Attempting a Bounce from Key Support
Recent weakness in Mar S&P has slipped a bit to test key support in the 1412/16 area. Included in that zone is the 50-day moving average, which the contract has not closed below since early August. The market needs to see a bounce away from this area soon or a break lower will be the more likely scenario as momentum studies continue to slide lower.
There are clearly warning signs that the rally from the summer lows is slowing (bearish divergences, non confirmations) but it would be easier to call a significant top if the 20-day put/call ratio would show the kind of optimism associated with a six-month, 15% rally. So far there seems to be some disbelief in the move and as long as that exists the market will probably be able to weather any short-term storms.
There are clearly warning signs that the rally from the summer lows is slowing (bearish divergences, non confirmations) but it would be easier to call a significant top if the 20-day put/call ratio would show the kind of optimism associated with a six-month, 15% rally. So far there seems to be some disbelief in the move and as long as that exists the market will probably be able to weather any short-term storms.
FX OPTIONS: USD/JPY Vols Slide In The Short End
USD/JPY vols slide in the short end of the curve, with the 1-wk trading down to 5.90%. Current indications are 5.75/6.50, with spot trading in familiar territory. Spot will need to post a sustainable move through key levels in order to bring the curve higher. Near-term risk for USD/JPY is skewed to the topside, yet vol accumulation on spot gains is severely reducing potential.
An overhang of gamma coupled with a slowdown in price action is undermining the short end. Equally, front dated vols suffer and steady sellers have been noted. Yesterday's large 88.00-120.10 DNT that traded at 28.75%, with a USD 15 million is adding to the offered tone. The expiry is for March 29th 2008 and is fueling supply via vega in the back end. 1-mth vols show 6.30/6.55, 3-mth is at 6.40/6.65 and 6-mth and 1-yr vols trade at 6.50/6.75 and 6.70/6.90 respectively. Elsewhere, a 1-yr 109.00 JPY call traded with a 120.50 Knock Out in the European morning over 1-yr.
130.00 strikes have also been popular, with a 1-yr JPY put going through at 7.35% and 11-mth trading at the same level yesterday. Plain vanilla interest has been mixed, yet skewed towards the topside in the main. A 121.50 JPY put traded at 6.55% and an O/N 119.00 went through in USD 500 million early on in the European morning. Risk reversals have come in as a result of the topside activity, with 1-wk 25-d coming in to show 0.00/0.75 and the 1-mth now at 0.35/0.65.
An overhang of gamma coupled with a slowdown in price action is undermining the short end. Equally, front dated vols suffer and steady sellers have been noted. Yesterday's large 88.00-120.10 DNT that traded at 28.75%, with a USD 15 million is adding to the offered tone. The expiry is for March 29th 2008 and is fueling supply via vega in the back end. 1-mth vols show 6.30/6.55, 3-mth is at 6.40/6.65 and 6-mth and 1-yr vols trade at 6.50/6.75 and 6.70/6.90 respectively. Elsewhere, a 1-yr 109.00 JPY call traded with a 120.50 Knock Out in the European morning over 1-yr.
130.00 strikes have also been popular, with a 1-yr JPY put going through at 7.35% and 11-mth trading at the same level yesterday. Plain vanilla interest has been mixed, yet skewed towards the topside in the main. A 121.50 JPY put traded at 6.55% and an O/N 119.00 went through in USD 500 million early on in the European morning. Risk reversals have come in as a result of the topside activity, with 1-wk 25-d coming in to show 0.00/0.75 and the 1-mth now at 0.35/0.65.
FX OPTIONS: EUR/USD Good Size Back-Date R/R Trades
One of my sources informed me that the 6-mth 25 delta risk reversal traded at 0.35 pct for EUR calls in upwards of a quarter-yard a leg earlier today. The 9-mth 25 delta R/R is additionally tipped to have traded at 0.375 pct for EUR calls earlier today.
At the front of the curve: the 1-mth 25 delta R/R is 0.0/0.2 EUR calls over last, having reportedly traded at 0.1 pct for EUR calls in fair size yesterday. A week ago, the 1-mth R/R was 0.35 pct bid for EUR calls. In late November, it was bid as high as 0.8 pct for EUR calls.
At the front of the curve: the 1-mth 25 delta R/R is 0.0/0.2 EUR calls over last, having reportedly traded at 0.1 pct for EUR calls in fair size yesterday. A week ago, the 1-mth R/R was 0.35 pct bid for EUR calls. In late November, it was bid as high as 0.8 pct for EUR calls.
EUR/USD: 1.3000 Bids Holding the Line
EUR/USD is finding buyers on dips to the 1.3000 level with speculators comfortable to lean against the notion of continued central bank reserve diversification on weakness. Several large banks have put out fresh buy recommendation in recent days, a few of them specifically citing the reserve diversification as a catalyst for fresh longs.
Given that speculative flows can overwhelm the sovereign flows, if EUR/USD is unable to rally in fairly short order, the risks of a more significant move to the downside swell. Lower oil prices are helping the greenback this morning as they cut the US current account deficit and trim the need for USD sales by oil producers. Offers are eyed to the 1.3025/30 area near-term.
Just hitting the tape now is a 16% rise in German new car registrations in December, the first sign of German consumers trying to beat the 3% VAT hike that came into effect last week.
Given that speculative flows can overwhelm the sovereign flows, if EUR/USD is unable to rally in fairly short order, the risks of a more significant move to the downside swell. Lower oil prices are helping the greenback this morning as they cut the US current account deficit and trim the need for USD sales by oil producers. Offers are eyed to the 1.3025/30 area near-term.
Just hitting the tape now is a 16% rise in German new car registrations in December, the first sign of German consumers trying to beat the 3% VAT hike that came into effect last week.
USD/JPY: Extends Gains As Market Eyes Stops
USD/JPY extends gains as the market clears offers at 119.50. The next batch of interest is seen at 119.55 up to 119.65, where a mixture of stops and offers are noted. Model funds and CTAs have had stops triggered in today's session amid the spot move through 119.00 and extending through 119.20/25 and now through 119.50.
The move above the 119.05 resistance has raised the prospects of another attack on the 120.00 handle. However, price action should be extremely choppy on any upside test, with sovereign names, exporters and option accounts reportedly leaving sizeable offers at 119.75/80. Some traders have placed some significance on a report from a well known New York based advisory that is touting no change in Japanese rates at next week's BOJ policy meeting.
In spite of this rumour, JPY was already in the decline with leverage funds and speculative accounts discounting the impact from any move in rates given the sizeable yield advantage in other developed economies. More importantly are rumours that BOJ does not want USD/JPY to trade above 120.00 in the near-term. In light of this talk price reaction towards 120.00 will be pivotal going forward.
The move above the 119.05 resistance has raised the prospects of another attack on the 120.00 handle. However, price action should be extremely choppy on any upside test, with sovereign names, exporters and option accounts reportedly leaving sizeable offers at 119.75/80. Some traders have placed some significance on a report from a well known New York based advisory that is touting no change in Japanese rates at next week's BOJ policy meeting.
In spite of this rumour, JPY was already in the decline with leverage funds and speculative accounts discounting the impact from any move in rates given the sizeable yield advantage in other developed economies. More importantly are rumours that BOJ does not want USD/JPY to trade above 120.00 in the near-term. In light of this talk price reaction towards 120.00 will be pivotal going forward.
FX OPTIONS: EUR/USD 1.3050 Expiry Today
A 1.3050 option strike rolls off at today's 10am EST NY cut (15:00GMT). Sell interest at 1.3050 was tested in early European trade.
Swiss Outlook (9th January 2007)
With the SNB quarterly bulletin widely anticipated USD/CHF spent the majority of the European morning stalling inside recent ranges. However, on the crosses the CHF continues to be used as a funding tool for various carry trades with EUR/CHF, GBP/CHF & CAD/CHF all noting flows from players happy to continue holding such positions.
USD/CHF traded inside the late Asian 1.2360/80 band for the bulk of the European morning until the late push to 1.2390's. Offers remain on various books back to the 1.2400 with any break into the 1.24's once again said to eye the failure high from yesterday at 1.2412. Looking ahead, there is little US data set for release into North American trading so the Dollar may have a free-pass for the afternoon.
On the crosses, EUR/CHF has retested 1.6140 but bulls will keep one eye on the 1.6175 failed high from earlier in the year. Elsewhere, GBP/CHF hit a 57-month high as 2.40 finally gave way. 2.4064 has been hit thus far but should the topside stay in focus 2.46 beckons.
USD/CHF traded inside the late Asian 1.2360/80 band for the bulk of the European morning until the late push to 1.2390's. Offers remain on various books back to the 1.2400 with any break into the 1.24's once again said to eye the failure high from yesterday at 1.2412. Looking ahead, there is little US data set for release into North American trading so the Dollar may have a free-pass for the afternoon.
