US TIC data posted a net capital outflow of $11 billion in December, which was much lower than expectations. The dollar has immediately come back under pressure, with USD/JPY pressurising levels below the 120.00 handle.
Japanese bid interest has limited the pace of the decline, along with option activity. The challenge to look into is the session lows at 119.79 but prices may hold up ahead of the 15:00GMT options cut amid a large size 120.00 expiry.
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Thursday, February 15, 2007
EUR/USD: Weak TIC Data prompts Topside Probe
EUR/USD made a run into the high 1.3150s after TIC data came in far below expectations. Dealers typically get nervous if capital inflows fall below the monthly trade deficit and in December, they fell well short, only $15.6 bln versus $84.9 bln in November.
Central bank selling from Eastern Europe and Asia has been rumored near 1.3150 since yesterday and it is helping keep a lid on rallies. Trendline and fibo resistance comes in at 1.3165/75. EUR/US trades at 1.3146.
Central bank selling from Eastern Europe and Asia has been rumored near 1.3150 since yesterday and it is helping keep a lid on rallies. Trendline and fibo resistance comes in at 1.3165/75. EUR/US trades at 1.3146.
US GOVTS: US Saw Modest Net Foreign Purchase of $15.6B in Dec
Net foreign purchases of US securities totaled $15.6 bln in December, the smallest net purchase since July 2000 ($8.1 bln). Excluding short-term securities, the net purchase was even more meager at $2.5 bln.
Net purchases of Treasuries totaled $10.6 bln in December, compared with a net purchase of $34.1 bln in November. Private foreign investors bought a net $4.6 bln, after making a net purchase of $32.5 bln the previous month.
Meanwhile, foreign official institutions made a net purchase of $6.1 blnup from $1.0 bln in November. While Fed custody holdings were strong, some pullback was inevitable given the bear market of December. Yields on the 10-year note backed up a good 35-40 bps.
Net purchases of Treasuries totaled $10.6 bln in December, compared with a net purchase of $34.1 bln in November. Private foreign investors bought a net $4.6 bln, after making a net purchase of $32.5 bln the previous month.
Meanwhile, foreign official institutions made a net purchase of $6.1 blnup from $1.0 bln in November. While Fed custody holdings were strong, some pullback was inevitable given the bear market of December. Yields on the 10-year note backed up a good 35-40 bps.
Swiss Outlook (15th February 2007)
The fall in February Swiss ZEW to -17.3 failed to grip the markets in European trading as dealers looked to the broader Dollar outlook to generate market momentum. Offers around 1.2400 capped USD/CHF and the stops above 1.2410 failed to be triggered in the wake of the poor sentiment reading.
Swiss names see a break above 1.2420 as an intraday trigger towards 1.2475/80 but we look for 1.2350/2450 to be worked with Swiss name demand at the lows. Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). December Capital inflow data is then eyed at 14:00 GMT but unless the US has struggled to fund the higher USD72.5Bln deficit the fundamental story will remain price pressures. Bernanke is set to speak again at 15:00 GMT but his rhetoric is widely expected to echo his recent sentiment.
Swiss names see a break above 1.2420 as an intraday trigger towards 1.2475/80 but we look for 1.2350/2450 to be worked with Swiss name demand at the lows. Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). December Capital inflow data is then eyed at 14:00 GMT but unless the US has struggled to fund the higher USD72.5Bln deficit the fundamental story will remain price pressures. Bernanke is set to speak again at 15:00 GMT but his rhetoric is widely expected to echo his recent sentiment.
Sterling Outlook (15th February 2007)
Cable tumbled by over a cent to a low of 1.9547 after the 09:30GMT disclosure of January's very poor UK retail sales figures. These plummeted by 1.8% m/m, against a forecast rise of 0.2%. The annualized rise of 3.3% came in well below the expected increase of 5.4%.
The unexpectedly soft UK retail sales data has cast doubt on the BoE inflation report's suggestion that another 25bp UK rate hike is in the pipeline. GBP/USD scaled a one-week peak just shy of 1.9680 prior to the data release. 1.9575/80 (earlier absorbed bids) is now a rebound resistance window. Upper obstacles include 1.9600, 1.9622 (today's Asian session base), and 1.9650.
Sub-1.9547 support points are located at 1.9538 (yesterday's pre-BoE inflation report high), 1.9510 (a former stop-loss level), 1.9495 (Wednesday's Asian session peak), 1.9455 (yesterday's low), 1.9420, and 1.9400. There are a raft of US data releases today, inclusive of the 14:00GMT unveiling of December TIC inflows.
Forecast: $60.0bn. Bernanke's monetary policy testimony, part two, begins at 15:00GMT.
The unexpectedly soft UK retail sales data has cast doubt on the BoE inflation report's suggestion that another 25bp UK rate hike is in the pipeline. GBP/USD scaled a one-week peak just shy of 1.9680 prior to the data release. 1.9575/80 (earlier absorbed bids) is now a rebound resistance window. Upper obstacles include 1.9600, 1.9622 (today's Asian session base), and 1.9650.
Sub-1.9547 support points are located at 1.9538 (yesterday's pre-BoE inflation report high), 1.9510 (a former stop-loss level), 1.9495 (Wednesday's Asian session peak), 1.9455 (yesterday's low), 1.9420, and 1.9400. There are a raft of US data releases today, inclusive of the 14:00GMT unveiling of December TIC inflows.
Forecast: $60.0bn. Bernanke's monetary policy testimony, part two, begins at 15:00GMT.
Yen Outlook (15th February 2007)
USD/JPY and the JPY crosses recovered some of the deep Asian losses. Good interest from Asian sovereigns and a quasi-official account marked a recovery from the lows. USD/JPY found support at 119.80, with standing bids noted from importers, sovereign names and a quasi-official account.
The recovery was limited to 120.35 though, with speculative selling persistent, along with option related activity. Large 120.00 strikes reduced volatility and this lack of movement continued into the North American session. EUR/JPY traded in a similar pattern, recovering from 157.40 up to 158.00. However, bond related selling from a German and a French account pushed the pair back towards the 157.70 region.
Near-term bias for both pairs remains on the downside after the much stronger-than-expected Q4 GDP. However, Japanese political pressure has increased urging BOJ to look at the weak spots that remain in the economy. JPY commentators note weakness in some leading indicators, which could influence BOJ's hand at next week's policy meeting. The risk of rate move is 50-50 now, which will result in choppy price action into Tuesday"s meeting.
The recovery was limited to 120.35 though, with speculative selling persistent, along with option related activity. Large 120.00 strikes reduced volatility and this lack of movement continued into the North American session. EUR/JPY traded in a similar pattern, recovering from 157.40 up to 158.00. However, bond related selling from a German and a French account pushed the pair back towards the 157.70 region.
Near-term bias for both pairs remains on the downside after the much stronger-than-expected Q4 GDP. However, Japanese political pressure has increased urging BOJ to look at the weak spots that remain in the economy. JPY commentators note weakness in some leading indicators, which could influence BOJ's hand at next week's policy meeting. The risk of rate move is 50-50 now, which will result in choppy price action into Tuesday"s meeting.
Euro Outlook (15th February 2007)
EUR/USD was bought up to a fresh 1-month high at 1.3153 into early European trading to erase any potential option barriers at 1.3150. However, option related sales continued to rebuff the advance and the price soon eased lower on this failure. The 1% M/A band top at 1.3155 also added weight as cross sales and the cable sell-off (in the wake of the poor UK data) took the attention off the Euro.
Bids into 1.3120 prop but more sit at 1.3100, stops noted under 1.31 (circa 1.3090 & sub-1.3075). Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). On the options front, the 1.3150 strike set for expiry at the NY cut-off at 15:00 GMT is accompanied by a similar EUR400Mln 1.3150 strike tomorrow.
Bids into 1.3120 prop but more sit at 1.3100, stops noted under 1.31 (circa 1.3090 & sub-1.3075). Looking ahead, in the wake of the Bernanke inflation comments US raw data will attain even greater significance. Import and Export numbers for January are set for release at 13:30 GMT with economists currently opting for a -1.0% M/M (import) and +0.3% M/M (export) consensus.
Also set for release are weekly jobless numbers and the February NY Empire State Survey (forecast at 10.00 Vs the previous 9.13 in Jan). On the options front, the 1.3150 strike set for expiry at the NY cut-off at 15:00 GMT is accompanied by a similar EUR400Mln 1.3150 strike tomorrow.
Wednesday, February 14, 2007
GBP/USD: Consolidating Gains pre-US Retail Sales
Cable is consolidating gains from yesterday's post-UK CPI one-month low just shy of 1.9400 as the market awaits the looming 13:30GMT disclosure of US January retail sales figures.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Highs just shy of 1.9570 were notched during the London morning, following the 10:30GMT publication of a BoE inflation report which was less dovish than the market was expecting.
Good size stops are touted above 1.9570. These could boost GBP/USD towards 1.9600 if tripped. Sterling support points include 1.9538 (pre-BoE inflation report high), 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), and 1.9455 (today's Asian session base).
Today's key US event risk is Ben Bernanke's semi-annual monetary policy testimony (part one), from 15:00GMT. The Fed Governor is expected to strike a broadly hawkish tone.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Highs just shy of 1.9570 were notched during the London morning, following the 10:30GMT publication of a BoE inflation report which was less dovish than the market was expecting.
Good size stops are touted above 1.9570. These could boost GBP/USD towards 1.9600 if tripped. Sterling support points include 1.9538 (pre-BoE inflation report high), 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), and 1.9455 (today's Asian session base).
Today's key US event risk is Ben Bernanke's semi-annual monetary policy testimony (part one), from 15:00GMT. The Fed Governor is expected to strike a broadly hawkish tone.
EUR/USD: Backing and Filling After 1.3100 Stall
EUR/USD is consolidating gains after breaking higher overnight, overcoming resistance in the 1.3050 area and again toward 1.3070/75. 1.3100 barrier options attracted prices and now 1.3110s are rumored as well. 1.3120 is a technical hurdle, the 50% retracement of the 1.3365/1.2865 drop.
Yesterday's wider trade deficit in the US is prompting downward revisions to Q4 GDP while Eurozone GDP forecasts are being raised. A steady Fed and a proactive ECB are the medium-term status quo barring any surprises from Bernanke today.
US retail sales are set for release shortly. A 0.4% rise is expected. The consensus seems low considering the very strong chain store sales data reported for January, so watch for an upside surprise. 1.3050/60 is support on dips near-term.
Yesterday's wider trade deficit in the US is prompting downward revisions to Q4 GDP while Eurozone GDP forecasts are being raised. A steady Fed and a proactive ECB are the medium-term status quo barring any surprises from Bernanke today.
US retail sales are set for release shortly. A 0.4% rise is expected. The consensus seems low considering the very strong chain store sales data reported for January, so watch for an upside surprise. 1.3050/60 is support on dips near-term.
US ECON: Data on Tap - Retail Sales and Business Inventories
There are two data points today, with retail sales perhaps the most important indicator of this week. In addition to the data, Bernanke heads to Capitol Hill for the first of two days of semi-annual Congressional testimony. The BLS also publishes revised seasonal adjustment factors for PPI. January PPI data are slated for Friday.
[Retail Sales (Jan)] IFR sees total retail sales rising by 0.9% in January, the same advance as in December but less than a third of the jump in January 2006 (3.1%). Net of an anticipated 0.1% increase in sales by motor vehicle and parts dealers, we see sales rising by 1.1%, the best in 12 months.
Gains in retail sales and food services should come across the board, led by an anticipated 4.4% rise in sales of electronics and appliances, a 3.0% rise in gasoline station receipts and a 2.9% rebound in sales at miscellaneous stores. Clothing and accessory stores should have their best sales month since September while trend suggests a 1.0% rise in sales at health and personal care stores. Net of autos and gasoline, sales should be higher by 0.9%, also the highest since last January (2.5%). After excluding building materials, autos and gasoline, sales of 0.9% would be the same as in December.
The anticipated result would leave the 3-month annualized rate of total retail sales at 9.5%, the best since March 2006 (11.6%). There's a great deal riding on this indicator, as it sets the stage for GDP growth in Q1 if not the entire year.
[Business Inventories (Dec)] Provided retail inventories fall on trend (down 0.2%), the factory order rise of 0.1% and the wholesale inventories drop of 0.5% should drop business inventories by 0.3% in December. This would be the slowest growth rate in 17 months and the slowest year-ago rate (5.9%) since May 2006.
However, business sales will have risen by 1.3%, the fastest since May 2006. The year-ago change should rise 4.3%, highest since September 2006. The I/S ratio should then taper to 1.281, the lowest since August 2006.
[Retail Sales (Jan)] IFR sees total retail sales rising by 0.9% in January, the same advance as in December but less than a third of the jump in January 2006 (3.1%). Net of an anticipated 0.1% increase in sales by motor vehicle and parts dealers, we see sales rising by 1.1%, the best in 12 months.
Gains in retail sales and food services should come across the board, led by an anticipated 4.4% rise in sales of electronics and appliances, a 3.0% rise in gasoline station receipts and a 2.9% rebound in sales at miscellaneous stores. Clothing and accessory stores should have their best sales month since September while trend suggests a 1.0% rise in sales at health and personal care stores. Net of autos and gasoline, sales should be higher by 0.9%, also the highest since last January (2.5%). After excluding building materials, autos and gasoline, sales of 0.9% would be the same as in December.
The anticipated result would leave the 3-month annualized rate of total retail sales at 9.5%, the best since March 2006 (11.6%). There's a great deal riding on this indicator, as it sets the stage for GDP growth in Q1 if not the entire year.
[Business Inventories (Dec)] Provided retail inventories fall on trend (down 0.2%), the factory order rise of 0.1% and the wholesale inventories drop of 0.5% should drop business inventories by 0.3% in December. This would be the slowest growth rate in 17 months and the slowest year-ago rate (5.9%) since May 2006.
However, business sales will have risen by 1.3%, the fastest since May 2006. The year-ago change should rise 4.3%, highest since September 2006. The I/S ratio should then taper to 1.281, the lowest since August 2006.
USD/JPY: Looking To Test The Topside In Early US Trade
USD/JPY is looking to test the topside in early US trade, with the pair drifting up towards 121.15. Dollar shorts were frustrated in the European morning, with the pair unable to extend losses despite a clean break of 121.00. It makes sense that intra-day players would favour profit taking ahead of today's US Bernanke testimony.
However, Bernanke is widely expected to acknowledge that inflation risks remain on the topside, which provides little in the way of fresh insight for the dollar direction. The surprise could come from the growth outlook after a series of below trend readings.
The dollar could come back under pressure if Bernanke cites growth concerns, further reinforcing the soft landing scenario. These risks will undoubtedly reduce speculative activity and we do not think that USD/JPY has much upside potential ahead of the 15:00GMT testimony. Offers at 121.30/35 remain intact; and even if stops give way above there is another batch of good sell orders at 121.50.
Recent risk reduction and positioning adjustment favours further USD/JPY losses, reinforced by the bearish technical picture now and defensive JPY trading ahead of tomorrow"s Japanese GDP release. In this respect we see potential for a test of 120.70-80 bids and further interest below at 120.50/55.
However, Bernanke is widely expected to acknowledge that inflation risks remain on the topside, which provides little in the way of fresh insight for the dollar direction. The surprise could come from the growth outlook after a series of below trend readings.