On the crosses, EUR/CHF has retested 1.6140 but bulls will keep one eye on the 1.6175 failed high from earlier in the year. Elsewhere, GBP/CHF hit a 57-month high as 2.40 finally gave way. 2.4064 has been hit thus far but should the topside stay in focus 2.46 beckons.
Sterling Outlook (9th January 2007)
Sell interest from 1.9450 capped cable at a five-day peak of 1.9456 following its early Europe break through 1.9438 (today's Asian session high). The pair elicited support ahead of 1.9406 (yesterday's high) on its pullback from that 1.9456 high. Stops above 1.9406 were tripped in Asia today.
Further demand is tipped sub-1.9400. Gain consolidation from 1.9260 (yesterday's 6-week low) is the big-picture sterling story. 1.9456+ resistance levels are located at 1.9472 (last Thursday's NY session top), 1.9504 (last Wednesday's Asian session low), and 1.9531 (last Wednesday's peak). Good size model fund buying helped inflate GBP/CHF to a 57-month peak of 2.4050 during the European morning. EUR/GBP has plumbed an 11-day low of 0.6705.
UK like-for-like retail sales rose by an annualized 2.5% in December, compared to a 0.5% increase in November, according to BRC data disclosed at 00:01GMT. The strong number is good news for hawks forecasting another 25bp UK base rate hike to 5.25% next month (Feb 8).
Further demand is tipped sub-1.9400. Gain consolidation from 1.9260 (yesterday's 6-week low) is the big-picture sterling story. 1.9456+ resistance levels are located at 1.9472 (last Thursday's NY session top), 1.9504 (last Wednesday's Asian session low), and 1.9531 (last Wednesday's peak). Good size model fund buying helped inflate GBP/CHF to a 57-month peak of 2.4050 during the European morning. EUR/GBP has plumbed an 11-day low of 0.6705.
UK like-for-like retail sales rose by an annualized 2.5% in December, compared to a 0.5% increase in November, according to BRC data disclosed at 00:01GMT. The strong number is good news for hawks forecasting another 25bp UK base rate hike to 5.25% next month (Feb 8).
Yen Outlook (9th January 2007)
JPY was back under pressure, extending the losses recorded in the Asian session. USD/JPY saw ongoing Japanese interest and this was joined by European interbank names. The pair cleared 119.00 and 119.20 exporter offers and pushed through stops above 119.25.
Exporters are expected to remain active, with quite a few orders noted towards 119.50 and 119.75. The JPY crosses performed well amid reports of Japanese retail investor demand and fresh carry trade interest. EUR/JPY performed well and extended up to 155.38 after offers were cleared early on in the European session. GBP/JPY activity relating to Japan Tobacco's purchase of Gallaher was tipped and real money related interest.
AUD/JPY performed well and NZD/JPY saw fresh inflows. Near-term prospects for JPY remain negative, with yield hunters still encouraged to sell. Japanese long-term rates are expected to under-perform vs the rest of the developed world and this is fueling fresh carry trades and leverage fund activity. Next week's BOJ meeting may stymie some of this activity, although the impact is now seen as minimal.
Exporters are expected to remain active, with quite a few orders noted towards 119.50 and 119.75. The JPY crosses performed well amid reports of Japanese retail investor demand and fresh carry trade interest. EUR/JPY performed well and extended up to 155.38 after offers were cleared early on in the European session. GBP/JPY activity relating to Japan Tobacco's purchase of Gallaher was tipped and real money related interest.
AUD/JPY performed well and NZD/JPY saw fresh inflows. Near-term prospects for JPY remain negative, with yield hunters still encouraged to sell. Japanese long-term rates are expected to under-perform vs the rest of the developed world and this is fueling fresh carry trades and leverage fund activity. Next week's BOJ meeting may stymie some of this activity, although the impact is now seen as minimal.
Euro Outlook (9th January 2007)
Into North American trading and the Euro continues to look perilously close to dropping back and re-testing the 1.2975 area where spot bounced so sharply yesterday. Trading spent the bulk of the fist half of the day trading inside a 1.3025/50 range but after the break higher failed to instigate significant follow-through the downside has retained the attention.
Early New York actions have the 1.30 bids in their sights with a break back into the 1.2900's needing to clearly break lower before any snap towards 1.2930 will be seen. US data is light on the calendar intraday but this may not be the bad thing that it initially seems. With no event-risk there is no potential for surprises so the Dollar will not gain any unexpected support.
However, the flip side of this coin is that there is also no real risk in the pipeline that could dent the Dollar going forward. Dealers suggest that only a break of 1.3080 will take the attention off the downside in the short-term.
Early New York actions have the 1.30 bids in their sights with a break back into the 1.2900's needing to clearly break lower before any snap towards 1.2930 will be seen. US data is light on the calendar intraday but this may not be the bad thing that it initially seems. With no event-risk there is no potential for surprises so the Dollar will not gain any unexpected support.
However, the flip side of this coin is that there is also no real risk in the pipeline that could dent the Dollar going forward. Dealers suggest that only a break of 1.3080 will take the attention off the downside in the short-term.
Monday, January 08, 2007
USD/JPY: Steady Into The NY Cut, Offers Cap Gains
USD/JPY holds steady into the NY cut, with spot trading around 118.60 after recording a 118.80 session high. The push higher was thwarted by good size offers from 118.80. The background dollar bid tone continues to limit the USD/JPY downside, while the JPY crosses have fallen away from their session highs after posting a modest recovery in the European morning session.
Bias for USD/JPY and the JPY crosses remains on the downside, with macro account interest and speculative positioning still favouring JPY. As we head towards the BOJ meeting the risk of further JPY gains will increase, which will see key levels below 118.00 come under pressure.
USD/JPY's directional bias will be tested in the 117.65-117.95 zone, where a number of bids lie. Commercial names have been good buyers over the last few weeks and there is decent technical support below 118.00.
Bias for USD/JPY and the JPY crosses remains on the downside, with macro account interest and speculative positioning still favouring JPY. As we head towards the BOJ meeting the risk of further JPY gains will increase, which will see key levels below 118.00 come under pressure.
USD/JPY's directional bias will be tested in the 117.65-117.95 zone, where a number of bids lie. Commercial names have been good buyers over the last few weeks and there is decent technical support below 118.00.
GBP/USD: Reclaims a 1.93 Handle, Offers Touted at 1.9350
Good name demand helped cable reclaim a 1.93 handle following its earlier foray below the figure. Touted offers at 1.9350 represent an appreciation obstacle. Cable notched intra-day highs just shy of 1.9350 during the London morning, on the back of good size GBP buying re: a dividend payment.
There is also speculation that a US bank has been a buyer of GBP today, re: rumoured GBP/JPY option flow. 1.9375, 1.9400, and 1.9435 (Dec 18 low) are bull targets/resistance levels north of 1.9350. Sterling support points include 1.9285 and 1.9260/65. GBP/USD plumbed a fractionally fresh six-week low of 1.9260 in Asia today. 1.9264 was Friday's post-NFP floor.
There is also speculation that a US bank has been a buyer of GBP today, re: rumoured GBP/JPY option flow. 1.9375, 1.9400, and 1.9435 (Dec 18 low) are bull targets/resistance levels north of 1.9350. Sterling support points include 1.9285 and 1.9260/65. GBP/USD plumbed a fractionally fresh six-week low of 1.9260 in Asia today. 1.9264 was Friday's post-NFP floor.
US TECHS: S&P Spending Too Much Time at Support
Support on daily charts for Mar S&P is clearly established at 1412/16 and the market has been respecting that level. The problem is that the market has not found sufficient enough demand to spark a solid bounce from this area. Persistent pressure on a support area is often a precursor to a break of that zone and a move to lower levels.
Recent price action is also weaker than it had been during the six month rally from the July lows so it does appear that the tenor of the market is changing. In terms of sentiment the 20-day equity put/call ratio is on the low side (.59) but is not really at levels that have revealed an overly exuberant market, especially after a 15% rally, so the ingredients for a large scale pullback do not appear to be in place just yet.
Topping patterns are often more of a process so any attempt to get back toward the highs that is accompanied by a pick up in optimism will likely provide a more dynamic sell signal. For now a close below the 50-day average (1412) would be an indication that the upside is limited for the near term.
Recent price action is also weaker than it had been during the six month rally from the July lows so it does appear that the tenor of the market is changing. In terms of sentiment the 20-day equity put/call ratio is on the low side (.59) but is not really at levels that have revealed an overly exuberant market, especially after a 15% rally, so the ingredients for a large scale pullback do not appear to be in place just yet.
Topping patterns are often more of a process so any attempt to get back toward the highs that is accompanied by a pick up in optimism will likely provide a more dynamic sell signal. For now a close below the 50-day average (1412) would be an indication that the upside is limited for the near term.
EUR/USD: Rebounds Quickly With Downside Limited
EUR/USD has rebounded back onto the 1.3000 handle after failing to sustain levels below 1.2980. Dealers note talk of a gas odor in the midtown Manhattan which is rumored to have caused evacuations.
Central bank buying interest continues to cushion the downside in EUR/USD while steady liquidation of stale longs is capping rallies. If there is a terror angle to the gas rumors in New York, a sharper bounce could unfold. Sellers are seen through 1.3050/55. Stops are seen mixed in around the same levels.
Central bank buying interest continues to cushion the downside in EUR/USD while steady liquidation of stale longs is capping rallies. If there is a terror angle to the gas rumors in New York, a sharper bounce could unfold. Sellers are seen through 1.3050/55. Stops are seen mixed in around the same levels.
EUR/GBP: 0.6725 Bids Underpin, UK & EZ Rate Verdicts Thursday
Touted buy interest at 0.6725 is helping underpin EUR/GBP, as it consolidates intra-day losses from 0.6743 (Asian session top). A break below 0.6725 targets 0.6715. Sell orders at the latter level kept a lid on the cross post-Xmas, until the year-end London fix (Dec 29). Three-week highs of 0.6761 were notched last Wednesday and Thursday. The BoE and ECB deliver their first interest rate verdicts of 2007 this Thursday. No change is expected from either.
USD/CHF: Fails To Capitalize As EUR/USD Bounces
USD/CHF has failed to capitalize on the initial break into the 1.24's. Having said that one advantage of buying ahead of the EUR/USD break was that you would get in ahead of the crowds it seems that the cons have won the initial battle. The biggest drawback was always likely to be a EUR/USD bounce and with spot bouncing off 1.2975 USD/CHF has been forced to dip back to 1.2390.
FX OPTIONS: USD/JPY Short Dated Vols Heavy
USD/JPY short dated vols trade on a heavy footing after the modest pullback in the European morning. The 1-wk currently indicates 6.15/6.90 and the 1-mth shows 6.65/6.95. The absence of Tokyo traders and a higher spot has encouraged ATM selling. The spot move away from the 118.00 area has seen a reduction gamma and selling of strikes in the low 118's has been noted.
A 118.40 O/N strike was given down to 8.0% in Asia and a Friday 117.85-119.00 risk reversals traded at 0.50% for JPY calls over. The curve is unlikely to shift onto higher levels unless spot can successfully take out 118.00 support. This level has seen resolute defence, with sizeable commercial name interest. The remainder of the curve is also beginning to fall away as spot eyes the topside. The 3-mth is at 6.60/6.85, 6-mth shows 6.75/7.00 and the 1-yr is at 6.85/7.15.
A 118.40 O/N strike was given down to 8.0% in Asia and a Friday 117.85-119.00 risk reversals traded at 0.50% for JPY calls over. The curve is unlikely to shift onto higher levels unless spot can successfully take out 118.00 support. This level has seen resolute defence, with sizeable commercial name interest. The remainder of the curve is also beginning to fall away as spot eyes the topside. The 3-mth is at 6.60/6.85, 6-mth shows 6.75/7.00 and the 1-yr is at 6.85/7.15.
EUR/USD: Dip Removes 1.2980 Support with Relative Ease
EUR/USD has removed support at 1.2980 with surprising ease this morning, slipping back into the low 1.2970s. Stops have been triggered on the move but dealers continue to see central bank bids on weakness and prices are quickly rebounding. EUR/USD is going to have to spend some time below 1.2980 to prompt structural longs to pull the plug on their positions.
For those looking for a fundamental catalyst for the continued slide this morning, look no further than the disruption in oil supplies from Russia to Germany. Russia is looking less and less like a reliable supplier of energy beyond its borders having disrupted gas flows to former Soviet republics twice in the last year, and now the row with Belarus that disrupted flows to Europe.
For those looking for a fundamental catalyst for the continued slide this morning, look no further than the disruption in oil supplies from Russia to Germany. Russia is looking less and less like a reliable supplier of energy beyond its borders having disrupted gas flows to former Soviet republics twice in the last year, and now the row with Belarus that disrupted flows to Europe.
FX OPTIONS: GBP/USD 1-mth & 6-mth ATM Strike Selling
I have been informed by one of my sources that 1-mth and 6-mth ATM option strikes traded at 6.65 pct earlier today. The 1-mth is 6.5/6.75 last. The 6-mth is currently 6.5/6.7. In the short-dates: the 1-week is 6.0/6.8 last. The key UK event risk encompassed by the 1-week is Thursday's BoE MPC rate verdict. It is expected to be held at 5.0%--despite a majority of the "Shadow" MPC (5-4) recommending another hike.
USD/CHF: Pro&Cons Of Going It Alone
1.2400 prints and deals in multiple directions but as yet no push higher. Dealers cite the inability of EUR/USD to break lower as a weight on sentiment towards buying at the highs but there is an upside to going it alone. Should a clear break into 1.2400's be seen then this could act as a weight on EUR/USD and buying ahead of the EUR/USD spot break will mean getting in ahead of the game as the move higher is widely expected to accelerate towards 1.2430 once 1.2980 is removed.
Add to the equation the bounce in EUR/CHF and the Franc looks under pressure across the board. The cross has recently jumped back into the 1.61's but 1.6173 still looks a little away.
Add to the equation the bounce in EUR/CHF and the Franc looks under pressure across the board. The cross has recently jumped back into the 1.61's but 1.6173 still looks a little away.
EUR/USD: Drifting Lower; Asian Bids Eyed on Dips
EUR/USD is drifting lower as US yields edge up in early trade. Dips are seen limited near-term owing to continued buying interest from an Asian central bank, presumably diversifying reserves. 1.3020/30 offers should keep prices range-bound near-term. EUR/USD trades at 1.2993.
FX OPTIONS: EUR/USD Selling of Mid & Back-Dated 1.3350 Strikes
We have been told that 1.3350 option strikes were sold for 3-mth and 6-mth expiry dates earlier today. The 3-mth strike reportedly traded at 6.8 pct, with the 6-mth strike going through at 6.7 pct in over a third-of-a-yard.
The above-mentioned topside strike selling has helped weigh on implied volatilities. The 3-mth is 6.4/6.6 last. The 3-mth 25 delta risk reversal is currently 0.2/0.35 EUR calls over.
The above-mentioned topside strike selling has helped weigh on implied volatilities. The 3-mth is 6.4/6.6 last. The 3-mth 25 delta risk reversal is currently 0.2/0.35 EUR calls over.
EUR/USD: Familiar Levels in Early New York
EUR/USD opens the US session not far from where we left it on Friday. 1.2980, the top of the range for much of 2006 until prices broke out over the Thanksgiving weekend, which remains support on dips having been tested again overnight in Asia. Sovereign buying was reported ahead of that level once again today.
Sellers are seen in the 1.3020/30 area and again toward 1.3050, dealers report. The US calendar is very light with only the Fed"s Kohn scheduled to speak early this afternoon in Atlanta on the agenda until consumer credit at 20:00 GMT. Look for cross trading to have inordinate influence on the market near-term as carry trades ebb and flow. At present, they are in rebound mode which should help cushion EUR/USD dips.
Sellers are seen in the 1.3020/30 area and again toward 1.3050, dealers report. The US calendar is very light with only the Fed"s Kohn scheduled to speak early this afternoon in Atlanta on the agenda until consumer credit at 20:00 GMT. Look for cross trading to have inordinate influence on the market near-term as carry trades ebb and flow. At present, they are in rebound mode which should help cushion EUR/USD dips.
Sterling Outlook (8th January 2007)
Cable headed higher from the European open, on the back of good size GBP buying re: a quarterly dividend payment. The size of the dividend payment buying was estimated at up to GBP 2bn. Highs just shy of touted offers at 1.9350 were notched on the back of the above-mentioned GBP demand.
Stops below 1.9350 were tripped on Friday, en route to a six-week low of 1.9264, following the 13:30GMT disclosure of December's above-forecast US NFP number. 1.9260-1.9308 was today's Asian session range. Loss consolidation from last Wednesday's high of 1.9752 is the big-picture sterling story. 1.9225, 1.9180 (Nov 10 high), and 1.9130 (Nov 23 low) are bear targets south of 1.9260. 1.9225 is an approximate 61.8% Fibo retracement point of the ascent from 1.8830 (mid-October lows) to 1.9849 (Dec 1, 14-year high).
A majority of the "Shadow" MPC (5-4) believe the MPC should hike the UK base rate this Thursday (Sunday Times). The MPC is expected to keep it at 5.0%, with next month (Feb 8) tipped as a much more likely 25bp hike date. December's BRC sales monitor is due at 11:00GMT tomorrow.
Stops below 1.9350 were tripped on Friday, en route to a six-week low of 1.9264, following the 13:30GMT disclosure of December's above-forecast US NFP number. 1.9260-1.9308 was today's Asian session range. Loss consolidation from last Wednesday's high of 1.9752 is the big-picture sterling story. 1.9225, 1.9180 (Nov 10 high), and 1.9130 (Nov 23 low) are bear targets south of 1.9260. 1.9225 is an approximate 61.8% Fibo retracement point of the ascent from 1.8830 (mid-October lows) to 1.9849 (Dec 1, 14-year high).