The dollar could come back under pressure if Bernanke cites growth concerns, further reinforcing the soft landing scenario. These risks will undoubtedly reduce speculative activity and we do not think that USD/JPY has much upside potential ahead of the 15:00GMT testimony. Offers at 121.30/35 remain intact; and even if stops give way above there is another batch of good sell orders at 121.50.
Recent risk reduction and positioning adjustment favours further USD/JPY losses, reinforced by the bearish technical picture now and defensive JPY trading ahead of tomorrow"s Japanese GDP release. In this respect we see potential for a test of 120.70-80 bids and further interest below at 120.50/55.
EUR/USD: Patchy Selling Interest Out Of New York
Talk of frustrated US held Dollar longs bailing out following the failure at 1.3100, during the European morning. Reports of patchy selling interest out of New York in the 1.3085-90 area and talk of offers building tight around 1.3100.
Option related offers ahead of further exotics at 1.3110 also touted. On the stop front a leading European player is rumoured to have orders tight under 1.3050. 1.3135 priceline is something to scope into, a 1% moving average band, but tight price action ahead of the Bernanke testimony is likely to limit direction.
Option related offers ahead of further exotics at 1.3110 also touted. On the stop front a leading European player is rumoured to have orders tight under 1.3050. 1.3135 priceline is something to scope into, a 1% moving average band, but tight price action ahead of the Bernanke testimony is likely to limit direction.
Swiss Outlook (14th February 2007)
Into European trading and the drop in the Dollar index and the talk of reserve manager US unit sales put the downside in USD/CHF in view ahead of the key Bernanke testimony (15:00 GMT). Spot was sold back from just shy of 1.2480 to 1.2416 in the move.
Bids into 1.2400 are now eyed despite the fresh historic high in EUR/CHF (1.6280), while the previous support turned resistance at 1.2445 is now seen as the initial hurdle for any correction. In other news, dealers cite the renewed assault on the topside in EUR/CHF as a product of the news that the EU has called for the abolition of the Swiss corporate tax haven. A Swiss privateer today noted in their research that 1.65 may be "the line in the sand as far as the SNB is concerned".
They tip an aggressive 50bp rate hike from Roth if such rates print ahead of the mid-March meeting. This is above the 25bps currently priced in. The name in question is also looking for a further 75bps to be added to Swiss rates into 2008. Looking ahead, Swiss inflation may be near Zero but economists still look to the domestic retail sales data due tomorrow (Some eye a 2.5% drop).
Bids into 1.2400 are now eyed despite the fresh historic high in EUR/CHF (1.6280), while the previous support turned resistance at 1.2445 is now seen as the initial hurdle for any correction. In other news, dealers cite the renewed assault on the topside in EUR/CHF as a product of the news that the EU has called for the abolition of the Swiss corporate tax haven. A Swiss privateer today noted in their research that 1.65 may be "the line in the sand as far as the SNB is concerned".
They tip an aggressive 50bp rate hike from Roth if such rates print ahead of the mid-March meeting. This is above the 25bps currently priced in. The name in question is also looking for a further 75bps to be added to Swiss rates into 2008. Looking ahead, Swiss inflation may be near Zero but economists still look to the domestic retail sales data due tomorrow (Some eye a 2.5% drop).
Sterling Outlook (14th February 2007)
Cable rallied to highs just shy of 1.9570 on the back of the quarterly BoE inflation report's touting of a tightening bias, and an inflation warning from Mervyn King. The BoE Governor told a press conference that the UK CPI outlook is "highly uncertain" (Reuters).
GBP/USD also notched highs just shy of 1.9570 on Monday. Good size stops reportedly reside above 1.9570. 1.9538 (early Europe high) is now a pullback support point. Lower props include 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), 1.9455 (today's Asian session base), 1.9420, and 1.9400. German name demand for EUR/GBP, and good size EUR buying from a UK clearer, helped buoy the cross to a European morning five-week peak of 0.6717. Small stops are tipped below 0.6690. Further stops are noted under 0.6680. US January retail sales will be disclosed at 13:30GMT.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Ben Bernanke will deliver part one of his semi-annual US monetary policy testimony from 15:00GMT.
GBP/USD also notched highs just shy of 1.9570 on Monday. Good size stops reportedly reside above 1.9570. 1.9538 (early Europe high) is now a pullback support point. Lower props include 1.9510 (former stop-loss level), 1.9495 (today's Asian session peak), 1.9455 (today's Asian session base), 1.9420, and 1.9400. German name demand for EUR/GBP, and good size EUR buying from a UK clearer, helped buoy the cross to a European morning five-week peak of 0.6717. Small stops are tipped below 0.6690. Further stops are noted under 0.6680. US January retail sales will be disclosed at 13:30GMT.
Forecast: +0.3% m/m, ex-autos +0.4% m/m. Ben Bernanke will deliver part one of his semi-annual US monetary policy testimony from 15:00GMT.
Yen Outlook (14th February 2007)
JPY was mixed in the European morning. USD/JPY retained a heavier tone continuing the theme set in Asia, while EUR/JPY made modest gains. EUR/JPY was buoyed by good demand for EUR/USD, encouraging speculative demand and interest from technical accounts after the move through the 158.24 Asian high. The pair extended to 158.72, yet failed to extend gains amid an overhang of Japanese selling and sovereign based interest.
The cross retraced some of the gains amid real money sales coupled with a USD/JPY fall into the 121.00. USD/JPY was subjected to selling throughout the session amid a broadly softer dollar tone and some interest relating to USD 27 billion worth of coupon payments due tomorrow. The pair filled in stops below 121.00 and 120.90 but was unable to extend losses due to good Japanese demand.
Importers, real money names and a quasi-official name were mooted. Both pairs are relatively stable ahead of the North American open, with USD/JPY steady around 121.00 and EUR/JPY finding support around 158.35/40. Attention will turn to Bernanke's testimony and any remarks on growth prospects and medium-term inflation risks.
The cross retraced some of the gains amid real money sales coupled with a USD/JPY fall into the 121.00. USD/JPY was subjected to selling throughout the session amid a broadly softer dollar tone and some interest relating to USD 27 billion worth of coupon payments due tomorrow. The pair filled in stops below 121.00 and 120.90 but was unable to extend losses due to good Japanese demand.
Importers, real money names and a quasi-official name were mooted. Both pairs are relatively stable ahead of the North American open, with USD/JPY steady around 121.00 and EUR/JPY finding support around 158.35/40. Attention will turn to Bernanke's testimony and any remarks on growth prospects and medium-term inflation risks.
Euro Outlook (14th February 2007)
Factors have conspired to support EUR/USD intraday. EUR cross buying (EUR/JPY, GBP & CHF), the positive EZ rate outlook, a drop in the USD Index and the emergence of official support for the Euro were all publicized into the European morning. Early trading saw Mid-East Dollar sales pressure the US unit before Russian interest sparked a EUR/USD rally to 1.3100.
Offers into the figure have since capped but tight topside stops are eyed. Looking ahead, better sized stops sit above 1.3150 but with the Bernanke testimony on the horizon (15:00 GMT) the spot move higher may stall until the FOMC Chairman has had his say. Ahead of this, US retail sales data will be eyed.
On the options front, 1.29/31 DNT's were erased by the early move higher but dealers now talk of 1.3110 barriers with potential for further short-term 1.3100 exposure as traders hedged amid the European morning rally. Elsewhere, the German DIHK noted that a 25bp increase by the ECB "is to be expected in March and another increase after that is not to be ruled out". The institute also noted the potential for further strength in the Euro.
Offers into the figure have since capped but tight topside stops are eyed. Looking ahead, better sized stops sit above 1.3150 but with the Bernanke testimony on the horizon (15:00 GMT) the spot move higher may stall until the FOMC Chairman has had his say. Ahead of this, US retail sales data will be eyed.
On the options front, 1.29/31 DNT's were erased by the early move higher but dealers now talk of 1.3110 barriers with potential for further short-term 1.3100 exposure as traders hedged amid the European morning rally. Elsewhere, the German DIHK noted that a 25bp increase by the ECB "is to be expected in March and another increase after that is not to be ruled out". The institute also noted the potential for further strength in the Euro.
USD/CHF: Cross Action Dominates, Market Digests G7 Implications
USD/CHF opened in NY at 1.2470, and traded down to 1.2443 following the poor US trade data, however a heavy oversold condition on the hourly studies (RSI below 20) prompted some profit taking. Underlying the rally was also a news story that emanated from AFX news in Europe that the European Commission is at loggerheads with some of the Cantons in Switzerland that offer business tax breaks to multi-nationals to headquarter their companies within their domain.
The European Commission say that the disputed tax breaks are illegal under the bloc's aid rules. The Commission stated that Cantons allowing the "holding, mixed and management companies" breach a bilateral free trade agreement going back to 1972. The EU is particularly upset with schemes offering unfair tax advantages to companies established in Switzerland, for profits generated primarily in the EU. The commission is demanding that Switzerland amend these tax schemes to bring them back in line with the terms of the agreement.
Spokespeople for the Commission also stated that while the commission is not against tax competition or low tax rates, it cannot accept schemes that differentiate between domestic and foreign source income.Traders note that if the EU is successful in reducing the benefits afforded these companies, it will have a deleterious effect on tax collection, and business formation in Switzerland, and may put further upward pressure on EUR/CHF. USD/CHF has traded up to 1.2500 and EUR/CHF up to 1.6265 with this as aleitmotif.
The European Commission say that the disputed tax breaks are illegal under the bloc's aid rules. The Commission stated that Cantons allowing the "holding, mixed and management companies" breach a bilateral free trade agreement going back to 1972. The EU is particularly upset with schemes offering unfair tax advantages to companies established in Switzerland, for profits generated primarily in the EU. The commission is demanding that Switzerland amend these tax schemes to bring them back in line with the terms of the agreement.
Spokespeople for the Commission also stated that while the commission is not against tax competition or low tax rates, it cannot accept schemes that differentiate between domestic and foreign source income.Traders note that if the EU is successful in reducing the benefits afforded these companies, it will have a deleterious effect on tax collection, and business formation in Switzerland, and may put further upward pressure on EUR/CHF. USD/CHF has traded up to 1.2500 and EUR/CHF up to 1.6265 with this as aleitmotif.
USD/JPY: Intra-day Shorts Cover Positions Ahead Of London Close
Intra-day shorts cover USD/JPY positions ahead of the London close,forcing a move back into the 121.30/35 area. Early US pressure on the downside failed to overcome 121.00/10 bids, fueling profit taking by players that sold atthe start of the European session.
Sentiment wise little has changed as USD/JPY remains hemmed in by good two-way flows and a lack of directional bias. There was a distinct lack of interest fromhedge funds today but Japanese investors were evident in the JPY crosses. The interest failed to turn the pair higher though, with the topside weighed on by option sales and bond related hedging.
The 121.00 handle remains the key pivot in the near-term. Bids are in good size at this level and stops are noted below. The market will play the range until wesee a clean break of this level or spot can build enough momentum to break the recent trend high at 122.20.
Sentiment wise little has changed as USD/JPY remains hemmed in by good two-way flows and a lack of directional bias. There was a distinct lack of interest fromhedge funds today but Japanese investors were evident in the JPY crosses. The interest failed to turn the pair higher though, with the topside weighed on by option sales and bond related hedging.
The 121.00 handle remains the key pivot in the near-term. Bids are in good size at this level and stops are noted below. The market will play the range until wesee a clean break of this level or spot can build enough momentum to break the recent trend high at 122.20.
GBP/USD: Consolidating Losses, BoE Inflation Report Tomorrow
Cable is consolidating softer-than-expected UK CPI-fuelled losses to one-month lows just shy of 1.9400, as market thoughts turn towards tomorrow's 10:30GMT quarterly BoE inflation report release. The report could spur fresh GBPselling if its content is perceived as being relatively dovish. 1.9385, a 38.2% Fibo retracement point of the ascent from 1.8525 (mid-Oct low) to 1.9917 (Jan 23, 15-year high), is a sub-figure bear target.
Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base). Sterling resistance levels are located at 1.9450, 1.9461 (today's Asian session base), 1.9475, 1.9491, 1.9505, 1.9525, 1.9550, and 1.9570. UK unemployment and earnings data will be disclosed at 09:30GMT tomorrow. Annualized average earnings are forecast up 4.1% in the three months to December.
Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base). Sterling resistance levels are located at 1.9450, 1.9461 (today's Asian session base), 1.9475, 1.9491, 1.9505, 1.9525, 1.9550, and 1.9570. UK unemployment and earnings data will be disclosed at 09:30GMT tomorrow. Annualized average earnings are forecast up 4.1% in the three months to December.
Tuesday, February 13, 2007
FX OPTIONS STRATEGY: Buy 1-mth AUD/USD 0.7630 One Touch
AUD/USD has posted an impressive recovery from the 0.7706 Asian session low. Broad dollar losses coupled with an improvement in the JPY crosses has seen out-performance, with the pair extending to a 0.7770 high. However, there are fundamental reasons why AUD/USD may not be able to continue in this vein.
Yesterday's dovish RBA statement could mark an end to the aggressive hedge fund/investment flows into Aussie. Some weak spots have started to appear in thedomestic economy, with the real estate market showing signs of a slowdown coupled with a softening in commodity prices. This comes after a benign inflation release and is supported by a weakening price outlook. In this environment rates are expected to remain on hold for the foreseeable future. AUD/USD's propensity to trade as a barometer for global growth could also work against the pair, along with the domestic economic issues already highlighted.
Something to be expected is the reduced carry trade interest and macro positioning to add downside pressure over the next month and see potential for a move into the low 0.76's. Using a One Touch strategy, we might get more than two times your return on a 0.7630 target. Using FENICS FX 2002, a 1-mth 0.7630 One Touch comes in at 42.14%.
Vols at 7.60% are used, which included 0.75% premium for AUD puts and forward rates of 5.70/5.50 and a spot rate of 0.7762. Here is something to look at is that 0.7630 is a viable target, although it is noted that prices will need to clear key support a 0.7700 to reinforce this developing trend.
Yesterday's dovish RBA statement could mark an end to the aggressive hedge fund/investment flows into Aussie. Some weak spots have started to appear in thedomestic economy, with the real estate market showing signs of a slowdown coupled with a softening in commodity prices. This comes after a benign inflation release and is supported by a weakening price outlook. In this environment rates are expected to remain on hold for the foreseeable future. AUD/USD's propensity to trade as a barometer for global growth could also work against the pair, along with the domestic economic issues already highlighted.
Something to be expected is the reduced carry trade interest and macro positioning to add downside pressure over the next month and see potential for a move into the low 0.76's. Using a One Touch strategy, we might get more than two times your return on a 0.7630 target. Using FENICS FX 2002, a 1-mth 0.7630 One Touch comes in at 42.14%.
Vols at 7.60% are used, which included 0.75% premium for AUD puts and forward rates of 5.70/5.50 and a spot rate of 0.7762. Here is something to look at is that 0.7630 is a viable target, although it is noted that prices will need to clear key support a 0.7700 to reinforce this developing trend.
US TECHS: Commodities Outlook; Gold and Oil
In spite of losses on Monday, Apr [Gold] upticked on IFR's proprietary Trend Intensity indicator and is set to do so again today with any price recovery. The entire $675-80 band shows up on multiple charts as a tough zone to crack, but a push past would then leave technical objectives of $695-700.
With all time frame trend models pointed higher, pullbacks to $664-66 should find buying interest. Key weekly support is at $656-58 this week. Divergent daily momentum readings are a continuing concern that point to a coming correction.
Bears got a boost yesterday in Mar [Oil] as prices plummeted. The market has major measured supports at $56-57, and needs to break below $57 just to extend February's range. Prices have firmed a bit today and are above very short-term supports to either side of $58 Mar.
Daily momentum is barely above neutral, though, and as pointed out repeatedly, relative strength studies are stuck in bear market readings of 20-60 as opposed to bullish parameters of 40- 80. The inability to hold above 50-day moving averages or even test 100-day measures keeps the pressure on bulls. A break of weekly swing point supports at $57 will further the bearish case.
With all time frame trend models pointed higher, pullbacks to $664-66 should find buying interest. Key weekly support is at $656-58 this week. Divergent daily momentum readings are a continuing concern that point to a coming correction.
Bears got a boost yesterday in Mar [Oil] as prices plummeted. The market has major measured supports at $56-57, and needs to break below $57 just to extend February's range. Prices have firmed a bit today and are above very short-term supports to either side of $58 Mar.
Daily momentum is barely above neutral, though, and as pointed out repeatedly, relative strength studies are stuck in bear market readings of 20-60 as opposed to bullish parameters of 40- 80. The inability to hold above 50-day moving averages or even test 100-day measures keeps the pressure on bulls. A break of weekly swing point supports at $57 will further the bearish case.
USD/CHF: Rebound Aided By Data But Renewed Sales Hamper
The USD/CHF rebound has been aided by the generally upbeat Philly Fed quarterly report (Philly Fed - UNEMPLOYMENT RATE TO AVERAGE 4.7 PCT 2007 VS PVS FORECAST OF 4.8 PCT). Consumer confidence fell but still the US unit has elicited more support.
However, renewed sales in USD/CHF into the 1.2500 level are hampering the potential for higher levels into the European close. Should EUR/CHF break above 1.6265 and re-test the historic high at 1.6277 then further Franc weakness will follow, with USD/CHF eyeing 1.2525 back to the 1.2550 offers. Option related sales are still tipped in the Euro cross ahead of potential 1.6280 exotics with confirmed option barriers at 1.6300 and above.
However, renewed sales in USD/CHF into the 1.2500 level are hampering the potential for higher levels into the European close. Should EUR/CHF break above 1.6265 and re-test the historic high at 1.6277 then further Franc weakness will follow, with USD/CHF eyeing 1.2525 back to the 1.2550 offers. Option related sales are still tipped in the Euro cross ahead of potential 1.6280 exotics with confirmed option barriers at 1.6300 and above.
EUR/USD: Europeans Selling EUR Rally
Dealers note selling from a pair of the more active European central banks in the low 1.3020s, but are not sure if there is any intent to be gleaned from the sales. Most suspect they are just playing the range like everyone else.
IBD/TIPP consumer optimism dipped in its latest release to 52.7, its lowest since October, but the market is paying it little heed. Offers remain on rallies toward 1.3045/50 and again toward 1.3065/75. 1.31000 barriers are reportedly in play while whispers of 1.3050s have made the rounds today as well. Bids are eyedat 1.3010 and 1.2990/95.
IBD/TIPP consumer optimism dipped in its latest release to 52.7, its lowest since October, but the market is paying it little heed. Offers remain on rallies toward 1.3045/50 and again toward 1.3065/75. 1.31000 barriers are reportedly in play while whispers of 1.3050s have made the rounds today as well. Bids are eyedat 1.3010 and 1.2990/95.
US ECON: IBD/TIPP Economic Optimism Index Cools to 52.7
* IBD/TIPP falls one point to 52.7, now lowest since October 2006 (52.4)
* Lower than expectations of 53.0 but above trailing averages
* Declines in all three components in February
The IBD/TIPP Economic Optimism Index fell by one point to 52.7 in February, the lowest reading since October 2006. The decline was larger than expected butthe index remained above both the 6-month and 12-month trailing averages.
The 6-month economic outlook index fell by 1.7 points to 46.4, the lowest since December (45.4). The index on the 6-month personal financial outlook fellby 0.4 point to 60.8, the lowest since October 2006. Ditto for the index on federal policies, off 0.9 point.
Given the close correlation to the University of Michigan index of consumer sentiment, we have lowered our forecast on the latter to 94.0.
* Lower than expectations of 53.0 but above trailing averages
* Declines in all three components in February
The IBD/TIPP Economic Optimism Index fell by one point to 52.7 in February, the lowest reading since October 2006. The decline was larger than expected butthe index remained above both the 6-month and 12-month trailing averages.
The 6-month economic outlook index fell by 1.7 points to 46.4, the lowest since December (45.4). The index on the 6-month personal financial outlook fellby 0.4 point to 60.8, the lowest since October 2006. Ditto for the index on federal policies, off 0.9 point.
Given the close correlation to the University of Michigan index of consumer sentiment, we have lowered our forecast on the latter to 94.0.
GBP/USD: Weighed Down by Talk of Hawkish Tone from Bernanke
Conjecture that Fed Governor Bernanke will strike a hawkish tone when he delivers his semi-annual monetary policy testimony (part one) in just over 24 hours has helped depress GBP/USD from post-US trade data highs north of 1.9450.
A consulting shop is touted as the source of the Bernanke conjecture.1.9400 is a sterling support point. One-month lows just shy of 1.9400 were plumbed during the London morning, after the 09:30GMT disclosure of January's softer-than-forecast UK inflation figures.
These have cast doubt on the expectation that another UK base rate hike is in the pipeline. Sub-1.9400 bear targets/prop points include 1.9385, 1.9317 (Jan 10 floor), 1.9280, and 1.9260.
A consulting shop is touted as the source of the Bernanke conjecture.1.9400 is a sterling support point. One-month lows just shy of 1.9400 were plumbed during the London morning, after the 09:30GMT disclosure of January's softer-than-forecast UK inflation figures.
These have cast doubt on the expectation that another UK base rate hike is in the pipeline. Sub-1.9400 bear targets/prop points include 1.9385, 1.9317 (Jan 10 floor), 1.9280, and 1.9260.
EUR/USD: Price Action Elicits Talk of Fresh 1.3050 Barriers
With EUR/USD backing away after stalling in the mid-1.3040s, the inevitable talk of central bank sales coupled with rumors of fresh exotic triggers at 1.3050 are making the rounds. Though there is no confirmation at present, the range bound nature of the market would make this highly plausible.
Talk of 1.29/1.31 DNTS with lumpy payouts are making the rounds as well. An analysis from one of the high-profile consulting shops that caters to the leveraged community suggests a hawkish tone from Bernanke tomorrow, another factor that helped stall the EUR advance.
Upbeat Eurozone data keeps the ECB on a tightening path for the foreseeable future while the Fed is expected to stay sidelined but with a clear bias to tighten given tight labor markets. This argues for more range trade ahead until the status quo shifts.
Talk of 1.29/1.31 DNTS with lumpy payouts are making the rounds as well. An analysis from one of the high-profile consulting shops that caters to the leveraged community suggests a hawkish tone from Bernanke tomorrow, another factor that helped stall the EUR advance.
Upbeat Eurozone data keeps the ECB on a tightening path for the foreseeable future while the Fed is expected to stay sidelined but with a clear bias to tighten given tight labor markets. This argues for more range trade ahead until the status quo shifts.
Swiss Outlook (13th February 2007)
The Franc has followed the trends set by the broader market intraday. USD/CHF followed the tone set by EUR/USD while GBP/CHF was impacted by the weaker UK numbers. Bids into 1.2460 in USD/CHF look to prop.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to huge numbers but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
Local players expect the Franc to continue to trade in synch with broader marketmomentum (and to a lesser extent - Dollar momentum) until after the Swiss data set for release Thursday. Swiss inflation is expected near Zero so retail sales will give the next big indication as to the direction of interest rates in Q1. These are expected to come in at -2.5%, pointing to lower consumer spending, however, many still opt to price in a 25bp hike from the SNB in mid-March.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to huge numbers but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
Local players expect the Franc to continue to trade in synch with broader marketmomentum (and to a lesser extent - Dollar momentum) until after the Swiss data set for release Thursday. Swiss inflation is expected near Zero so retail sales will give the next big indication as to the direction of interest rates in Q1. These are expected to come in at -2.5%, pointing to lower consumer spending, however, many still opt to price in a 25bp hike from the SNB in mid-March.
Sterling Outlook (13th February 2007)
Speculative and real-money account selling helped depress cable by a cent to new one-month lows just shy of 1.9400 after the 09:30GMT disclosure of January's softer-than-expected UK inflation data. CPI fell to 2.7%, from an 11-year high of 3.0% in December. A more modest drop to 2.9% was expected.
RPI fell to 4.2%, from 4.4%. A rise to 4.5% was expected.The sub-forecast UK inflation figures are good news for doves arguing that the peak of the UK base rate tightening cycle has already been reached.1.9385, a 38.2% Fibo retracement point of the ascent from 1.8525 (mid-Oct low) to 1.9917 (Jan 23, 15-year high), is a sub-figure bear target. Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base).
1.9425 (earlier stall point) is now a rebound resistance level. Upper obstacles include 1.9438 (yesterday's low), and 1.9461 (today's Asian session base). Today's key US event risk is the 13:30GMT unveiling of the size of December's UStrade deficit.
Forecast: $59.7bn, from $58.2bn in November. The quarterly BoE inflation report is out tomorrow.
RPI fell to 4.2%, from 4.4%. A rise to 4.5% was expected.The sub-forecast UK inflation figures are good news for doves arguing that the peak of the UK base rate tightening cycle has already been reached.1.9385, a 38.2% Fibo retracement point of the ascent from 1.8525 (mid-Oct low) to 1.9917 (Jan 23, 15-year high), is a sub-figure bear target. Lower objectives include 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 base).
1.9425 (earlier stall point) is now a rebound resistance level. Upper obstacles include 1.9438 (yesterday's low), and 1.9461 (today's Asian session base). Today's key US event risk is the 13:30GMT unveiling of the size of December's UStrade deficit.
Forecast: $59.7bn, from $58.2bn in November. The quarterly BoE inflation report is out tomorrow.
Yen Outlook (13th February 2007)
JPY was mixed in the European morning. A stream of strong European data releases set the tone. This saw EUR/JPY break higher after opening the European session at 157.45. The pair extended gains after stops weretriggered through 157.70 on the way up to a 158.06 session high. Selling was noted from real money names and exporters.
Forthcoming Euro Zone redemption payments saw steady selling, which helped to reduce volatility and keep the pairin a narrow range. The pair drifted between 157.70 and 157.85 for a large part of the European morning. USD/JPY was unable to make much headway, trading sideways early on and then turning lower on Japanese selling. Some interest was linked to US coupon payments due on February 15th.
The downside found support ahead of 121.20 stops, leaving a relatively stable feel into the North American open. Near-term bias is a little mixed after JPY shorts got caught out in Asia yesterday. Carry trade interest has been mild since the G7 meeting, which has reduced activity. Price action will be driven by Thursday's Japanese GDP release, particularly with the BOJ policy meeting due on February 20-21.
Forthcoming Euro Zone redemption payments saw steady selling, which helped to reduce volatility and keep the pairin a narrow range. The pair drifted between 157.70 and 157.85 for a large part of the European morning. USD/JPY was unable to make much headway, trading sideways early on and then turning lower on Japanese selling. Some interest was linked to US coupon payments due on February 15th.
The downside found support ahead of 121.20 stops, leaving a relatively stable feel into the North American open. Near-term bias is a little mixed after JPY shorts got caught out in Asia yesterday. Carry trade interest has been mild since the G7 meeting, which has reduced activity. Price action will be driven by Thursday's Japanese GDP release, particularly with the BOJ policy meeting due on February 20-21.
Euro Outlook (13th February 2007)
Into North American trading and EUR/USD is steady around the 1.30 mark. The price failed to find follow-through on the initial push and some are said to have been caught in the move but longs may not yet be worried as further stabs higher are expected. Euro zone 4Q GDP was +0.9% Q/Q andthis "above-trend growth" has forced some to look for March and June ECB hikes.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to the hugenumbers involved but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and Consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
On the options front, the EUR 300Mln+ 1.3000 strike that is due to roll off at the NY cut at 15:00 GMT should act as a pivot point for any chop with offers from 1.3020 backing to 1.3040 while stops sit below 1.2980 with more bids noted into the 1.2950 area.
Looking ahead, a raft of US numbers is set for release into the North American session with December Trade numbers kicking off the morning at 13:30 GMT. Economists look for a USD 59.5Bln deficit, many may be anaesthetized to the hugenumbers involved but a drop below USD 60Bln will see the Dollar dented once more. Following this Philly Fed and Consumer confidence data is set for release at 15:00 GMT with an OECD news conference also on the diary.
On the options front, the EUR 300Mln+ 1.3000 strike that is due to roll off at the NY cut at 15:00 GMT should act as a pivot point for any chop with offers from 1.3020 backing to 1.3040 while stops sit below 1.2980 with more bids noted into the 1.2950 area.
Monday, February 12, 2007
EUR/USD: Modest Rallies; Market in Sell-Strength Mode
EUR/USD managed a rally into the high 1.2960s before easing back to the mid1.2950s. The market remains focused on key resistance levels in the US dollarindex near-term after brushing up against important resistance earlier in the session.
A sustained break of 85.16 is seen leading to further US strength across the board. As always, dealers remain reluctant to sell EUR/USD too aggressively below the 1.2940/50 area owing to near-constant central bank demand for reserve diversification.
A break and close below the 100-day average at 1.2917 today could prompt central banks to pull in their horns and wait for better buying levels ahead. Until then, most will be content to trade ranges. EUR/USD trades at 1.2957.
A sustained break of 85.16 is seen leading to further US strength across the board. As always, dealers remain reluctant to sell EUR/USD too aggressively below the 1.2940/50 area owing to near-constant central bank demand for reserve diversification.
A break and close below the 100-day average at 1.2917 today could prompt central banks to pull in their horns and wait for better buying levels ahead. Until then, most will be content to trade ranges. EUR/USD trades at 1.2957.
FOREX: Central Bank Summary Updated
The latest central bank summary has been updated with highlights from the RBA monetary policy and comments from ECB Draghi. The summary can be found on this website at www.ifrmarkets.com. Look under "Forex Watch" then "Central Bank Summary".
The next central bank meeting is the BOJ on the 21st of February with surveys in Japan still showing only a 50% chance of a rate hike. Japan GDP data due this week is expected to be a key factor in BOJ board deliberations.
The next central bank meeting is the BOJ on the 21st of February with surveys in Japan still showing only a 50% chance of a rate hike. Japan GDP data due this week is expected to be a key factor in BOJ board deliberations.
US TECHS: S&P Pulls Back But Remains Above Key Support
After trying to get through the 1454 area for several sessions, Mar S&P encountered more aggressive selling on Friday. The dip was fairly harsh, given the tight range seen over the preceding few sessions but current price action remains above important support references. Two of those supports include the 50-day moving average and an ascending trendline, both at 1430. It would take a close below that level before any significant warning bells went off.
Friday's sharp turn in some of the daily momentum studies will likely be enough to see the contract remain under pressure for the near term. Also there is a slight bearish seasonal period heading into President's week vacation so the recent highs will be a hurdle until the seasonals start to favor the bullishcamp again closer to the end of the month.