A majority of the "Shadow" MPC (5-4) believe the MPC should hike the UK base rate this Thursday (Sunday Times). The MPC is expected to keep it at 5.0%, with next month (Feb 8) tipped as a much more likely 25bp hike date. December's BRC sales monitor is due at 11:00GMT tomorrow.
Yen Outlook (8th January 2007)
Price action in the European morning was choppy. Speculative account JPY demand waned early on in the European session after USD/JPY was unable to break through bid interest in the 118.00/10 region. Short covering activity and general profit taking was seen.
The move extended up to the 118.60/65 area as the JPY crosses also turned higher. USD/JPY buying was seen by a UK clearer, a Japanese securities house and a US name. The US name reportedly executed a decent size EUR/JPY buy order, taking the cross from 153.80 up to the 154.40 area. Price action is expected to remain choppy in the near-term, particularly with the near-term BOJ risk. The policy meeting starts on January 18th and many are now anticipating a 25bps hike amid recently hawkish BOJ rhetoric and press reports.
Carry trades are likely to be pressured as a consequence but long-term Japanese rates remain low, which should encourage JPY outflows. The return of Japanese retail investor demand will also influence price action this week, alleviating downside pressure in the JPY crosses and isolating USD/JPY from broader dollar moves.
The move extended up to the 118.60/65 area as the JPY crosses also turned higher. USD/JPY buying was seen by a UK clearer, a Japanese securities house and a US name. The US name reportedly executed a decent size EUR/JPY buy order, taking the cross from 153.80 up to the 154.40 area. Price action is expected to remain choppy in the near-term, particularly with the near-term BOJ risk. The policy meeting starts on January 18th and many are now anticipating a 25bps hike amid recently hawkish BOJ rhetoric and press reports.
Carry trades are likely to be pressured as a consequence but long-term Japanese rates remain low, which should encourage JPY outflows. The return of Japanese retail investor demand will also influence price action this week, alleviating downside pressure in the JPY crosses and isolating USD/JPY from broader dollar moves.
Euro Outlook (8th January 2007)
Into the new week and the Japanese holiday left the Asian session devoid of a large chunk of liquidity and momentum. As a result, EUR/USD consolidated the post-US Employment sell-off back to 1.30. Dealers still see the previous range-top turned support at 1.2980 as the next key downside trigger and lumpy stops are seen below this level that will fuel any descent should a break lower be forced.
One UK based player suggests that 1.2930 will be quickly revisited should any breach of the above support be seen. European morning trading saw spot fairly range-bound as the early rally was countered by offers into 1.3020/30. Profit-taking on both sides was noted as the host of Euro Zone and German releases offered short-term trading opportunities to many high frequency accounts.
However, bids into the 1.3000 area continued to prop the downside ahead of 1.2980. Looking ahead, Trichet is set to talk in Basle, at a BIS bi-monthly meeting, just ahead of the North American open but with the ECB set to meet this week but not hike, few sparks are likely to fly after his speech.
One UK based player suggests that 1.2930 will be quickly revisited should any breach of the above support be seen. European morning trading saw spot fairly range-bound as the early rally was countered by offers into 1.3020/30. Profit-taking on both sides was noted as the host of Euro Zone and German releases offered short-term trading opportunities to many high frequency accounts.
However, bids into the 1.3000 area continued to prop the downside ahead of 1.2980. Looking ahead, Trichet is set to talk in Basle, at a BIS bi-monthly meeting, just ahead of the North American open but with the ECB set to meet this week but not hike, few sparks are likely to fly after his speech.
Saturday, January 06, 2007
EUR/USD: Fixing Flows Weigh on Prices
EUR/USD is falling to fresh session lows near 1.2990 with sellers coming into the market just ahead of the London fixing. Prices have edged through the 61.8%retracement of the 1.2765/1.3365 rally, suggesting a renewed decline on to the 1.27 handle is a very viable scenario.
A measured move projection from the 1.3055/1.3365 range implies a similar fate for the EUR. Rallies are capped at 1.3020 near-term. Sellers stretch toward 1.3050/60. Bids are seen through 1.2980 but stops are eyed below.
A measured move projection from the 1.3055/1.3365 range implies a similar fate for the EUR. Rallies are capped at 1.3020 near-term. Sellers stretch toward 1.3050/60. Bids are seen through 1.2980 but stops are eyed below.
USD/JPY: Experiences Sideways Movement As 119.00 Caps
USD/JPY experiences sideways movement as 119.00 caps gains. The pair has drifted into 118.70 on low volumes, with momentum waning ahead of the London close. Spot's failure to recapture 119.00 leaves the focus firmly on the downside. Some bids have reemerged towards 118.20 and the 118.00 handle is still expected to see good support amid a wall of commercial bids out of Asia at 117.95/00. Interbank players and small jobbing accounts are expected to limit the pace of any downturn ahead of 118.20.
EUR/JPY has also followed suit after clearing out a number of model funds and short-term position traders on the way up to 154.80. Prices also fall away, with standing offers sapping buyer ambition. The downside is expected to come back under pressure but the emergence of fresh Japanese investor demand may provide some resilience early next week.
EUR/JPY has also followed suit after clearing out a number of model funds and short-term position traders on the way up to 154.80. Prices also fall away, with standing offers sapping buyer ambition. The downside is expected to come back under pressure but the emergence of fresh Japanese investor demand may provide some resilience early next week.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] broke its H&S neckline around $617 with today's sharp fall. Measured targets are just below $575, which would take the market near range floors set back in October of last year. While admittedly aggressive, the two-month zone of trading between $570-610 in Oct-Nov is unlikely to be sliced through too quickly, though what has happened in oil and should certainly remind traders how fast markets can drop. Gold will set a new Trend Intensity signal on these losses, its first since Nov 1. Intraday resistance is at $611, then $612.50-14.
[Oil] is zeroing in on benchmark levels reached in November on nearest futures charts at $54.86, having come within 4 cents of reaching that level today. Either side of $55 stands out firmly as a key reference level on weekly charts (again earest futures). There is a multi-year H&S top that we have avoided discussing up to now, but a firm break below $55 would usher in objectives that defy logic well below $40. Intraday supports are near $55.50 at present. Trend Intensity is holding an unusually firm bearish signal.
[Oil] is zeroing in on benchmark levels reached in November on nearest futures charts at $54.86, having come within 4 cents of reaching that level today. Either side of $55 stands out firmly as a key reference level on weekly charts (again earest futures). There is a multi-year H&S top that we have avoided discussing up to now, but a firm break below $55 would usher in objectives that defy logic well below $40. Intraday supports are near $55.50 at present. Trend Intensity is holding an unusually firm bearish signal.
EUR/USD: Shallow Bounces but 1.2980 Holding
EUR/USD has settled into a quiet range, licking its wounds after falling sharply after the very firm US employment report. Sovereign buying is rumored around the 1.3000 level and below while stops are eyed on a break of 1.2980. There is some speculation a move to the downside could come at the 16:00 GMT London fixing as overlay-type accounts and asset managers react to the fresh ground seen in the market today. Rebounds are seen limited to the 1.3050/55 area near-term but small stops from intraday shorts are eyed just above.
Friday, January 05, 2007
FX OPTIONS: USD/JPY Vols Head Lower Amid Spot Gains
USD/JPY vols head lower as spot extends the recovery to trade back into 119.00. 1-wk vols are sharply lower at 7.00/7.75, 1-mth shows 6.75/7.05 and the 3-mth is at 6.85/7.10. The 6-mth and 1-yr contracts indicate 6.80/7.05 and 6.95/7.15 respectively.
A number of intra-day players and interbank types used the lofty vol levels to liquidate near-term open interest after the modest spot recovery. However, there remains some downside risk in spot as market participants remain nervous over the BOJ meeting. This should underpin the curve despite the decent pullback in the front end since the US NFP release.
Sources note 118.50 strikes trading for January 9th and January 17th. A 10th August 116.50 traded and 120.00 One Touch interest was noted for 25th January and 30th January. Elsewhere, risk reversals come in a little to show 0.15/0.90 in the 1-wk and 0.50/0.80 in the 1-mth 25-d.
A number of intra-day players and interbank types used the lofty vol levels to liquidate near-term open interest after the modest spot recovery. However, there remains some downside risk in spot as market participants remain nervous over the BOJ meeting. This should underpin the curve despite the decent pullback in the front end since the US NFP release.
Sources note 118.50 strikes trading for January 9th and January 17th. A 10th August 116.50 traded and 120.00 One Touch interest was noted for 25th January and 30th January. Elsewhere, risk reversals come in a little to show 0.15/0.90 in the 1-wk and 0.50/0.80 in the 1-mth 25-d.