Friday's sharp turn in some of the daily momentum studies will likely be enough to see the contract remain under pressure for the near term. Also there is a slight bearish seasonal period heading into President's week vacation so the recent highs will be a hurdle until the seasonals start to favor the bullishcamp again closer to the end of the month.
USD/CHF: Steady Sub-1.2550, UK Clearer Back US View On GBP/CHF
The initial probe higher into North American trading failed to stick and as a result USD/CHF continues to trade just shy of 1.2550 with bids into 1.2525/30 looking to prop any dips.Elsewhere, a UK Clearer has backed the US investment house outlook we noted earlier.
The US name is question issued a buy recommendation to its customers for GBP/CHF, suggesting the cross could appreciate towards 2.49/50, and this upward trajectory is mirrored by a recent research note from a quality UK player.
However, the clearer does go on to discuss the potential for one-way risk in the Franc and notes that "such trends can be reversed rather violently". Currently, GBP/CHF trades back below 2.44 having failed to surmount the 2.4425 mark on its initial probe into the 44's. Bids into 2.4375/80 are expected to prop dips with more support into 2.4350.
The US name is question issued a buy recommendation to its customers for GBP/CHF, suggesting the cross could appreciate towards 2.49/50, and this upward trajectory is mirrored by a recent research note from a quality UK player.
However, the clearer does go on to discuss the potential for one-way risk in the Franc and notes that "such trends can be reversed rather violently". Currently, GBP/CHF trades back below 2.44 having failed to surmount the 2.4425 mark on its initial probe into the 44's. Bids into 2.4375/80 are expected to prop dips with more support into 2.4350.
FX OPTIONS: EUR/USD Vols Soften, 1-Year Pivoting All-Time Low
Implied option volatilities have ticked south through the European session-to-date, with the 1-mth 5.8/5.9 last. The 1-mth expiry date currently falls on a Monday (March 12). On Friday, the 1-mth expiry date fell on an NFP Friday (March 9).Last Autumn (pre-Thanksgiving), the 1-mth plumbed an all-time double-day low of 5.4/5.6 (Nov 17 & 21).
The 1-mth started this year bid as high as 7.15 pct (Jan 2). In the mid-dates: the 3-mth is now 5.9/6.05, having been 6.0 pct bid at today's European open. The 3-mth expiry date still falls on an ECB rate verdict and press conference Thursday (May 10), as per Friday. The next-but-one FOMC meetingtakes place on May 9. At the back of the curve: the 1-year is pivoting Friday's new all-time traded low of 6.475 pct. Expiry dates courtesy of FENICS FX 2002.
The 1-mth started this year bid as high as 7.15 pct (Jan 2). In the mid-dates: the 3-mth is now 5.9/6.05, having been 6.0 pct bid at today's European open. The 3-mth expiry date still falls on an ECB rate verdict and press conference Thursday (May 10), as per Friday. The next-but-one FOMC meetingtakes place on May 9. At the back of the curve: the 1-year is pivoting Friday's new all-time traded low of 6.475 pct. Expiry dates courtesy of FENICS FX 2002.
EUR/USD: Familiar Support Zone Cushions Fall
After falling back beneath 1.2950, EUR/USD losses moderated as prices reached a familiar zone of support where central banks have been accumulating reserves formuch of 2007. Jittery price action in EUR/JPY helped dictate EUR/USD flows this morning after the cross initially rallied following the G7.
The Group failed to single out the JPY for scorn but Trichet went out of his way to warn the market from falling for "one-way" bets. Also influencing EUR/USD price action this morning are moves in the USD index. The index bumped up against a downtrend in place almost a year at the 0.8516 level this morning as well as the 200-day moving average at 0.8513.
It trades now at 0.8510. EUR/USD resistance lies overhead in the 1.2975/85 area near-term while bids are scattered all the way down. The 100-day moving average has climbed to 1.2917. Big bounces have been seen from that average in recent weeks. EUR/USD trades at 1.2959.
The Group failed to single out the JPY for scorn but Trichet went out of his way to warn the market from falling for "one-way" bets. Also influencing EUR/USD price action this morning are moves in the USD index. The index bumped up against a downtrend in place almost a year at the 0.8516 level this morning as well as the 200-day moving average at 0.8513.
It trades now at 0.8510. EUR/USD resistance lies overhead in the 1.2975/85 area near-term while bids are scattered all the way down. The 100-day moving average has climbed to 1.2917. Big bounces have been seen from that average in recent weeks. EUR/USD trades at 1.2959.
Swiss Outlook (12th February 2007)
The Franc continued to feel the pressure in the wake of the G7 as the meeting failed to make mention of the "Yen weakness". This effective green light to renewed carry trades saw the CHF sold against higher yielding currencies. Swiss and US sell interest in USD/CHF into 1.2520 was soon absorbed as funds, short-term players and other US investment interest bought.
UK Clearers played both sides and the stops above 1.2525 were triggered on routeto the session high at 1.2547. On the topside, bulls now eye 1.2570/75 as a viable short-term target.On the crosses, offers in EUR/CHF into 1.6255/60 cap with the historic high at 1.6277 above before the speculated 1.6280 exotics and the confirmed 1.6300 barriers. GBP/CHF was forced higher after a bullish buy recommendation from a quality US name.
Offers into 2.44 are capping the move higher for the moment buta break higher is eyed and 2.4450 will then come into view. The research note claimed 2.49/50 was a viable upside target, however, we at IFR would look first to the 2.4759 07 yearly high.
UK Clearers played both sides and the stops above 1.2525 were triggered on routeto the session high at 1.2547. On the topside, bulls now eye 1.2570/75 as a viable short-term target.On the crosses, offers in EUR/CHF into 1.6255/60 cap with the historic high at 1.6277 above before the speculated 1.6280 exotics and the confirmed 1.6300 barriers. GBP/CHF was forced higher after a bullish buy recommendation from a quality US name.
Offers into 2.44 are capping the move higher for the moment buta break higher is eyed and 2.4450 will then come into view. The research note claimed 2.49/50 was a viable upside target, however, we at IFR would look first to the 2.4759 07 yearly high.
Sterling Outlook (12th February 2007)
Cable fell to a one-month low of 1.9438 following the 09:30GMT disclosure of January's much steeper-than-expected decline in UK input producer prices. These tumbled by 2.0% m/m and 1.7% y/y, against forecast falls of 0.7% m/m, 0.2% y/y. The large input PPI drop is good news for doves arguing that the peak of the UK base rate tightening cycle has already been reached.
Softer-than-expected UK inflation figures at 09:30GMT tomorrow, and a relativelydovish BoE inflation report on Wednesday, could spur further GBP selling. Annualized CPI is expected to tick south from an 11-year high of 3.0%. Touted support points/bear targets south of 1.9438 include 1.9427 (Jan 12 base),1.9410, 1.9385, 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 low). 1.9467 (Friday's NY session base) defines the rebound high from 1.9438.
Upper obstacles include 1.9480 (today's Asian session low), 1.9500, and 1.9520. This week's key US event risk is Bernanke's monetary policy testimony to Congress on Wednesday and Thursday. US Treasury Secretary Paulson says a strong USD is in the interest of the U.S (FAZ/Reuters).
Softer-than-expected UK inflation figures at 09:30GMT tomorrow, and a relativelydovish BoE inflation report on Wednesday, could spur further GBP selling. Annualized CPI is expected to tick south from an 11-year high of 3.0%. Touted support points/bear targets south of 1.9438 include 1.9427 (Jan 12 base),1.9410, 1.9385, 1.9317 (Jan 10 floor), 1.9280, and 1.9260 (Jan 8 low). 1.9467 (Friday's NY session base) defines the rebound high from 1.9438.
Upper obstacles include 1.9480 (today's Asian session low), 1.9500, and 1.9520. This week's key US event risk is Bernanke's monetary policy testimony to Congress on Wednesday and Thursday. US Treasury Secretary Paulson says a strong USD is in the interest of the U.S (FAZ/Reuters).
Yen Outlook (12th February 2007)
The Yen slipped lower vs the Dollar following the G-7 meeting, where it received no direct support from the group of seven officials. The Tokyo holiday may well have dampened down overall overnight trade. USD/JPY climbed to 122.10, helped in part by a sizeable buy order from a leading US investment bank.
Disappointment that there was no official support for the Japanese unit and that the concerns, recently expressed by European officials, were not discussed. However, the G-7 warning over carry trades may have sweetened the pill somewhat. Overall the market appears to be of the opinion that the Yen will remain soft. USD/JPY peaked at 122.10 early in Asia, slipped to 121.85 and then traded sideways between 121.90-122.05 until Europe nudged price down to 121.77-80.
The market is very short the Yen and with the threat of sizeable Japanese-financial year end repatriation traders will be wary of pushing USD/JPY too far. There is risk of a drop to 121.50 and possibly a return to a 121.00-121.45 trading range,seen late last week. There is talk of 121.50 option expiries today.
Disappointment that there was no official support for the Japanese unit and that the concerns, recently expressed by European officials, were not discussed. However, the G-7 warning over carry trades may have sweetened the pill somewhat. Overall the market appears to be of the opinion that the Yen will remain soft. USD/JPY peaked at 122.10 early in Asia, slipped to 121.85 and then traded sideways between 121.90-122.05 until Europe nudged price down to 121.77-80.
The market is very short the Yen and with the threat of sizeable Japanese-financial year end repatriation traders will be wary of pushing USD/JPY too far. There is risk of a drop to 121.50 and possibly a return to a 121.00-121.45 trading range,seen late last week. There is talk of 121.50 option expiries today.
Euro Outlook (12th February 2007)
The EUR/JPY fresh record high at 159.00 had offered the price some support but the subsequent failure and sell-off weighed. Offers from 1.3040 back to 1.3050 limited any thoughts of topside action, sales then increased on players returning to their previous long-USD positions. Spot eased and was soon testing the 1.30 mark and cable selling, in the wake of the soft PPI, added further weight.
Trading then began filling the support from 1.2990 back to 1.2980 before running the sub-1.2975 stops en route to 1.2950.Looking ahead, there is little data set for release into the North American session. However, if the markets take heart from the European theme then EUR/USD will again focus on the 1.2915 pre-G7 low.
Bids into 1.2950 stalled the initial move lower but these will soon succumb to any increase in selling volume. Stops are noted below with the 1.2925 area the next stalling point.Technically, the move lower needs to clear 1.2915 if the downside is to take hold. The 1.2865-85 support zone looks key to any USD break higher with the 2007low currently helped by the 1% MA band base.
Trading then began filling the support from 1.2990 back to 1.2980 before running the sub-1.2975 stops en route to 1.2950.Looking ahead, there is little data set for release into the North American session. However, if the markets take heart from the European theme then EUR/USD will again focus on the 1.2915 pre-G7 low.
Bids into 1.2950 stalled the initial move lower but these will soon succumb to any increase in selling volume. Stops are noted below with the 1.2925 area the next stalling point.Technically, the move lower needs to clear 1.2915 if the downside is to take hold. The 1.2865-85 support zone looks key to any USD break higher with the 2007low currently helped by the 1% MA band base.
Saturday, February 10, 2007
EUR/JPY: Trend Intensity Signal Remains Neutral
The trend intensity signal for EUR/JPY remains neutral at18 with the signal still consolidating and above trend-ready levels of 13 or below. The EUR/GBP trend signal is neutral at 21. The EUR/USD trend signal is neutral at trend-ready levels of 11 as is GBP/USD.
The USD/JPY trend signal is neutral at 27 and the USD/CHF trend signal is neutral at 20. These proprietary indicators are updated each trading day after the NY close.
The USD/JPY trend signal is neutral at 27 and the USD/CHF trend signal is neutral at 20. These proprietary indicators are updated each trading day after the NY close.
GBP/USD: Consolidating Oversold Conditions
Since failing to overcome the 1.9750 resistance point earlier this week, GBP/USD has shed over 61.8% of its rise from 1.9260. Trendline support at 1.9545 was snappedin the process and the pound looks set for lower levels once it consolidates some of today's big losses.
The lack of a February rate hike from the MPC has been a big catalyst for weakness this weeks as has M&A flows out of the UK as British corporates take advantage of the lofty pound to launch cash bids for overseas assets.
The latest was today's nearly GBP2 bln takeover of US bus operator Laidlaw by a UK firm. Offers are seen between 1.9500 and 1.9520 near-term on rebounds with more toward1.9545/50. Support comes in at 1.9455/60 and 1.9425. Cable trades now at 1.9482.
The lack of a February rate hike from the MPC has been a big catalyst for weakness this weeks as has M&A flows out of the UK as British corporates take advantage of the lofty pound to launch cash bids for overseas assets.
The latest was today's nearly GBP2 bln takeover of US bus operator Laidlaw by a UK firm. Offers are seen between 1.9500 and 1.9520 near-term on rebounds with more toward1.9545/50. Support comes in at 1.9455/60 and 1.9425. Cable trades now at 1.9482.
USD/JPY: Paulson Reiterates JPY Set in Competitive Market
Paulson also states that the JPY reflects economic fundamentals. Thecomments continue to underpin USD/JPY which trades at 121.69/71. Paulson also targets China stating that China must develop capital markets to sustain growth.
US FED: Poole - Prepared to Raise Rates, No Hurry
FRB St. Louis President Poole (voter) says inflation expectations are well anchored but the Fed stands ready to raise rates if need be. As if to allay fears of an impending move, Poole says the Fed is in no hurry to respond to incoming data that show the economy returning to potential.
He says there is notimetable to return the core PCE price index to within the comfort level. Thereis no official inflation target, but the implicit upper band is 2% on the core PCE deflator.
Earlier today, Poole was upbeat on the economy's "firmer tone." Fed funds futures are little changed on the session with no change given by any contract before July. The biggest odds for a 25 bps rate cut are given by the October contract, last giving an implied probability of 34%.
He says there is notimetable to return the core PCE price index to within the comfort level. Thereis no official inflation target, but the implicit upper band is 2% on the core PCE deflator.
Earlier today, Poole was upbeat on the economy's "firmer tone." Fed funds futures are little changed on the session with no change given by any contract before July. The biggest odds for a 25 bps rate cut are given by the October contract, last giving an implied probability of 34%.
USD/JPY: Japan Polls Shows 50% Still See BOJ Feb Rate Hike
The Nikkei reports this morning that a poll from the Economic Planning Association in Japan still shows that 50% of economists expectthe BOJ to raise rates this month. The report notes that 18 out of 35 expect therate rise, up from 11 in last month's survey.
USD/JPY trades at 121.72, getting a boost from the comments from EU Alumnia on forex, underpinning signs that the G7 will not make a forceful statement this weekend on the JPY. Good offers are still stalling gains at 121.75/80 though some stops are tipped above 121.80 but more selling is tipped at 122.00. Rising US bond yields, with ten year yields now at 4.78%, up from 4.74% this morning, are helping to underpin the USD.
USD/JPY trades at 121.72, getting a boost from the comments from EU Alumnia on forex, underpinning signs that the G7 will not make a forceful statement this weekend on the JPY. Good offers are still stalling gains at 121.75/80 though some stops are tipped above 121.80 but more selling is tipped at 122.00. Rising US bond yields, with ten year yields now at 4.78%, up from 4.74% this morning, are helping to underpin the USD.
USD/CHF: Overnight Orders Cap Rally
US traders report that despite leveraged accounts squaring shorts out of Europe, heading for the exits for an early close, USD/CHF is still having trouble breaking out on the topside. Strong orders in the 1.2520-25 area, attributed to European semi-official offers, and commercial hedgers are holding the greenback back.
The range in NY has been 1.2495/20 for the past hour and a half and spot traders have no reason to believe that should change any time soon, with spot currently at 1.2505. Earlier reports of a very large Swiss bank selling GBP/CHF either on behalf of a large European central bank or M&A related (most market participants are on the latter) also have encouraged US participants to sell rallies. There are light stops above 1.2525, and heavy stops at 1.2580-85.
The range in NY has been 1.2495/20 for the past hour and a half and spot traders have no reason to believe that should change any time soon, with spot currently at 1.2505. Earlier reports of a very large Swiss bank selling GBP/CHF either on behalf of a large European central bank or M&A related (most market participants are on the latter) also have encouraged US participants to sell rallies. There are light stops above 1.2525, and heavy stops at 1.2580-85.
EUR/USD: Dealers Keeping Eyes Open for Draft Statement
Very often, the G7 communique is drafted well before the first finance minister turns up at the meeting. As such, copies of the draft communique often find their way into the media at some point on the Friday of the two-day meeting.
Dealers are keeping their eyes on the tape for just such a leak in the next few hours. No mention of the JPY is expected. EUR/USD remains weighed down with the USD fairly buoyant in recent ranges. Range is the operative word here, and no big breakout is expected ahead of the weekend, to be sure. EUR/USD trades at 1.2991.
Dealers are keeping their eyes on the tape for just such a leak in the next few hours. No mention of the JPY is expected. EUR/USD remains weighed down with the USD fairly buoyant in recent ranges. Range is the operative word here, and no big breakout is expected ahead of the weekend, to be sure. EUR/USD trades at 1.2991.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] has met one upside objective today with the continuation higher. On nearest futures charts (COMEX), the market has come within $1 of retesting its mid-July top at $669. With the breakout from the just-over-six-month-old symmetrical triangle, technical objectives are vastly higher (though it can be argued that the pattern is a bit too stretched out to have confidence that classic measuring techniques apply in the current case).
Let's give the bulls the benefit of any doubt, as those same continuous contract charts show a gap higher with today's rise, very possibly of the breakaway variety. Weekly and monthly targets still point to the $675-76 zone as next resistance; a surge pastmeans $700 is next.
In Mar [oil], we have been eager to advance the notion that a correction hasstarted and may yet be proven correct, though not exactly on the timetable at first thought. Evidence in favor of the correction notion is that prices have come within 20 cents of Nov floors at $60.61 and momentum and RSI studies have not yet shown bulls are in control.
The market is slightly past its 50-day moving average today at $59.61 Mar. In the event of an "overshoot," 200-day moving averages on continuous futures charts are just over $62 and Dec peaks are$64.15, either of which could mark a turning point for a major correction.
Let's give the bulls the benefit of any doubt, as those same continuous contract charts show a gap higher with today's rise, very possibly of the breakaway variety. Weekly and monthly targets still point to the $675-76 zone as next resistance; a surge pastmeans $700 is next.
In Mar [oil], we have been eager to advance the notion that a correction hasstarted and may yet be proven correct, though not exactly on the timetable at first thought. Evidence in favor of the correction notion is that prices have come within 20 cents of Nov floors at $60.61 and momentum and RSI studies have not yet shown bulls are in control.
The market is slightly past its 50-day moving average today at $59.61 Mar. In the event of an "overshoot," 200-day moving averages on continuous futures charts are just over $62 and Dec peaks are$64.15, either of which could mark a turning point for a major correction.
Swiss Outlook (9th February 2007)
Into European trading and the Franc was again sold as cash & carry traders failed to take heed of the pre-G7 risk. USD/CHF worked higher in tandem with the broader US unit strength and offers into 1.2490/2500 were found to limit the initial run higher. However, these were soon absorbed and spot broke higher and consolidated in the low 1.25's. Offers are noted 1.2520/25 with stops tight above and more above 1.2540.
[GBP/CHF] selling from UK Clearers, Swiss names and funds was initially tipped as unwinding of carry trades but dealers then U-turned to settle on M&A flows as the cause. Trading dropped from 2.4450 to 2.4318 but has since steadied and is now looking to bounce.
[EUR/CHF] traded at fresh historic highs in Asian trading but the GBP/CHF sales weighed in Europe. The pair dropped to 1.6235 before fresh supportemerged. On the topside, 1.6300 option barriers are still targeted by bulls.Looking ahead, G7 dominates the event-risk profile but ahead of the Essen meeting and the market must navigate past a bunch of Poole and Pianalto commentsand the weekly US ECRI numbers.
[GBP/CHF] selling from UK Clearers, Swiss names and funds was initially tipped as unwinding of carry trades but dealers then U-turned to settle on M&A flows as the cause. Trading dropped from 2.4450 to 2.4318 but has since steadied and is now looking to bounce.
[EUR/CHF] traded at fresh historic highs in Asian trading but the GBP/CHF sales weighed in Europe. The pair dropped to 1.6235 before fresh supportemerged. On the topside, 1.6300 option barriers are still targeted by bulls.Looking ahead, G7 dominates the event-risk profile but ahead of the Essen meeting and the market must navigate past a bunch of Poole and Pianalto commentsand the weekly US ECRI numbers.
Sterling Outlook (9th February 2007)
The pound came under fresh selling pressure from today's European open, with news that FirstGroup is to buy Laidlaw for $3.6bn cash (FT website) helping weigh. A UK clearer reportedly sold a lot of GBP, with model funds joining in after cable's break below 1.9550. Swiss name selling of GBP/CHFwas also noted.
M&A-flow was mooted as the cause of the GBP/CHF selling. GBP/USD stops below 1.9483 (Jan 31 low) were tripped, en route to a 4-week low of 1.9459, after the 09:30GMT disclosure of December's higher-than-expected UK trade deficit. This came in at GBP 7.142bn. It was forecast at GBP 6.9bn. Sterling's recovery rally from 1.9459 ran into resistance at 1.9500.
Above figure obstacles include 1.9525, 1.9550, 1.9575, and 1.9600.Touted bear targets south of 1.9459 include 1.9427 (Jan 12 low), 1.9410, 1.9317 (Jan 10 base), 1.9300, 1.9280, and 1.9260 (Jan 8 floor). UK January inflation data is due next Tuesday, with the BoE quarterly inflation report published next Wednesday. Centrica has announced large gas and electricity price cuts from March 12 (FT, p3).
M&A-flow was mooted as the cause of the GBP/CHF selling. GBP/USD stops below 1.9483 (Jan 31 low) were tripped, en route to a 4-week low of 1.9459, after the 09:30GMT disclosure of December's higher-than-expected UK trade deficit. This came in at GBP 7.142bn. It was forecast at GBP 6.9bn. Sterling's recovery rally from 1.9459 ran into resistance at 1.9500.
Above figure obstacles include 1.9525, 1.9550, 1.9575, and 1.9600.Touted bear targets south of 1.9459 include 1.9427 (Jan 12 low), 1.9410, 1.9317 (Jan 10 base), 1.9300, 1.9280, and 1.9260 (Jan 8 floor). UK January inflation data is due next Tuesday, with the BoE quarterly inflation report published next Wednesday. Centrica has announced large gas and electricity price cuts from March 12 (FT, p3).
Yen Outlook (9th February 2007)
USD/JPY and the JPY crosses marked time as the G7 meetinggot underway. There was some early nervousness in the wake of a large sell orderin GBP/JPY. The interest forced USD/JPY from the 121.50 area back into 121.25 and sent EUR/JPY 70 pips lower from 158.35 down to 157.65.
JPY continued its familiar theme once the order was filled, with US investment house demand for EUR/JPY and Japanese demand for USD/JPY seeing tentative upside bias. EUR/JPY recaptured 158.00 and USD/JPY moved on 121.50. An unnamed European official claimed there was nothing G7 could do about JPY and it was only Japan that couldaddress weakness. JPY weakened on the news, with USD/JPY trading up to 121.56 and EUR/JPY trading up to 158.20.
Both pairs were unable to sustain gains, with the market drawing the conclusion that Japan could come under pressure behind closed doors even if the communique did not specifically mention JPY. Pullbacks in both pairs are limited, with USD/JPY spending the remainder of the session close to 121.50 and EUR/JPY hovering around the 158.00 area. Choppy price actionwill continue while players wait for any concrete news from the G7.
JPY continued its familiar theme once the order was filled, with US investment house demand for EUR/JPY and Japanese demand for USD/JPY seeing tentative upside bias. EUR/JPY recaptured 158.00 and USD/JPY moved on 121.50. An unnamed European official claimed there was nothing G7 could do about JPY and it was only Japan that couldaddress weakness. JPY weakened on the news, with USD/JPY trading up to 121.56 and EUR/JPY trading up to 158.20.
Both pairs were unable to sustain gains, with the market drawing the conclusion that Japan could come under pressure behind closed doors even if the communique did not specifically mention JPY. Pullbacks in both pairs are limited, with USD/JPY spending the remainder of the session close to 121.50 and EUR/JPY hovering around the 158.00 area. Choppy price actionwill continue while players wait for any concrete news from the G7.
Euro Outlook (9th February 2007)
Into European trading and the option related supply from 1.3040 back to 1.3050, linked to expiries, left the topside looking limited. As a result of this and the broader Dollar rally, linked to G7 Yen & Yuan speculation, the pair worked lower.
Bids into the 1.3000 area were always expected to prop and with the eastern European (that sold yesterday) then found on the bid the price looked to stabilize. Add the mix another quality player on the bid and the price attempted to rebound. Offers around 1.3015 kept the pressure on the downside and speculative sales increased as cable was impacted by poor UK data. Spot moved lower once more, ECB rhetoric also weighed, and the price edged below 1.30.
Asian C/B bids into 1.2990 then emerged to prop but European-led sales cap as the sub-1.2980 stops are eyed.Looking ahead, a push below 1.2980 will put the pair on course for a run at 1.2950 but the Euro remains supported by cross flows and the continual support of reserve managers. As a result stall near the lows is expected with a rebound likely after the topside expiries have rolled-off.
Bids into the 1.3000 area were always expected to prop and with the eastern European (that sold yesterday) then found on the bid the price looked to stabilize. Add the mix another quality player on the bid and the price attempted to rebound. Offers around 1.3015 kept the pressure on the downside and speculative sales increased as cable was impacted by poor UK data. Spot moved lower once more, ECB rhetoric also weighed, and the price edged below 1.30.
Asian C/B bids into 1.2990 then emerged to prop but European-led sales cap as the sub-1.2980 stops are eyed.Looking ahead, a push below 1.2980 will put the pair on course for a run at 1.2950 but the Euro remains supported by cross flows and the continual support of reserve managers. As a result stall near the lows is expected with a rebound likely after the topside expiries have rolled-off.
Thursday, February 08, 2007
USD/JPY: Capped Ahead Of 121, Still More Bouyant, G7 Wait
From a low of 120.00 in Asia and a late high around 120.50, USD/JPY traded on toa high of 120.82 in New York overnight. It has come down a bit since on the backof easier US interest rates but remains buoyant with dealers noting that JPY buy-backs ahead of the weekend G7 meeting have subsided.
If there is no mention of JPY in the G7 communique, players seem ready to sell JPY again, perhaps taking it back above 121.00 early next week. In the meantime, offers from mediumterm longs still looking to pare back positions are seen from the 120.80-90 level, and look to trail higher up to 121.00 and above. Japanese exporters are likely to have some USD to go up top, mostly residuals for the fiscal year to end in March.
Toyota upped its assumed USD/JPY rate for the current fiscal year to 116 from 115 and stands to reap large windfall profits from the exchange rateeven at current levels. Other exporters will likely see the same. Support below is seen just below in the 120.50-60 level, previous resistance and 120.53 the low in New York overnight. London saw a low of 120.36. USD/JPY currently trades 120.62/65.
If there is no mention of JPY in the G7 communique, players seem ready to sell JPY again, perhaps taking it back above 121.00 early next week. In the meantime, offers from mediumterm longs still looking to pare back positions are seen from the 120.80-90 level, and look to trail higher up to 121.00 and above. Japanese exporters are likely to have some USD to go up top, mostly residuals for the fiscal year to end in March.
Toyota upped its assumed USD/JPY rate for the current fiscal year to 116 from 115 and stands to reap large windfall profits from the exchange rateeven at current levels. Other exporters will likely see the same. Support below is seen just below in the 120.50-60 level, previous resistance and 120.53 the low in New York overnight. London saw a low of 120.36. USD/JPY currently trades 120.62/65.
EUR/USD: Trichet Says Communication "Public, Crystal Clear"
Trichet is going out of his way to knock down the notion of the ECB communicating with the markets via anonymous pronouncements like those which moved the market late last week. He stressed the extremely transparent communication policy of the ECB and said there is no reason to speak anonymously.
EUR/USD is working toward session highs as the market assumes multiple hikes ahead from the ECB, to 4% at a minimum from 3.5% presently. A break of 1.3025/30targets a run at 1.3065 highs posted last Friday.
EUR/USD is working toward session highs as the market assumes multiple hikes ahead from the ECB, to 4% at a minimum from 3.5% presently. A break of 1.3025/30targets a run at 1.3065 highs posted last Friday.
EUR/USD: Trichet Strongly Defends ECB Independence
Trichet went as far as to read the relevant passage of the Maastricht Treaty to reiterate the independence of the ECB from government influence, showing he was clearly prepared for the question. EUR/USD is trading in choppy fashion either side of 1.3000. Options-related sales are seen in the 1.3020s with bids eyed in the 1.2970s.
EUR/USD: Lower Inflation Rates in Spring and Summer
Trichet sees inflation dipping through the spring and summer on base effects like oil price rises in the prior year, but inflation rising again later in 2007. The ECB is monitoring wage demands very closely, Trichet said.
No real surprise in the comments as yet, with the market dismissing the notion of an ECB pause in recent days. The Q&A should be interesting as Trichet will undoubtedly be peppered with questions on the topic. EUR/USD has eased to 1.3000. Stops remain below 1.2975 with offers above 1.3025.
No real surprise in the comments as yet, with the market dismissing the notion of an ECB pause in recent days. The Q&A should be interesting as Trichet will undoubtedly be peppered with questions on the topic. EUR/USD has eased to 1.3000. Stops remain below 1.2975 with offers above 1.3025.
USD/JPY: Price Action Choppy As Technical Resistance Gives Way
Technical watchers have pointed out the increased likelihood of a full retracement of the recent down move. The European morning rally saw key levels taken out. The 120.80 level was the downtrend line and 10-day and 21-day moving averages close to 121.00 were also cleared. The last leg higher saw stop losses triggered above 121.30/35, which was also the 61.8% fibo from the 122.20-120.00 move.
This opens up the topside and raises the risk of extended gains. Numerous accounts were involved in the move. Leverage funds and speculative accounts were encouraged by the laissez faire JPY remarks from BOJ's Haru, alongwith the receding G7 risk. The push higher gained momentum above 121.00, where momentum funds and models/CTAs came into the market.