GBP/USD: Elicits Support sub-1.9300 After NFP-Fuelled Slump
Cable has elicited support below 1.9300 following its NFP-fuelled slump to six-week lows. Some of that support is believed to be profit-take interest re: short positions. GBP/USD was trading just shy of 1.9435 (Dec 18 base) as recently as the hour ending 08:00GMT. On Wednesday, sterling scaled a four-week peak of 1.9752.
US TECHS: Mar S&P Having Trouble Moving Away from Support Zone
Significant support for Mar S&P resides in the 1413/17 area and that zone has held several tests over the past month of trading. While it is positive to see that zone hold back weakness, the problem is that the market is not able to move up and away from this area the way it had over the last several months of the current rally.
Persistent tests of a support zone like the market is currently seeing is a warning sign that a break lower is in the works. Volatility (as measured by the daily Bollinger Bands) can't really get much tighter so this market is poised to expand the range over the next few weeks.
At this point is appears that a break below the lower end of that support zone (1413) would be the trigger to see volatility expand and set in motion a decline toward measured-move targets in the 1380 area. A close below 1413 would also leave the contract below the 50-day moving average, which is a reference that the market has not closed below during the past five months.
Persistent tests of a support zone like the market is currently seeing is a warning sign that a break lower is in the works. Volatility (as measured by the daily Bollinger Bands) can't really get much tighter so this market is poised to expand the range over the next few weeks.
At this point is appears that a break below the lower end of that support zone (1413) would be the trigger to see volatility expand and set in motion a decline toward measured-move targets in the 1380 area. A close below 1413 would also leave the contract below the 50-day moving average, which is a reference that the market has not closed below during the past five months.
Swiss Outlook (5th January 2007)
The EUR/CHF break below 1.61 aided the Franc into early European trading but with the Dollar underpinned the CHF outperformed on the crosses. Into North American trading and USD/CHF is currently holding close to the 1.2290 mark. This level represents the 50.0% Fibo level of the rally yesterday from 1.2241 to 1.2337 while the 38.2% & 61.8% levels are now forming the top and bottom of a short-term comfort-zone for the pair.
This could force spot to trade inside a 1.2275/2300 band ahead of the US data later today. Looking ahead, US Employment data will generate the direction for Dollar into North American trading. The 13:30 GMT report is expected to come in around 100/110K but after the ADP data earlier this week the risk is seen as skewed on the downside.
Sub-75K and USD/CHF will turn its attention back to the 1.2240 area while any better than expected release will see spot break the London 1.2300/05 offers and look to revisit the 1.2335/40 area. Following the payroll data the market will look to the Fed comments from Bernanke, Moskow & Minehan.
This could force spot to trade inside a 1.2275/2300 band ahead of the US data later today. Looking ahead, US Employment data will generate the direction for Dollar into North American trading. The 13:30 GMT report is expected to come in around 100/110K but after the ADP data earlier this week the risk is seen as skewed on the downside.
Sub-75K and USD/CHF will turn its attention back to the 1.2240 area while any better than expected release will see spot break the London 1.2300/05 offers and look to revisit the 1.2335/40 area. Following the payroll data the market will look to the Fed comments from Bernanke, Moskow & Minehan.
Sterling Outlook (5th January 2007)
Fresh market-moving influence over cable will be exerted by the 13:30GMT publication of December's US employment report. Tripped stops below 1.9400 helped depress sterling to a six-week low of 1.9351 during today's Asian session, amid heavy selling of GBP/JPY re: the further unwinding of carry trades.
In plumbing that 1.9351 low, GBP/USD took the cumulative size of its drop from Wednesday's four-week high of 1.9752 to four cents. Much of the blame for that four cent decline has been pinned on a perception that the risk of a higher UK base rate has been "over-priced". Bids are tipped at 1.9350/55, with some stops touted below 1.9350. The latter level approximates to a 38.2% Fibo retracement point of the ascent from 1.8520 (Oct 16 low) to 1.9849 (Dec 1, 14-year high).
Cable pushed its recovery envelope from its 1.9351 Asian session low to a high just shy of 1.9435 (Dec 18 base) in early European trade, just before the 08:00GMT disclosure of softer-than-expected UK house price data. According to the Halifax, UK house prices fell 1.0% in December.
In plumbing that 1.9351 low, GBP/USD took the cumulative size of its drop from Wednesday's four-week high of 1.9752 to four cents. Much of the blame for that four cent decline has been pinned on a perception that the risk of a higher UK base rate has been "over-priced". Bids are tipped at 1.9350/55, with some stops touted below 1.9350. The latter level approximates to a 38.2% Fibo retracement point of the ascent from 1.8520 (Oct 16 low) to 1.9849 (Dec 1, 14-year high).
Cable pushed its recovery envelope from its 1.9351 Asian session low to a high just shy of 1.9435 (Dec 18 base) in early European trade, just before the 08:00GMT disclosure of softer-than-expected UK house price data. According to the Halifax, UK house prices fell 1.0% in December.
Yen Outlook (5th January 2007)
US NFP risk halts JPY gains, with USD/JPY and the JPY crosses managing to find a modicum of support after the early selling pressure. Risk remains on the downside, although the European afternoon will take its lead from the US employment numbers. The market is looking for a number around 110k. A pick up in risk premiums and forthcoming event risk has squeezed carry trades and this will influence near-term flows.
EUR/JPY has already extended losses to record a 154.39 low. Technical based accounts have booked some profits after the pair fund support amid trust bank and European based interest. Selling into strength remains a theme, with the pair struggling to recapture 155.00 after a brief sojourn up to 155.15/20 early on in the European session.
USD/JPY recorded a 117.99 lows amid decent selling by speculative accounts, system accounts and model funds. Japanese commercial activity was sporadic, with demand noted at 118.40, 118.20 and 118.00. The pair traded choppy but struggled to sustain any upward momentum. The 117.95-117.65 is pivotal going forward.
EUR/JPY has already extended losses to record a 154.39 low. Technical based accounts have booked some profits after the pair fund support amid trust bank and European based interest. Selling into strength remains a theme, with the pair struggling to recapture 155.00 after a brief sojourn up to 155.15/20 early on in the European session.
USD/JPY recorded a 117.99 lows amid decent selling by speculative accounts, system accounts and model funds. Japanese commercial activity was sporadic, with demand noted at 118.40, 118.20 and 118.00. The pair traded choppy but struggled to sustain any upward momentum. The 117.95-117.65 is pivotal going forward.
Euro Outlook (5th January 2007)
Into European trading and the Euro had a corrective feel early-on but sellers in EUR/USD into the 1.3100/05 area capped the attempted rebound. Profit-taking from funds kicked off the move higher in Europe after sovereign buying amid the Asian session propped the pair into 1.3065.
More offers are tipped in both better size and quality into 1.3115/20 while stops are noted 1.3110 and 1.3125. Above here, the attention will turn to 1.3130 & 1.3150. US Employment data is set for release at 13:30 GMT and dealers still see this release as the likely generator for short-term directions in EUR/USD into the weekend. Should the Dollar strength in the wake of a better than expected report then a re-test of 1.3040 will be looked for, stops are seen below 1.3050 & 1.3040 while option interest will be found on approach to 1.3000.
Economists currently look for a 100/110K report while some bulls suggest the US unit will be sold once more should a sub-75K headline hit the screens. Revisions could again cause chop but later into North American trading and the Fed comments from Bernanke, Moskow & Minehan will be in focus.
More offers are tipped in both better size and quality into 1.3115/20 while stops are noted 1.3110 and 1.3125. Above here, the attention will turn to 1.3130 & 1.3150. US Employment data is set for release at 13:30 GMT and dealers still see this release as the likely generator for short-term directions in EUR/USD into the weekend. Should the Dollar strength in the wake of a better than expected report then a re-test of 1.3040 will be looked for, stops are seen below 1.3050 & 1.3040 while option interest will be found on approach to 1.3000.
Economists currently look for a 100/110K report while some bulls suggest the US unit will be sold once more should a sub-75K headline hit the screens. Revisions could again cause chop but later into North American trading and the Fed comments from Bernanke, Moskow & Minehan will be in focus.
Thursday, January 04, 2007
EUR/USD: Steadies As 1.3085/90 Is Eyed As Pre-NFP Trigger
1.3100 may have printed into the Euro Zone HICP data but the release of the +1.9% Y/Y Euro Zone inflation looks to have offered the Euro some semblance of support. As a result, EUR/USD has steadied around the 1.3110 area in the wake of the HICP data but trading remains offered on any sign of rebounds.
A break below 1.31 may be seen intraday but the attention has now turned to the 1.3085/90 level and some players (including one German) see the pair as forming a base around here into the US Employment release tomorrow. Any pre-data break below here will see 1.3050 eyed with an employment confirmation of the USD strength then seeing 1.2925/75 then eyed on further volatility.
Should the Dollar be dented by a weaker non-farm release then spot would be prone to bounce. Adding to the support into the 1.3100 area are the option related bids linked to the large expiry seen at the price at the NY cut at 15:00 GMT.
A break below 1.31 may be seen intraday but the attention has now turned to the 1.3085/90 level and some players (including one German) see the pair as forming a base around here into the US Employment release tomorrow. Any pre-data break below here will see 1.3050 eyed with an employment confirmation of the USD strength then seeing 1.2925/75 then eyed on further volatility.
Should the Dollar be dented by a weaker non-farm release then spot would be prone to bounce. Adding to the support into the 1.3100 area are the option related bids linked to the large expiry seen at the price at the NY cut at 15:00 GMT.
GBP/USD Technicals Suggest Potential Top, Channel Break Close
GBP/USD peaked at 1.9845 on the daily charts on December 1 and had the potential for a flag pattern which when broken to the topside signaled a continuation pattern. However, the sideways action seen since the aforementioned peak suggests that this is indeed a top, at least for now.
Since December 1st last year the pair has been gradually easing, albeit in relatively tight ranges and has formed a flat to mildly bearish band/downchannel. The base of this comes in at 1.9400 and has been under pressure today. A break and close below this line would set price up for further weakness going forward. This morning's price action has also taken out the first fibo (38.2%) of the 1.8835/1.9845 climb at 1.9460 which leaves the path open for a deeper retracement to the 50% and 61.8% levels at 1.9340 and 1.9220 respectively.
Those playing the short side can use the latter as a target objective. Daily trend studies are ticking south after the slow stochs underwent a negative cross which generated a sell signal. In addition to this, Wednesday's price action was an outside bear day on the charts and the negative close again points to further weakness.
Looking further ahead, however, the underlying strength of the Pound and weakness of the Dollar looks set to continue once daily and weekly technical charts have worked out Cable overbought bias and a move to the key psychological level at 2.00 remains a possibility later in the year.
Since December 1st last year the pair has been gradually easing, albeit in relatively tight ranges and has formed a flat to mildly bearish band/downchannel. The base of this comes in at 1.9400 and has been under pressure today. A break and close below this line would set price up for further weakness going forward. This morning's price action has also taken out the first fibo (38.2%) of the 1.8835/1.9845 climb at 1.9460 which leaves the path open for a deeper retracement to the 50% and 61.8% levels at 1.9340 and 1.9220 respectively.
Those playing the short side can use the latter as a target objective. Daily trend studies are ticking south after the slow stochs underwent a negative cross which generated a sell signal. In addition to this, Wednesday's price action was an outside bear day on the charts and the negative close again points to further weakness.
Looking further ahead, however, the underlying strength of the Pound and weakness of the Dollar looks set to continue once daily and weekly technical charts have worked out Cable overbought bias and a move to the key psychological level at 2.00 remains a possibility later in the year.
GBP/USD: Pushes Recovery Envelope pre-UK Confidence Gauge
Cable has pushed its recovery envelope from earlier five-week lows circa 1.9400 to highs around 1.9435 ahead of the imminent 10:30GMT disclosure of December's UK GfK consumer confidence gauge. The recovery has been driven by December's better-than-expected UK service sector PMI.
Stops below 1.9435 (Dec 18 low) were tripped prior to that data release. Loss consolidation from yesterday's high of 1.9752 is the big-picture GBP/USD story. Long liquidation has played a prime role in sterling's slump. The GfK confidence gauge is forecast to improve to minus 6, from minus 7 in November.
Stops below 1.9435 (Dec 18 low) were tripped prior to that data release. Loss consolidation from yesterday's high of 1.9752 is the big-picture GBP/USD story. Long liquidation has played a prime role in sterling's slump. The GfK confidence gauge is forecast to improve to minus 6, from minus 7 in November.
FX OPTIONS: EUR/USD O/N Buoyed by NFP Event Risk
The event risk of tomorrow's US December employment report release is underpinning O/N implied option volatility. The O/N is 12.0/14.5 last. Further out on the curve: the 1-mth is pivoting the 7.0 pct level, having traded as high as 7.25 pct 48 hours ago. The 1-mth EUR/USD expiry date has today rolled forward to Tuesday February 6, according to FENICS FX 2002, having fallen on February 1 yesterday and Tuesday.
FX OPTIONS: EUR/USD 1.3000, 1.3200 & 1.3300 Expiries Today
A quarter-yard+ 1.3000 option strike rolls off at today's 10am EST NY cut (15:00GMT), alongside a 1.3200 EUR call, an estimated half-yard 1.3300 strike, and a E200mn 1.2900 EUR put.
A 1.3640 exotic One Touch option, carrying an estimated E2mn payout, also expires today. An estimated E250mn 1.3100 strike expires tomorrow (Friday, post-NFP), alongside an estimated E500mn 1.3500 strike.
A 1.3640 exotic One Touch option, carrying an estimated E2mn payout, also expires today. An estimated E250mn 1.3100 strike expires tomorrow (Friday, post-NFP), alongside an estimated E500mn 1.3500 strike.
EUR/USD: Euro Zone Inflation Data Eyed As 1.3100 Prints
Ahead of the 10:00 GMT Euro Zone HICP data, EUR/USD has printed 1.3100. Spot remained offered in the wake of the EZ PMI, despite some initial post-data profit-taking. FX players remain cautiously bullish towards the Dollar as the lack of cut potential from the Fed offers the unit time to recover.
The Euro is expected to draw some support from the numbers if annualized inflation is seen steady at 1.9%, however, given the near cent drop in EUR/USD already this will like closing the stable door after the horse has bolted. On the downside, dealers see 1.3085/90 as a more key level than a break of the 1.31 level.
The Euro is expected to draw some support from the numbers if annualized inflation is seen steady at 1.9%, however, given the near cent drop in EUR/USD already this will like closing the stable door after the horse has bolted. On the downside, dealers see 1.3085/90 as a more key level than a break of the 1.31 level.
GBP/USD: Still Soggy Despite Above-Forecast UK Service PMI
Cable remains on the back-foot despite December's above-forecast UK service sector PMI. This rose to a nine-and-a-half year high of 60.6, from 59.8 in November. It was expected to ease to 59.5. The strong number is good news for UK rate hawks touting a 25bp base rate hike to 5.25% next month (Feb 8), and a higher base rate beyond.
Long liquidation has played a major role in sterling's drop from yesterday's high of 1.9752 to today's five-week lows circa 1.9400. 1.9435 (Dec 18 low) is now a rebound resistance level. Upper obstacles include 1.9467 (Dec 19 base), and 1.9481 (yesterday's floor).
GfK's December UK consumer confidence gauge will be disclosed at 10:30GMT. Forecast: minus 6, from minus 7 in November. MPC ultra-dove David Blanchflower is slated to speak at 12:30GMT.
Long liquidation has played a major role in sterling's drop from yesterday's high of 1.9752 to today's five-week lows circa 1.9400. 1.9435 (Dec 18 low) is now a rebound resistance level. Upper obstacles include 1.9467 (Dec 19 base), and 1.9481 (yesterday's floor).
GfK's December UK consumer confidence gauge will be disclosed at 10:30GMT. Forecast: minus 6, from minus 7 in November. MPC ultra-dove David Blanchflower is slated to speak at 12:30GMT.
Swiss Outlook (4th January 2007)
USD/CHF opened in NY at 1.2195, slipped to 1.2175 at the low, then traded up to a high of 1.2295 after stronger than anticipated US economic data prompted a stop loss surge, largely driven by a drop in EUR/USD. Stops were triggered at 1.2240, 60, and 80 however overnight sell orders from European and Asian accounts held the topside, and the afternoon session quieted down ahead of the FOMC minutes, trading 75-95 before the report.
A slightly more dovish tone to the minutes, with a more ambivalent view from some members as to the greater risk to the economy, inflation or low growth, and heightened concerns for the softness in the US housing market catching the market's attention.
The close was 1.2255. EUR/CHF powered to new 6 3/4 year highs, registering 1.6173 at midday as USD/CHF stops were triggered by a sliding EUR/USD, profit taking in EUR/CHF and a rebound in EUR/USD brought the pair back down to close at 1.6137, little changed from opening indications. CHF/JPY offset the fall in EUR/CHF dropping from opening highs near 98.00 to close at 97.37 as USD/JPY closed at 119.35.
A slightly more dovish tone to the minutes, with a more ambivalent view from some members as to the greater risk to the economy, inflation or low growth, and heightened concerns for the softness in the US housing market catching the market's attention.
The close was 1.2255. EUR/CHF powered to new 6 3/4 year highs, registering 1.6173 at midday as USD/CHF stops were triggered by a sliding EUR/USD, profit taking in EUR/CHF and a rebound in EUR/USD brought the pair back down to close at 1.6137, little changed from opening indications. CHF/JPY offset the fall in EUR/CHF dropping from opening highs near 98.00 to close at 97.37 as USD/JPY closed at 119.35.