Supply has been noted from a supranational account, also seen yesterday, and a stream of exporter offers. Overbought hourly studies may see pullbacks at increasing frequency, particularly with big accounts sidelined and price action largely driven by short-term/intra-day accounts. Once this feeds through the market we may see large size 121.80-122.00 offers come into play.
This opens up the topside and raises the risk of extended gains. Numerous accounts were involved in the move. Leverage funds and speculative accounts were encouraged by the laissez faire JPY remarks from BOJ's Haru, alongwith the receding G7 risk. The push higher gained momentum above 121.00, where momentum funds and models/CTAs came into the market.
Supply has been noted from a supranational account, also seen yesterday, and a stream of exporter offers. Overbought hourly studies may see pullbacks at increasing frequency, particularly with big accounts sidelined and price action largely driven by short-term/intra-day accounts. Once this feeds through the market we may see large size 121.80-122.00 offers come into play.
EUR/USD: Trichet Strongly Vigilant, Policy Accommodative
The ECB looks set to hike in March and very likely beyond, based on his initial comments. EUR/USD has pushed back above 1.3000, up to 1.3012 thus far. Talk of options-related selling toward 1.3025 remains, dealers report. Also talk of a potential Russian ruble revaluation have made the rounds today, resulting in a larger percentage of reserve holdings for the USD in the Russian currency basket, a shift from recent move to upped the EUR percentage in the basket.
USD/CHF: Fails To Hold 1.25's, EUR/CHF Eyes All-Time Highs
The EUR/USD bounce has again added a little bite to the USD/CHF pullback and spot has just nudged back below 1.2500. However, with offers into 1.30 rebuffing the rebound the failure to hold the 1.25's may not last too long.
Should EUR/USD break back into the 1.30's then a sustained failure will be looked for. Against the Euro the Franc is still under the kosh with EUR/CHF eyeing the all-time high at 1.6261. Offers from 1.6240 back to 1.6250 cap initial strength while above option barriers at 1.6300 will now be eyed should fresh historic levels be probed.
Should EUR/USD break back into the 1.30's then a sustained failure will be looked for. Against the Euro the Franc is still under the kosh with EUR/CHF eyeing the all-time high at 1.6261. Offers from 1.6240 back to 1.6250 cap initial strength while above option barriers at 1.6300 will now be eyed should fresh historic levels be probed.
Swiss Outlook (8th February 2007)
Today Swiss inflation data dented the Swiss rate outlook and as a result the Franc was placed by on the funding-block. CHF carry trade interest has been renewed in the wake of the January 0.7% CPI fall as economists scale-back their expectations for the 2007 tightening. One Swiss player is now looking for just one hike in 2007 (25bps in Q1), while IFR still opt for 2 moves (25bps in Q1 with a further data dependent Q2 25bp move).
USD/CHF was bought from 1.2415 to just shy of 1.2500 before decent sellers finally emerged. Good clumps of offers were absorbed around 1.2430,50 & 1.2465/70. Offers into the 1.2500 are now attempting to stall further Franc weakness but the stops, above 1.2520 & 40, are said to be targeted by short-termaccounts.
Against the Euro the resurgence of carry funding has forced the cross back above 1.6200. The rally from 1.6165 finally encountered decent supply into 1.6225 and dealers again note [EUR/CHF] option barriers into the 1.6300 mark. [GBP/CHF] was bought back above 2.45 but offers ahead of 2.46 have capped further strength.
USD/CHF was bought from 1.2415 to just shy of 1.2500 before decent sellers finally emerged. Good clumps of offers were absorbed around 1.2430,50 & 1.2465/70. Offers into the 1.2500 are now attempting to stall further Franc weakness but the stops, above 1.2520 & 40, are said to be targeted by short-termaccounts.
Against the Euro the resurgence of carry funding has forced the cross back above 1.6200. The rally from 1.6165 finally encountered decent supply into 1.6225 and dealers again note [EUR/CHF] option barriers into the 1.6300 mark. [GBP/CHF] was bought back above 2.45 but offers ahead of 2.46 have capped further strength.
Sterling Outlook (8th February 2007)
The BoE MPC delivers its monthly base rate verdict at 12:00GMT. The majority view is that it will be held at 5.25%, although the risk of another 25bp hike to 5.5% cannot be ruled out, re: last month's unexpected quarter-point increase. NIESR believes the MPC should "err on the side of caution" and hike today.
The Times Shadow MPC voted 6-3 for no change.Touted sell interest at 1.9720, 1.9730/35 and 1.9750 may be rapidly tested, and sated, if the base rate is raised. 1.9730 was today's Asian session high. 1.9735 was yesterday's top. 1.9750 was last Friday's post-NFP high. 1.9917 (Jan 23, 15-year high) and 2.0000 are bull targets north of 1.9750. A raft of exotic option exposure is noted from 2.0000.
Expect some profit-taking on speculative long GBP positions if the base rate is held at 5.25%. This could depress sterling through 1.9658 (European morning two-day low) towards 1.9617 (Tuesday's Asian session top). Bear targets below include 1.9537 (Monday's base) and 1.9483 (Jan 31 floor). 1.9692 (today's Asian session base) marks the rebound top from 1.9658.
The Times Shadow MPC voted 6-3 for no change.Touted sell interest at 1.9720, 1.9730/35 and 1.9750 may be rapidly tested, and sated, if the base rate is raised. 1.9730 was today's Asian session high. 1.9735 was yesterday's top. 1.9750 was last Friday's post-NFP high. 1.9917 (Jan 23, 15-year high) and 2.0000 are bull targets north of 1.9750. A raft of exotic option exposure is noted from 2.0000.
Expect some profit-taking on speculative long GBP positions if the base rate is held at 5.25%. This could depress sterling through 1.9658 (European morning two-day low) towards 1.9617 (Tuesday's Asian session top). Bear targets below include 1.9537 (Monday's base) and 1.9483 (Jan 31 floor). 1.9692 (today's Asian session base) marks the rebound top from 1.9658.
Yen Outlook (8th February 2007)
USD/JPY and most of the JPY crosses traded on a supportive footing after making modest gains in late Asia. JPY was weighed on byremarks from BOJ's Haru. He expressed the virtues of a weaker JPY, which prompted good selling from speculative accounts. USD/JPY traded from 120.80 and up through 121.00.
Follow through demand from model funds and momentum accounts eventually took out 121.20 offers and stops above 121.25. The pair was unable toovercome offers at 121.30 from exporters and a supranational account. EUR/JPY started the session on a bid tone at 157.80 but met good US investment house selling, which sent the pair back into 157.20. Real money demand and proprietarybased interest helped the pair back into the 157.50 area ahead of the North American open.
The market remains focused on today's ECB and the start of the G8meeting. Despite talk of a possible ECB pause after a March interest rate hike, dealers seem to be focusing on hawkish comments from ECB president Trichet and possible remarks on JPY. The G7 meeting while a risk is not expected to specifically target JPY as European officials struggle for wider support.
Follow through demand from model funds and momentum accounts eventually took out 121.20 offers and stops above 121.25. The pair was unable toovercome offers at 121.30 from exporters and a supranational account. EUR/JPY started the session on a bid tone at 157.80 but met good US investment house selling, which sent the pair back into 157.20. Real money demand and proprietarybased interest helped the pair back into the 157.50 area ahead of the North American open.
The market remains focused on today's ECB and the start of the G8meeting. Despite talk of a possible ECB pause after a March interest rate hike, dealers seem to be focusing on hawkish comments from ECB president Trichet and possible remarks on JPY. The G7 meeting while a risk is not expected to specifically target JPY as European officials struggle for wider support.
Euro Outlook (8th February 2007)
Spot was depressed below 1.30 into European trading butthe Euro has been supported on dips ahead of the ECB meeting. Russian EUR sales have weighed on EUR/USD but bids into the 1.2980 area have propped and with the pair carving a 1.2980/3000 short-term range ahead of the verdict the stops seen tight below remain intact for the moment.
These orders are seen around 1.2975 & sub-1.2970 and any triggering of these will increase S/T follow-through sales. Looking ahead, the ECB gives us their verdict on Euro Zone rates at 12:45 GMT. IFR still expect Euro Zone rates to be unchanged (3.5%) and they are aligned with the broader market in this outlook. At the accompanying press conference (after 13:30 GMT) the ECB President, Trichet, is expected to use his favored buzz-word; "vigilance".
Dealers will watch for this word as a signal for furtherhikes and therefore any uttering of such a phrase will be seen to be Euro supportive.Deeper into the North American session and US weekly numbers are early risk withonly the December wholesale numbers to follow (15:00 GMT).
These orders are seen around 1.2975 & sub-1.2970 and any triggering of these will increase S/T follow-through sales. Looking ahead, the ECB gives us their verdict on Euro Zone rates at 12:45 GMT. IFR still expect Euro Zone rates to be unchanged (3.5%) and they are aligned with the broader market in this outlook. At the accompanying press conference (after 13:30 GMT) the ECB President, Trichet, is expected to use his favored buzz-word; "vigilance".
Dealers will watch for this word as a signal for furtherhikes and therefore any uttering of such a phrase will be seen to be Euro supportive.Deeper into the North American session and US weekly numbers are early risk withonly the December wholesale numbers to follow (15:00 GMT).
Wednesday, February 07, 2007
USD/CHF: Attempting To Take Up The Tuesday Slack
Swiss National Bank concerns over the weak currency/inflation link only provideda brief bout of support for the funding currency. A newspaper interview with SNBboard member, Hilderbrand, included the warning that he saw risks for higher inflation from the weak Franc and that a sudden turn in the currency could hurt investors.
The SNB is expected to back up its recent currency rhetoric with an interest rate hike in March and while a 1/4-point move is the consensus there isspeculation that a half-point move could be signaled. USD/CHF fell sharply last session having failed at 1.2520-25 on Monday.
There was a good clear out of stale longs, a hangover from early January, but support at 1.2380 was not threatened and a modest bounce from 1.2390 to 1.2425 seen since the Tuesday close. As with EUR/USD the bigger picture highlights a sideways bias with range extremes set at 1.2375 and 1.2575.
The SNB is expected to back up its recent currency rhetoric with an interest rate hike in March and while a 1/4-point move is the consensus there isspeculation that a half-point move could be signaled. USD/CHF fell sharply last session having failed at 1.2520-25 on Monday.
There was a good clear out of stale longs, a hangover from early January, but support at 1.2380 was not threatened and a modest bounce from 1.2390 to 1.2425 seen since the Tuesday close. As with EUR/USD the bigger picture highlights a sideways bias with range extremes set at 1.2375 and 1.2575.
USD/JPY: Extends Asian Gains To Trade Through 120.50 Offers
USD/JPY extends Asian gains to trade through 120.50/60 offers and stops above to record a 120.63 session high. Broad JPY losses have been behind the flows, with speculative accounts and momentum funds pushing through modest amounts. Good real money interest and importer demand was noted in the low 120's and this encouraged speculative account activity.
The G7 meeting has predictably left a choppy tone in the market. Yesterday's remarks from US Treasury Secretary Paulson played down the emphasis on JPY aheadof the meeting, which has also added to the JPY heaviness in the European morning. A marked shift in sentiment ahead of the meeting though is not to be expected, with positioning expected to be kept to a minimum ahead of the weekend.
As a result, exporter offers and proprietary name selling should offset some of the early morning vigor in USD/JPY price action.Offers are noted from 120.65/70 from proprietary names and CTAs, while exportershave larger size interest coming in at 120.80 up to 121.00.
The G7 meeting has predictably left a choppy tone in the market. Yesterday's remarks from US Treasury Secretary Paulson played down the emphasis on JPY aheadof the meeting, which has also added to the JPY heaviness in the European morning. A marked shift in sentiment ahead of the meeting though is not to be expected, with positioning expected to be kept to a minimum ahead of the weekend.
As a result, exporter offers and proprietary name selling should offset some of the early morning vigor in USD/JPY price action.Offers are noted from 120.65/70 from proprietary names and CTAs, while exportershave larger size interest coming in at 120.80 up to 121.00.
FX OPTIONS: GBP/USD O/N Covers MPC, 1-Week Covers BoE Report
The event risk of tomorrow's BoE MPC rate announcement is lending support to O/N implied option volatility, with 9.5/12.0 touted as the current market. Should the MPC raise the base rate by another 25bp tomorrow, it will be first back-to-back UK rate hike since the year 2000 (Jan & Feb).
The 1-week, meanwhile, is gleaning benefit from the event risk of next Wednesday's publication of the quarterly BoE inflation report. The 1-week is 6.75/7.75 last. An option dealer yesterday suggested that the brave might consider spread selling an O/N option against the purchase of a 1-week strike, in expectation ofan unchanged base rate verdict.
This would shift the market-moving focus to nextweek's BoE inflation report. Minutes from this week's MPC meeting will be published a fortnight today (Feb 21). The 2-week is 6.9/7.6 last.
The 1-week, meanwhile, is gleaning benefit from the event risk of next Wednesday's publication of the quarterly BoE inflation report. The 1-week is 6.75/7.75 last. An option dealer yesterday suggested that the brave might consider spread selling an O/N option against the purchase of a 1-week strike, in expectation ofan unchanged base rate verdict.
This would shift the market-moving focus to nextweek's BoE inflation report. Minutes from this week's MPC meeting will be published a fortnight today (Feb 21). The 2-week is 6.9/7.6 last.
EUR/USD: Caught In the G-7/ECB Cross Wind
Tight price action from the European open, which is indicative of the broader market, and has some basis in the fact that the market has to factor in more than the usual amount of G-7 uncertainty. The market is also trading cautiously ahead of tomorrow's ECB meet, not because of potential rate moves but with regard to the rate outlook for Europe.
EUR/USD failed to make any headway above 1.2990 overnight and despite an early European push to 1.2995 the market appears to be thick with offers up to the 1.30 level. We are hearing of bids at 1.2960-65 and stops are reportedly building under 1.2950. The initial chart points are at 1.2915 and 1.3075, too far from market to provide targets through the early European session.
The bigger picture continues to highlight a sideways bias following the early January price slide from levels approaching 1.3300. Once the ECB has had its say, Thursday, the EUR market will return to the sidelines, moved only by pre-G-7 EUR/JPY activity. It remains to be seen whetherthe Yen has its day at the G-7 or whether the usual pre-meet speculation evaporates, as it usually does.
EUR/USD failed to make any headway above 1.2990 overnight and despite an early European push to 1.2995 the market appears to be thick with offers up to the 1.30 level. We are hearing of bids at 1.2960-65 and stops are reportedly building under 1.2950. The initial chart points are at 1.2915 and 1.3075, too far from market to provide targets through the early European session.
The bigger picture continues to highlight a sideways bias following the early January price slide from levels approaching 1.3300. Once the ECB has had its say, Thursday, the EUR market will return to the sidelines, moved only by pre-G-7 EUR/JPY activity. It remains to be seen whetherthe Yen has its day at the G-7 or whether the usual pre-meet speculation evaporates, as it usually does.
Swiss Outlook (7th February 2007)
USD/CHF opened in NY at 1.2450 had a vain stab at the top, failing at 1.2460 early in the session, then collapsed trading to a low of 1.2388 in early NY afternoon trading. There was a generally negative air about USD/CHF all day, and a steady diet of various EU officials confirming that forexrates will be on the menu at the G7, and that the SNB are not happy with the weakness of the Franc served as a leitmotif for the session.