Sterling Outlook (4th January 2007)
The GBP/USD opened in Asia around 1.9510 after getting clobbered lower amid broad USD strength, but the GBP was the worst performing currency against the USD. The Asian session was a quiet one with the GBP/USD edging down to 1.9504 before popping up to 1.9531 early in the afternoon when EUR/JPY and GBP/JPY buying flows were noted.
The GBP/JPY came under pressure early in the Asian session falling to 232.65 when a number of carry trades were pared back by Japanese investors. Once those flows were completed US names came in to stabilize the cross above 233.00. The EUR/GBP consolidated the gains made yesterday and traded in a 0.6746/51 range during the quiet session. The heavy sell off in the GBP/USD and GBP crosses yesterday caught the market by surprise as there was no obvious catalyst to the GBP slide against the field.
Analysts speculate that the market was extremely long the GBP/USD and GBP/JPY and the slide in base metals and gold prices caused a bit of cautious paring back of longs. Key support is found at 1.9435 while resistance around 1.9750 has been validated by yesterday's price action.
The GBP/JPY came under pressure early in the Asian session falling to 232.65 when a number of carry trades were pared back by Japanese investors. Once those flows were completed US names came in to stabilize the cross above 233.00. The EUR/GBP consolidated the gains made yesterday and traded in a 0.6746/51 range during the quiet session. The heavy sell off in the GBP/USD and GBP crosses yesterday caught the market by surprise as there was no obvious catalyst to the GBP slide against the field.
Analysts speculate that the market was extremely long the GBP/USD and GBP/JPY and the slide in base metals and gold prices caused a bit of cautious paring back of longs. Key support is found at 1.9435 while resistance around 1.9750 has been validated by yesterday's price action.
Yen Outlook (4th January 2007)
The USD/JPY opened in Asia around 119.35 after breaking above key resistance at 119.20 amid broad USD strength in the wake of better than expected US ISM and a sharp fall in gold and oil prices. The USD/JPY came under a bit of pressure in early Asia when Japanese security houses sold AUD/JPY, NZD/JPY and EUR/JPY and took the USD/JPY down to 119.24.
The JPY weakened against the aforementioned currencies in the afternoon on US names selling the JPY and the USD/JPY drifted up to 119.42 before settling back at the opening level around 119.35 for the balance of the session. Analysts are a bit surprised that the JPY hasn"t performed better than it has in the current environment.
The sell off in the commodity market and some of the emerging market currencies hasn"t led to JPY-funded carry trade unwinding on a large scale and the rise in JGB yields hasn't given the JPY an appreciable boost either. USD/JPY sellers are lined up between 119.50/60 while buyers are lined up ahead of former support around 119.20. A break below 119.20 could see a drift towards waiting buyers in the 118.80/90 window.
The JPY weakened against the aforementioned currencies in the afternoon on US names selling the JPY and the USD/JPY drifted up to 119.42 before settling back at the opening level around 119.35 for the balance of the session. Analysts are a bit surprised that the JPY hasn"t performed better than it has in the current environment.
The sell off in the commodity market and some of the emerging market currencies hasn"t led to JPY-funded carry trade unwinding on a large scale and the rise in JGB yields hasn't given the JPY an appreciable boost either. USD/JPY sellers are lined up between 119.50/60 while buyers are lined up ahead of former support around 119.20. A break below 119.20 could see a drift towards waiting buyers in the 118.80/90 window.
Euro Outlook (4th January 2007)
The EUR/USD opened around 1.3165 after longs built up on Tuesday hit the exits using the better than expected US ISM and the slide in the gold price as the excuse to pare back. The EUR/USD eased to 1.3159 in early Asia when EUR/JPY selling took the cross down to 157.01, but the EUR/JPY reversed higher to 157.32 in the afternoon and helped the EUR/USD push to a session high of 1.3178.
The EUR/USD settled between 1.3170/80 for the balance of the very quiet session. Sentiment towards the EUR/USD has turned from very bullish to neutral in the past 24 hours. The inability to break above 1.3300 and a divergence of views on the state of the US economy is suggesting that the EUR/USD might stay between 1.3100/1.3300 until the US payroll data is released on Friday.
There are stops below 1.3140, but central bank bids are expected to emerge around 1.3100. There is talk that a central bank was on the offer ahead of 1.3300 so it will take something special to push the EUR/USD in either direction in the immediate-term at least. EZ PMI is out later.
The EUR/USD settled between 1.3170/80 for the balance of the very quiet session. Sentiment towards the EUR/USD has turned from very bullish to neutral in the past 24 hours. The inability to break above 1.3300 and a divergence of views on the state of the US economy is suggesting that the EUR/USD might stay between 1.3100/1.3300 until the US payroll data is released on Friday.
There are stops below 1.3140, but central bank bids are expected to emerge around 1.3100. There is talk that a central bank was on the offer ahead of 1.3300 so it will take something special to push the EUR/USD in either direction in the immediate-term at least. EZ PMI is out later.
Wednesday, January 03, 2007
US TECHS: Commodities Outlook; Gold and Oil
[Gold] is very firm today, extending its daily bull trend and moving up within reach of major daily and weekly resistance in the $648-49.50 band. With the rally, the possibility of a H&S top is not overruled, but there is no longer equality between the two shoulders after the push past $644. If Dec 1 peaks at $657.30 are approached, the likelihood of a topping pattern will diminish.
For the record, monthly resistance is at $652.50, then $658-660. Using MACD as a proxy for momentum, the market has only reached positive readings today after slipping into negative territory on Dec 18. This means that inability to sustain the rally will lead to a bearish divergence setup, consistent with the H&S notion.
In [oil], the market is providing a sobering reminder that weekly and monthly bear trends are alive and well, nowhere close to being neutralized. A rally of over $3 from present levels would be required to threaten either trend. Intraday resistance started the day at $60.50 and has now slipped to $59.70-60.00, unable to keep pace with the market's decline.
For the record, monthly resistance is at $652.50, then $658-660. Using MACD as a proxy for momentum, the market has only reached positive readings today after slipping into negative territory on Dec 18. This means that inability to sustain the rally will lead to a bearish divergence setup, consistent with the H&S notion.
In [oil], the market is providing a sobering reminder that weekly and monthly bear trends are alive and well, nowhere close to being neutralized. A rally of over $3 from present levels would be required to threaten either trend. Intraday resistance started the day at $60.50 and has now slipped to $59.70-60.00, unable to keep pace with the market's decline.
EUR/USD: Stops Fall By Wayside; Fibo Support Eyed
EUR/USD has run stops below 1.3210 and below 1.3190 as well, slumping all the way to 1.3180 thus far. The improved ISM has dealers discounting the earlier ADP weakness owing to the fact that the report is not seasonally adjusted, a fact that was not widely known before today's release. 1.3220 should cap rebounds near-term while Fibo support at 1.3170 should give aid and comfort to EUR bulls.
That level is the 61.8% retracement of the post-Christmas 1.3085/1.3295 range. EUR/USD trades heavy despite forecasts for the ECB to accelerate their tightening cycle by moving in February rather than March in the wake f the strong German employment data today.
Markets are oversold intraday, suggesting a period of 1.3170/1.3220 range-trade ahead while the market awaits the FOMC minutes. EUR bulls are unlikely to get much support for their positions from the Fed, however, with inflation still a concern according to most Fed commentary.
That level is the 61.8% retracement of the post-Christmas 1.3085/1.3295 range. EUR/USD trades heavy despite forecasts for the ECB to accelerate their tightening cycle by moving in February rather than March in the wake f the strong German employment data today.
Markets are oversold intraday, suggesting a period of 1.3170/1.3220 range-trade ahead while the market awaits the FOMC minutes. EUR bulls are unlikely to get much support for their positions from the Fed, however, with inflation still a concern according to most Fed commentary.
USD/CHF: Large Stop Removed As Dollar Eyes 1.2250 Break
The Dollar has been bought across the board in the wake of the latest 50+ ISM and USD/CHF has tripped stops as it soars back into the 1.22's. The largest order removed is the most recent 1.2240 buy stop and trading has levels above 1.2250 in its sights.
IFR favour a period of consolidation with profit-taking likely to weigh into the European close as the impending FOMC Minutes are likely to weigh on the Dollar. Above the range top at 1.2300 now looms large and any re-test of this top will hold significant fundamental implications. Dealers also note option related selling into 1.2250 that may spark some talk of open interest at the price.
IFR favour a period of consolidation with profit-taking likely to weigh into the European close as the impending FOMC Minutes are likely to weigh on the Dollar. Above the range top at 1.2300 now looms large and any re-test of this top will hold significant fundamental implications. Dealers also note option related selling into 1.2250 that may spark some talk of open interest at the price.
GBP/USD: Extends South after Above-Forecast US ISM Index
Cable has extended south to one-week lows just shy of 1.9520 following the disclosure of December's better-than-expected US ISM manufacturing index. This rose to 51.4, from a three-and-a-year low of 49.5 in November. 1.9520 was the approximate December 27 low. 1.9500 and 1.9435 (Dec 18 low) are among bear targets/support points below.
EUR/USD: Eyeing Stops after ISM Rebound
EUR/USD is eyeing stops in the 1.3210 area after the ISM rebounded to 51.4 from 49.5 in November. More stops are eyed in the 1.3180/90 area while bids are seen at 1.3200. Prices paid were the only weak link in an otherwise solid ISM report. This should calm some of the employment jitters spurred by the weak ADP report earlier today. EUR/USD trades at 1.3210.
US ECON: Construction Spending Better than Expected
* Nov construction spending off 0.2% versus 0.6% median
* Oct spending revised higher to -0.3% from -1.0%
* Oct spending revised higher to -0.3% from -1.0%
US ECON: ISM Rises to 51.4 to 3-Month Best
* ISM PMI rises to 51.4, highest since September
* Median was 50.0, high in IFR survey was 51.1
* Average for 12 months 53.9; High 57.3; Low
* Median was 50.0, high in IFR survey was 51.1
* Average for 12 months 53.9; High 57.3; Low
FX OPTIONS: EUR/USD 1-mth 1.3500 Strike Given at 7.6%
I have been informed by one of my sources that a 1-mth 1.3500 option strike traded at 7.6 pct earlier today. Thursday February 1 (post-FOMC/pre-NFP) is the current 1-mth expiry date (as per yesterday and last Friday), according to FENICS FX 2002. In the mid-dates: a 1.4000 EUR call option was reportedly given at 8.15 pct in decent size for a March 8 expiry date earlier today. The ECB will deliver a refinance rate verdict, and host a press conference, on March 8. February's US employment report will be published on March 9.
FX OPTIONS: USD/JPY Front End Underpinned Amid Spot Gains
USD/JPY front dated vols have been underpinned amid a bout of interest via the 1-mth contract. Good interest has been noted for ATM vols, with one name reportedly paying the 1-mth at 6.70% and a 1-mth 121.00 JPY put also traded at 6.80% in USD 200 million. The remainder of the curve is largely unmoved despite the move beyond the previous range top at 119.25. The 1-wk is at 6.70/7.45, while 3-mth shows 6.65/6.70, 6-mth is at 6.65/6.85 and the 1-yr is at 6.85/7.05.
Swiss Outlook (3rd January 2007)
Selling of the Franc against the Dollar, Pound, Euro & Yen was noted in the wake of the worse than expected Swiss PMI data released in early European trading. USD/CHF triggered stops in the break above 1.2180 & 1.22 with 1.2214 printing before fresh supply emerged. Bids into 1.2195/2200 are attempting to prop the pullback.
EUR/CHF erased option barriers at 1.6135/40 & 1.6150 in the early European rally and trading here is now consolidating the rally with 1.6175/80 exotic options and the 1.62 barriers now in sight above. One UK Clearer has reiterated that they see the cross heading to a fresh all-time high with 1.6245 their latest target. Looking ahead, US event-risk will dominate the North American session with the Dollar set to react first to the ISM data (15:00 GMT) then to the latest minutes from the FOMC (19:00 GMT).
USD/CHF is expected to trade in synch with EUR/USD in the wake of the publications with dealers taking of 1.23 as the current range top with a run towards the solid bids at 1.2100/10 should the US unit head lower into Thursday.
EUR/CHF erased option barriers at 1.6135/40 & 1.6150 in the early European rally and trading here is now consolidating the rally with 1.6175/80 exotic options and the 1.62 barriers now in sight above. One UK Clearer has reiterated that they see the cross heading to a fresh all-time high with 1.6245 their latest target. Looking ahead, US event-risk will dominate the North American session with the Dollar set to react first to the ISM data (15:00 GMT) then to the latest minutes from the FOMC (19:00 GMT).
USD/CHF is expected to trade in synch with EUR/USD in the wake of the publications with dealers taking of 1.23 as the current range top with a run towards the solid bids at 1.2100/10 should the US unit head lower into Thursday.
Sterling Outlook (3rd January 2007)
Tripped stops below 1.9690 helped depress cable to a late European morning low of 1.9620, following a fresh bout of profit-taking on long GBP/USD positions by speculative accounts. Prior profit-take selling from spec accounts was also seen above 1.9700 yesterday, a day when sterling rallied from 1.9591 to a high of 1.9742. A four-week peak of 1.9752 was scaled in Asia today.
Demand is expected to emerge at 1.9600/10 on any slide extension. Sub-1.9591 support points include 1.9569 (last Friday's floor), 1.9550, and 1.9515. One of the major factors underpinning the pound is the potential for a 25bp UK base rate rise to 5.25% next month (Feb 8), and a further hike/s beyond. The pound is therefore seen at risk of depreciation should the UK monetary policy outlook take an unexpected dovish turn. Blanchflower speaks on Thursday.
December's US ISM manufacturing index will be disclosed at 15:00GMT, alongside November construction spending. The ISM index is expected to rise to 50.0, from a three-and-a-half-year low of 49.5 in November. Minutes from the December 12 FOMC meeting are due at 19:00GMT.
Demand is expected to emerge at 1.9600/10 on any slide extension. Sub-1.9591 support points include 1.9569 (last Friday's floor), 1.9550, and 1.9515. One of the major factors underpinning the pound is the potential for a 25bp UK base rate rise to 5.25% next month (Feb 8), and a further hike/s beyond. The pound is therefore seen at risk of depreciation should the UK monetary policy outlook take an unexpected dovish turn. Blanchflower speaks on Thursday.
December's US ISM manufacturing index will be disclosed at 15:00GMT, alongside November construction spending. The ISM index is expected to rise to 50.0, from a three-and-a-half-year low of 49.5 in November. Minutes from the December 12 FOMC meeting are due at 19:00GMT.
Yen Outlook (3rd January 2007)
JPY remained on the defensive. The crosses led the early European action, with decent EUR/JPY demand from model funds and speculative accounts driving price action. The cross traded up towards 158.00, yet met ongoing selling pressure from a European account and a Japanese name. Ongoing persistence saw a 158.02 high but the pair eventually pulled back into 157.85/90 on profit taking.
USD/JPY was buoyed by the cross demand, yet rallied on its own steam. Offers at 119.05/10 gave way and the pair eventually cleared 119.25 stops on the way up to a 119.45 high. Option related offers and exporter interest fueled a small pullback but the tone remained supportive amid a positive technical picture after the 119.25 breach. JPY sentiment remains bearish, with expectations of low Japanese rates fueling ongoing carry trade interest.
The afternoon session may take some of its focus from a plethora of US data. Although, the main highlight of the week is Friday's US NFP data and any movement is likely to be contained. Both pairs are expected to target topside levels; USD/JPY 119.50 and EUR/JPY 158.00.
USD/JPY was buoyed by the cross demand, yet rallied on its own steam. Offers at 119.05/10 gave way and the pair eventually cleared 119.25 stops on the way up to a 119.45 high. Option related offers and exporter interest fueled a small pullback but the tone remained supportive amid a positive technical picture after the 119.25 breach. JPY sentiment remains bearish, with expectations of low Japanese rates fueling ongoing carry trade interest.
The afternoon session may take some of its focus from a plethora of US data. Although, the main highlight of the week is Friday's US NFP data and any movement is likely to be contained. Both pairs are expected to target topside levels; USD/JPY 119.50 and EUR/JPY 158.00.
Euro Outlook (3rd January 2007)
Sub-1.3250 stops were removed by the late European dip in EUR/USD. Early European trading saw the topside stay in focus but with solid standing supply trailing from 1.3285 the topside always looked limited. In the wake of the leaked German jobless data and EUR/USD was sold with the option buying into 1.3265 (linked to the large strike at the price set to expire at the 15:00 GMT NY cut-off) stalling the move before stops forced the run to 1.3219.
Looking ahead, US data is set to come thick and fast into the week-end (culminating in the US employment data on Friday) and this should keep the Dollar on its toes and EUR/USD choppy inside the previous ranges. Some see a 50.0 ISM reading as "a little on the optimistic side" but never-the-less speculation of a rebound is doing the rounds in some circles.
Below, a more sensible consensus is seen around 49.9 at 15:00 GMT for the December headline, up from the previous 49.5 previous. Following this, the 19:00 GMT release of the latest FOMC Minutes will be the focus of the broader market with the bulk of commentators looking for further data-dependence from Bernanke & Co.
Looking ahead, US data is set to come thick and fast into the week-end (culminating in the US employment data on Friday) and this should keep the Dollar on its toes and EUR/USD choppy inside the previous ranges. Some see a 50.0 ISM reading as "a little on the optimistic side" but never-the-less speculation of a rebound is doing the rounds in some circles.
Below, a more sensible consensus is seen around 49.9 at 15:00 GMT for the December headline, up from the previous 49.5 previous. Following this, the 19:00 GMT release of the latest FOMC Minutes will be the focus of the broader market with the bulk of commentators looking for further data-dependence from Bernanke & Co.
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