A news story on Reuters quoting SNB board member Philipp Hildebrand that "more interest rates hikes are needed" and cautioned about unwelcome currency fluctuations sent EUR/CHF into a tailspin, dragging USD/CHF with it. The close was 1.2403, just above the 1.2400 stop level that triggered the test of the lows.
EUR/CHF plummeted to a 1.6085 low from 1.6120 after the Hildebrand comments, andthe pair closed at 1.6098. GBP/CHF opened on the back foot, and collapsed from 2.4500 to 2.4445 as Europe squared up, Hildebrand's comments were the catalyst for a further 25pt drop - the close was 2.4440. CAD/CHF closed down 40pts at 1.0485.
A news story on Reuters quoting SNB board member Philipp Hildebrand that "more interest rates hikes are needed" and cautioned about unwelcome currency fluctuations sent EUR/CHF into a tailspin, dragging USD/CHF with it. The close was 1.2403, just above the 1.2400 stop level that triggered the test of the lows.
EUR/CHF plummeted to a 1.6085 low from 1.6120 after the Hildebrand comments, andthe pair closed at 1.6098. GBP/CHF opened on the back foot, and collapsed from 2.4500 to 2.4445 as Europe squared up, Hildebrand's comments were the catalyst for a further 25pt drop - the close was 2.4440. CAD/CHF closed down 40pts at 1.0485.
Sterling Outlook (7th February 2007)
The GBP/USD opened in Asia at 1.9705 after moving higher on broad USD weakness and a growing wariness that the BOE might surprise again with a hike Thursday. The GBP was given a boost when a REC/KPMG report suggestedthat UK worker pay and demand for staff was "robust". The GBP/USD pushed up to 1.9722.
This was followed by the Nationwide Consumer Confidence Survey that showed a 1 point increase to 84 from the lowest point since the survey started in 2004. The market shrugged off the result and one very good UK seller pushed the GBP/USD down to 1.9686 before bouncing back to 1.9700/10 where it stayed forthe balance of the session. The EUR/GBP consolidated between 0.6587/93.
There is growing number of analysts warning that the BOE just might pull the tightening trigger again on Thursday even though surveys show an overwhelming majority predicting they will stay on hold. Recent secondary data has been strong and the MPC will get a peak at next Tuesday's CPI before they vote. The growing expectation that a rate hike may occur leaves the GBP a bit vulnerable if the MPC votes to stay on hold. UK IP out later today.
This was followed by the Nationwide Consumer Confidence Survey that showed a 1 point increase to 84 from the lowest point since the survey started in 2004. The market shrugged off the result and one very good UK seller pushed the GBP/USD down to 1.9686 before bouncing back to 1.9700/10 where it stayed forthe balance of the session. The EUR/GBP consolidated between 0.6587/93.
There is growing number of analysts warning that the BOE just might pull the tightening trigger again on Thursday even though surveys show an overwhelming majority predicting they will stay on hold. Recent secondary data has been strong and the MPC will get a peak at next Tuesday's CPI before they vote. The growing expectation that a rate hike may occur leaves the GBP a bit vulnerable if the MPC votes to stay on hold. UK IP out later today.
Yen Outlook (7th February 2007)
JPY short-covering interest looks to have abated with USD/JPY holding just above 120.00 in Asia today and EUR/JPY and GBP/JPY showing some bounce. Those who had shorted all three pairs look to be covering up ahead of the upcoming G7. Like Japanese players, overseas players seem to be coming around to the view that even if the weak JPY is discussed at the G7, it would not be singled out in any consequent communique.
US Treasury and MoF officials note that it would only be natural that JPY come up in conversation. US TsySec Paulson also reiterated overnight that current JPY levels reflected fundamentals. From talk in New York of more stops below 120.00, the talk in Tokyo centers more on the amount of bids below this level. To wit, Japanese importers were good buyers early in Asia and look to have sizeable bids trailingdown.
Recent shorts are also seen with bids below. Offers remain from the 120.50-60 level from medium and longer-term players still looking to pare down short JPY positions however. EUR/JPY despite its newfound spunk sees offers fromthe 156.15-20 level. GBP/JPY looks to be capped for now at 237.
US Treasury and MoF officials note that it would only be natural that JPY come up in conversation. US TsySec Paulson also reiterated overnight that current JPY levels reflected fundamentals. From talk in New York of more stops below 120.00, the talk in Tokyo centers more on the amount of bids below this level. To wit, Japanese importers were good buyers early in Asia and look to have sizeable bids trailingdown.
Recent shorts are also seen with bids below. Offers remain from the 120.50-60 level from medium and longer-term players still looking to pare down short JPY positions however. EUR/JPY despite its newfound spunk sees offers fromthe 156.15-20 level. GBP/JPY looks to be capped for now at 237.
Euro Outlook (7th February 2007)
The EUR/USD opened in Asia at 1.2980 after a combination of pre-ECB/Trichet press conference jitters, lower US yields, talk of central bank bids at the lows and a let up in EUR/JPY selling helped the EUR/USD track higher during the Lon/NY sessions. There was talk in early Asia of stops above 1.3000 and the EUR/USD ticked up to 1.2993 early on before sellers just ahead of1.3000 discouraged attempts higher and kept the stops safe.
The EUR/USD fell to 1.2973 on broad, USD/JPY-led USD strength before settling back between 1.2980/90for the balance of the session. The EUR/JPY pushed up from 155.85 to 156.15, as the heavy EUR/JPY unwinding seen in the past few days appears to have died down. Sentiment towards the EUR has improved a bit as the effects of the dovish ECB MNI report last Friday have started to wear off with many analysts expecting Trichet to signal a March rate hike at his press conference tomorrow.
The EUR/JPY selling seen over the past few days appears to have died down, as most are coming around to the view that the G7 meeting this weekend is unlikely to bea major bullish event for the JPY. German IP out later today.
The EUR/USD fell to 1.2973 on broad, USD/JPY-led USD strength before settling back between 1.2980/90for the balance of the session. The EUR/JPY pushed up from 155.85 to 156.15, as the heavy EUR/JPY unwinding seen in the past few days appears to have died down. Sentiment towards the EUR has improved a bit as the effects of the dovish ECB MNI report last Friday have started to wear off with many analysts expecting Trichet to signal a March rate hike at his press conference tomorrow.
The EUR/JPY selling seen over the past few days appears to have died down, as most are coming around to the view that the G7 meeting this weekend is unlikely to bea major bullish event for the JPY. German IP out later today.
Tuesday, February 06, 2007
USD/JPY: Movement Skewed To The Downside After Shallow Recovery
USD/JPY movement is skewed to the downside after a shallow recovery out of the 120.00 area. Middle Eastern interest was tipped as the reason for thebounce out of the lows. The recovery was relatively shallow, with the pair struggling to extend beyond the 120.35 area.
Price action has turned choppy around the 120.30 area, yet with a bias towards another test of 120.00.System funds and proprietary based sellers remain at 120.50 behind interbank interest coming in around the 120.35/40 area.
Larger size selling pressure is not expected to emerge until the high 121's or on a clean break of 120.00. Behind 120.00 there is considerable interest to sell at 119.80. Currently, Japanese real money names and quasi-official activity appears to be taking the edge off of price action.
Price action has turned choppy around the 120.30 area, yet with a bias towards another test of 120.00.System funds and proprietary based sellers remain at 120.50 behind interbank interest coming in around the 120.35/40 area.
Larger size selling pressure is not expected to emerge until the high 121's or on a clean break of 120.00. Behind 120.00 there is considerable interest to sell at 119.80. Currently, Japanese real money names and quasi-official activity appears to be taking the edge off of price action.
USD/CHF: Stalling In 1.2550's Continues
The bout of stalling witnessed in USD/CHF is continuing into North American trading. Spot continues to find its advances rebuffed by offers in the 1.2450's with bears said to be eyeing a drop towards 1.2425/30 before the move lower encounters bidsinto the 1.2400 mark.
GBP/USD: Elicits Support at 1.9670/75 after Pullback]
Sterling has elicited support at 1.9670/75 following its retreat from a fresh intra-week peak of 1.9707. Sell interest at 1.9670/75 temporarily capped GBP/USDearlier today. Intra-day highs just shy of 1.9670 were notched yesterday, pre-UKservice sector PMI. Gain consolidation from yesterday's low of 1.9537 is the big-picture story, withthe risk that the BoE MPC might hike the UK base rate by another 25bp to 5.5% asearly as this Thursday helping underpin.
Thursday hike risk has risen on the back of the strong BRC data disclosed at 00:01GMT, which revealed that UK like-for-like retail sales rose by an annualized 3.1% in January.Option-wise: 1.9625, 1.9620 and 1.9600 strikes roll off at today's 10am EST NY cut (15:00GMT). Flagged offers at 1.9720 and 1.9750 (last Friday's post-NFP peak) are appreciation obstacles north of 1.9707.
Thursday hike risk has risen on the back of the strong BRC data disclosed at 00:01GMT, which revealed that UK like-for-like retail sales rose by an annualized 3.1% in January.Option-wise: 1.9625, 1.9620 and 1.9600 strikes roll off at today's 10am EST NY cut (15:00GMT). Flagged offers at 1.9720 and 1.9750 (last Friday's post-NFP peak) are appreciation obstacles north of 1.9707.
FOREX: ECB Reserves Decline EUR100 mln in Feb 2nd Week
ECB reserves have declined by EUR100 mln in the week ending Feb 2ndwith reserves now at EUR145.3 bln. Reserves have declined a total of EUR3.5 bln over the last four weeks. Gold reserves were down EUR39 mln in the last week dueto sales by one Eurosystem central bank. Gold reserves have declined now for 115out of the last 121 weeks. EUR/USD is currently at 1.2946.
EUR/USD: Easing with Market Eyeing JPY Flurry
A big short-covering rally in USD/JPY is helping drag EUR/USD down in its tight range.Dealers say 120.00 barriers were taken out in the last few minutes and a sharp short-covering rally then followed, taking the rest of the majors along for the rise. Bids are eyed at 1.2930 near-term, followed by 1.2910/15. 1.2960/70 offerscontinue to cap rallies.
US TECHS: Despite Rally in S&P, Sentiment is not Overboard
Mar S&P has rallied about 16% to current levels form the July low, which is a very strong move for this market, especially given the recent lower-volatility environment. A look at a weekly chart shows just how "one-way" this move has been. Given this rally, a more exuberant trading sentiment would be expected but the measure we watch (20-day equity put/call ratio) has simply not shown the kind of overly optimistic readings that have been associated with prior significant tops.
There have been other sentiment readings that have shown a high level of optimism but those have tended to be surveys, rather than measuring what the general trading public is actually doing with short-term money. Given the otherpositives of strong price action and friendly seasonals, the outlook remains fora test of the all-time highs (1550 on the cash index, about another 7% gain) before a significant top starts to develop.
There have been other sentiment readings that have shown a high level of optimism but those have tended to be surveys, rather than measuring what the general trading public is actually doing with short-term money. Given the otherpositives of strong price action and friendly seasonals, the outlook remains fora test of the all-time highs (1550 on the cash index, about another 7% gain) before a significant top starts to develop.
NEWS: Euro Bearing Too Much Burden From JPY and Yuan FX Rates
Euro bearing too much burden from JPY and Yuan FX rates, according to a European G7 official being quoted on Reuters News.
USD/CHF: EUR/USD Pullback Adds Bite To Bounce
The pullback from just shy of 1.2960 in EUR/USD has added bite to the USD/CHF bounce. However, the 1.2450/55 area has been fortified by fresh sellers, as the pressure is seen remaining on the downside sub-1.2450, so London dealers expect to see stalling around this level into early North American trading.
Elsewhere, EUR/CHF continues its slow depreciation back towards the 1.6100 area.Short-term accounts have used the recent break below 1.6120 as a signal that a return to 1.6060 could be on the cards and the running of the stops tight below has only served to aid their cause.Domestic dealers still look to Swiss data.
Swiss CPI is due on Thursday (06:45 GMT) and economists now look for a January reading of -0.3% on month with +0.5% eyed on the year. A monthly decline into the New Year will confirm the current picture of a benign inflation outlook but will not dampen the prospect of further SNB rate hikes in Q1 & Q2.
Elsewhere, EUR/CHF continues its slow depreciation back towards the 1.6100 area.Short-term accounts have used the recent break below 1.6120 as a signal that a return to 1.6060 could be on the cards and the running of the stops tight below has only served to aid their cause.Domestic dealers still look to Swiss data.
Swiss CPI is due on Thursday (06:45 GMT) and economists now look for a January reading of -0.3% on month with +0.5% eyed on the year. A monthly decline into the New Year will confirm the current picture of a benign inflation outlook but will not dampen the prospect of further SNB rate hikes in Q1 & Q2.
EUR/USD: Shades of Summer as EUR Wallows
Price action of late harkens back to last summer when EUR/USD plied narrow, option- constrained ranges. The underlying fundamentals are slightly altered with central bank reserve diversification a bit more prevalent of late but rallies are limited as the market slowly sheds its USD-bearish outlook owing to solid near-term US fundamentals.
EUR/USD was able to stage a modest range-extension rally in Europe this morning, triggering stops above the 1.2940/45 area but follow-through has been underwhelming. The US calendar is empty save for Fed speakers today. Bernanke speaks, but the subject is income inequality and there is no Q&A period, so expect little market-moving news from this address. The 1.2910/15 area continues to contain dips near-term while 1.2960/80 is toppish near-term.
EUR/USD was able to stage a modest range-extension rally in Europe this morning, triggering stops above the 1.2940/45 area but follow-through has been underwhelming. The US calendar is empty save for Fed speakers today. Bernanke speaks, but the subject is income inequality and there is no Q&A period, so expect little market-moving news from this address. The 1.2910/15 area continues to contain dips near-term while 1.2960/80 is toppish near-term.
USD/JPY: Edges Towards 120.00 Triggers Amid Fund Selling
Momentum fund selling has sent USD/JPY towards the 120.00 triggers. The fund activity picked as USD/JPY made steady downside progress after topping out at 120.50/55 midway in the European morning. Sellers have included large Japanese names, a UK clearer and a US investment house.
Demand has been noted from real money name and a quasi-official account believed to be Kampo. Options support is also prevalent at these levels ahead of a large 120-123 trigger whichis due to run until Friday. A break of 120.00 would trigger a considerable amount of stops, with further interest noted at 119.80 and 119.70 according to sources.
Demand has been noted from real money name and a quasi-official account believed to be Kampo. Options support is also prevalent at these levels ahead of a large 120-123 trigger whichis due to run until Friday. A break of 120.00 would trigger a considerable amount of stops, with further interest noted at 119.80 and 119.70 according to sources.
Swiss Outlook (6th February 2007)
The Franc has been bought back once more in European morning trading and EUR/CHF sales are reported to have weighed on USD/CHF. The cross running stops on the drop below 1.6120 helped depress the Dollar pair below 1.2450 and 1.2400 is now eyed by bears as EUR/CHF eyes a run at 1.6100.
However, dealers note downside strikes that may limit/stall further weakness.Looking ahead, a North American session of rhetoric is eyed with Paulson, Moskow& Bernanke all set to speak. Weekly Redbook retail numbers are set for release at 13:55 GMT but the attention will then turn to the Paulson testimony in Washington (15:00 GMT). Following this, Moskow is set to speak in Chicago after 18:00 GMT with the key-note Bernanke address due around 18:30 GMT. Domestic dealers still look to Swiss data.
Swiss CPI is due on Thursday (06:45 GMT) and economists now look for a January reading of -0.3% on month with +0.5% eyed on the year. A monthly decline into the New Year will confirm the current picture of a benign inflation outlook but will not dampen the prospect of further SNB rate hikes in Q1 & Q2.
However, dealers note downside strikes that may limit/stall further weakness.Looking ahead, a North American session of rhetoric is eyed with Paulson, Moskow& Bernanke all set to speak. Weekly Redbook retail numbers are set for release at 13:55 GMT but the attention will then turn to the Paulson testimony in Washington (15:00 GMT). Following this, Moskow is set to speak in Chicago after 18:00 GMT with the key-note Bernanke address due around 18:30 GMT. Domestic dealers still look to Swiss data.
Swiss CPI is due on Thursday (06:45 GMT) and economists now look for a January reading of -0.3% on month with +0.5% eyed on the year. A monthly decline into the New Year will confirm the current picture of a benign inflation outlook but will not dampen the prospect of further SNB rate hikes in Q1 & Q2.
Sterling Outlook (6th February 2007)
Demand for the pound was seen from the European open, as the continent absorbed the 00:01GMT disclosure that UK like-for-like retail sales rose by an annualized 3.1% in January (BRC data). The strong number raises the risk of the BoE MPC hiking the UK base rate by another 25bp to 5.5% as earlyas this Thursday.
This would be the first back-to-back hike since the year 2000.GBP/USD offers are touted at 1.9700, 1.9720 and 1.9750 (Friday's post-NFP high).1.9750 also approximates to a 61.8% Fibo retracement point of the fall from 1.9917 (Jan 23, 15-year high) to last Wednesday's 19-day low of 1.9483. 1.9670 is now a pullback support point. Intra-day highs just shy of 1.9670 were notched yesterday, pre-UK service sector PMI. 1.9620/25 is a prop window below. 1.9620/25 option strikes roll off at today's 10am EST NY cut (15:00GMT).
European name selling has helped depress EUR/GBP to an 11-day low of 0.6575. Support points below include 0.6570 and 0.6560. Stops are tipped sub-0.6560. US Treasury Secretary Paulson is slated to speak at 15:00GMT. Fed Governor Bernanke is due to speak at/after 17:45GMT.
This would be the first back-to-back hike since the year 2000.GBP/USD offers are touted at 1.9700, 1.9720 and 1.9750 (Friday's post-NFP high).1.9750 also approximates to a 61.8% Fibo retracement point of the fall from 1.9917 (Jan 23, 15-year high) to last Wednesday's 19-day low of 1.9483. 1.9670 is now a pullback support point. Intra-day highs just shy of 1.9670 were notched yesterday, pre-UK service sector PMI. 1.9620/25 is a prop window below. 1.9620/25 option strikes roll off at today's 10am EST NY cut (15:00GMT).
European name selling has helped depress EUR/GBP to an 11-day low of 0.6575. Support points below include 0.6570 and 0.6560. Stops are tipped sub-0.6560. US Treasury Secretary Paulson is slated to speak at 15:00GMT. Fed Governor Bernanke is due to speak at/after 17:45GMT.
Yen Outlook (6th February 2007)
JPY consolidated after broad demand in Asia. USD/JPY traded towards 120.00 but was unable to sustain these gains amid good demand from a quasi-official name. This fueled profit taking in the European session. The pair tested the topside but met good selling interest from 120.50/55. Japanese names were good sellers on behalf of system accounts and model funds.
AUK clearer and a US investment house were also noted to have an interest and this soaked up demand from a trust bank in the 120.30's and 120.20. Option triggers at 120.00 limited the extent of JPY gains . Elsewhere, EUR/JPY traded on a supportive footing after bouncing out of 155.25. The pair traded through 155.50 and 155.60 offers to test 156.00. Japanese offers capped gains and the pair drifted lower amid good speculative account selling.
Japanese real money bids supported the pair, leaving narrow European trading ranges. Bias for both pairs is expected to remain on the downside, with pre-G7 position adjustment andrisk reduction underpinning JPY. USD/JPY 120.00 and 119.80 triggers are pivotal,while EUR/JPY also sees good interest between 155.25 and 155.00.
AUK clearer and a US investment house were also noted to have an interest and this soaked up demand from a trust bank in the 120.30's and 120.20. Option triggers at 120.00 limited the extent of JPY gains . Elsewhere, EUR/JPY traded on a supportive footing after bouncing out of 155.25. The pair traded through 155.50 and 155.60 offers to test 156.00. Japanese offers capped gains and the pair drifted lower amid good speculative account selling.
Japanese real money bids supported the pair, leaving narrow European trading ranges. Bias for both pairs is expected to remain on the downside, with pre-G7 position adjustment andrisk reduction underpinning JPY. USD/JPY 120.00 and 119.80 triggers are pivotal,while EUR/JPY also sees good interest between 155.25 and 155.00.
Euro Outlook (6th February 2007)
Ignoring weaker than expected data has been the theme forthe European morning. Into early trading and the dip to 1.2913 saw good buyers emerge and US investment houses bought the pair back through the 1.2920's.
Offers in the 1.2930 were then absorbed ahead of Euro Zone data. Sales back to 1.2940 were filled ahead of the German economic numbers in a similar price action. Into NorAm trading and spot has run above 1.2950 to remove stops but more are now seen above 1.2960 before the rumoured official sales into 1.2970. Looking ahead, a North American session of rhetoric is eyed with Paulson, Moskow& Bernanke all set to speak. Weekly Redbook retail numbers are set for release at 13:55 GMT but the attention will then turn to the Paulson testimony in Washington (15:00 GMT).
Following this, Moskow is set to speak in Chicago after 18:00 GMT with the key-note Bernanke address due around 18:30 GMT.On the options front, decent sized 1.3000 strikes are due to expire at the NY cut at 15:00 GMT. Should the topside stay in focus then these could weigh later in the session with large 1.31 strikes also maturing intraday.
Offers in the 1.2930 were then absorbed ahead of Euro Zone data. Sales back to 1.2940 were filled ahead of the German economic numbers in a similar price action. Into NorAm trading and spot has run above 1.2950 to remove stops but more are now seen above 1.2960 before the rumoured official sales into 1.2970. Looking ahead, a North American session of rhetoric is eyed with Paulson, Moskow& Bernanke all set to speak. Weekly Redbook retail numbers are set for release at 13:55 GMT but the attention will then turn to the Paulson testimony in Washington (15:00 GMT).
Following this, Moskow is set to speak in Chicago after 18:00 GMT with the key-note Bernanke address due around 18:30 GMT.On the options front, decent sized 1.3000 strikes are due to expire at the NY cut at 15:00 GMT. Should the topside stay in focus then these could weigh later in the session with large 1.31 strikes also maturing intraday.
Monday, February 05, 2007
GBP/USD: Stops Below 1.9550 Tripped, New Five-Day Lows Plumbed
Tripped stops below 1.9550 have helped depress cable to new five-daylows just south of 1.9540, against a backdrop of lessened risk of a UK rate hiketo 5.5% this Thursday. That lessened hike risk derives from January's disappointing UK service sector PMI. 1.9550 is now a rebound resistance level.
Upper obstacles include 1.9564 (today's London morning low), 1.9590, 1.9600, 1.9628 (today's Asian session base), and 1.9638 (Friday's floor). 1.9510 and 1.9483 (last Wednesday's 19-day low) are touted bear targets under 1.9535/40. News-wise: experts are still trying to determine the source of an outbreak of H5N1 bird flu at a Suffolk farm as a cull of thousands of turkeys nears its end (BBC website).
On the M&A front: American private equity company Apollo is reportedly planning a GBP 950mn bid for Countrywide (Sunday Times). January's US ISM non-manufacturing index will be disclosed at 15:00GMT. Forecast: 57.0, from 56.7 in December.
Upper obstacles include 1.9564 (today's London morning low), 1.9590, 1.9600, 1.9628 (today's Asian session base), and 1.9638 (Friday's floor). 1.9510 and 1.9483 (last Wednesday's 19-day low) are touted bear targets under 1.9535/40. News-wise: experts are still trying to determine the source of an outbreak of H5N1 bird flu at a Suffolk farm as a cull of thousands of turkeys nears its end (BBC website).
On the M&A front: American private equity company Apollo is reportedly planning a GBP 950mn bid for Countrywide (Sunday Times). January's US ISM non-manufacturing index will be disclosed at 15:00GMT. Forecast: 57.0, from 56.7 in December.
USD/CHF: Consolidating 1.25's Despite EUR/CHF Sales
The broader Dollar strength is helping USD/CHF consolidate the break back into the 1.25's. However, EUR/CHF sales are offsetting further strength in the Dollarpair as German & Swiss sell orders are worked. The sell orders are said to have been instigated on the European run to 1.6185 but they are now depressing trading with any increase in volume expected to push the price back below 1.6160.
Bids in the cross into the 1.6150 mark are eyed by many as an indicator to further Franc strength so bulls will look to defend this trigger.USD/CHF offers into 1.2520 cap but a return to the 1.2545/50 area will be lookedfor should the US strengthen further.
Bids in the cross into the 1.6150 mark are eyed by many as an indicator to further Franc strength so bulls will look to defend this trigger.USD/CHF offers into 1.2520 cap but a return to the 1.2545/50 area will be lookedfor should the US strengthen further.
EUR/USD: Erosion Slowing; In Central Bank's Sweet Spot
EUR/USD made a tentative probe at the 1.2920 level not long again, but dealers are reluctant to push too hard to the downside, mindful of weeks of central bank buy interest in the 1.2875/1.2925 region since early in January. The important 100-day moving average has risen to 1.2903 today and bears watching.
Cross pressures are the main drag on EUR/USD today as EUR/JPY looks likely to be a keen topic of discussion at the upcoming G7 meeting whether or not any mention of it is made in the communique. Upbeat Eurozone service sector PMI is being given short-shrift this morning with the market awaiting guidance from Trichet on Thursday.
US non-manufacturing ISM is the highlight this morning, seen dipping to 57.0 from 57.1 in December. Offers start at 1.2940 in EUR/USD whole bids are seen scattered down to 1.2900 near-term.
Cross pressures are the main drag on EUR/USD today as EUR/JPY looks likely to be a keen topic of discussion at the upcoming G7 meeting whether or not any mention of it is made in the communique. Upbeat Eurozone service sector PMI is being given short-shrift this morning with the market awaiting guidance from Trichet on Thursday.
US non-manufacturing ISM is the highlight this morning, seen dipping to 57.0 from 57.1 in December. Offers start at 1.2940 in EUR/USD whole bids are seen scattered down to 1.2900 near-term.
Swiss Outlook (5th February 2007)
USD/CHF spent the European morning looking supported oin dips while sales in EUR/CHF offset the potential for further gains. Into North American trading and USD/CHF is attempting to consolidate the break back into the 1.25's but dealers still see thick offers from 1.2545 back to 1.2600/05.Looking ahead, US data is set for release at 15:00 GMT.
January Non-Manf. ISM data is the key short-term event-risk for USD/CHF and economists currently opt for a 57.0 reading. Risk is skewed on the downside after the soft manf. data so a weak headline will place the sub-1.2465 & 50 under pressure. Domestic players look to the Swiss data set for release later in the week. In the wake of the Roth avoidance of the monetary policy issue, in his most recent speech, dealers are awaiting a hard data fix.
Should the data point to the need for more aggressive tightening then expect the Franc to rally/correct further but should it only point to the need for a more moderate 25bp hike; then the status quo will be maintained and expect the CHF outlook to look little altered in the longer-term.
January Non-Manf. ISM data is the key short-term event-risk for USD/CHF and economists currently opt for a 57.0 reading. Risk is skewed on the downside after the soft manf. data so a weak headline will place the sub-1.2465 & 50 under pressure. Domestic players look to the Swiss data set for release later in the week. In the wake of the Roth avoidance of the monetary policy issue, in his most recent speech, dealers are awaiting a hard data fix.
Should the data point to the need for more aggressive tightening then expect the Franc to rally/correct further but should it only point to the need for a more moderate 25bp hike; then the status quo will be maintained and expect the CHF outlook to look little altered in the longer-term.
Sterling Outlook (5th February 2007)
The probability of another 25bp UK base rate hike to 5.5%as early as this Thursday has lessened on the back of the 09:30GMT disclosure ofJanuary's sub-forecast UK service sector PMI. This fell to 59.2, from 60.6 in December. A more modest drop to 60.0 was expected. The pound was sold on the back of the disappointing number, with tripped stops below 1.9600 helping depress cable to a five-day low of 1.9564.
EUR/GBP ascendedthrough 0.6600 to a high of 0.6610. Stops are tipped above 0.6615.GBP/USD bear targets south of 1.9564 are touted at 1.9550, 1.9510 and 1.9483 (last Wednesday's 19-day low). 1.9590 and 1.9600 are now rebound resistance levels. Upper obstacles include 1.9628 (today's Asian session base), 1.9638 (last Friday's floor), 1.9668 (today's Asian session top) 1.9700, and 1.9750.
News-wise: the source of an outbreak of H5N1 bird flu at a Suffolk farm is beingsought as a cull of thousands of turkeys nears its end (BBC website). January's US ISM non-manufacturing index will be unveiled at 15:00GMT. Forecast:57.0, from 56.7 in December.
EUR/GBP ascendedthrough 0.6600 to a high of 0.6610. Stops are tipped above 0.6615.GBP/USD bear targets south of 1.9564 are touted at 1.9550, 1.9510 and 1.9483 (last Wednesday's 19-day low). 1.9590 and 1.9600 are now rebound resistance levels. Upper obstacles include 1.9628 (today's Asian session base), 1.9638 (last Friday's floor), 1.9668 (today's Asian session top) 1.9700, and 1.9750.
News-wise: the source of an outbreak of H5N1 bird flu at a Suffolk farm is beingsought as a cull of thousands of turkeys nears its end (BBC website). January's US ISM non-manufacturing index will be unveiled at 15:00GMT. Forecast:57.0, from 56.7 in December.
Yen Outlook (5th February 2007)
Caution prevails as we move towards the G-7 powerhouse meeting with little seemingly unable to deter the Yen carry brigade other than the usualcaution ahead, wary of remotely unexpected announcements. It remains difficult to see a break in the range either side of 120-122 while the market remains apparently transfixed upon "what the Bank of Japan wants".
Given the activity within the U.S. Treasury market of late, it could be argued whether we have a sterilized or at least semi-pasteurized range of 120-122. That in itself begs the question if the market is in a period of remote control or being remotely controlled. Several still conclude that in the event of another G-7 damp squib we will return on the road towards USD/JPY 125 with only one seemingly interested party building a dam against market forces.
For the remainder of the day at least, we continue to reflect upon indigenous names bidding at 120.20 while offering the topside 100 points higher at 121.20, sandwiched in between are those creating the intraday volume.
Given the activity within the U.S. Treasury market of late, it could be argued whether we have a sterilized or at least semi-pasteurized range of 120-122. That in itself begs the question if the market is in a period of remote control or being remotely controlled. Several still conclude that in the event of another G-7 damp squib we will return on the road towards USD/JPY 125 with only one seemingly interested party building a dam against market forces.
For the remainder of the day at least, we continue to reflect upon indigenous names bidding at 120.20 while offering the topside 100 points higher at 121.20, sandwiched in between are those creating the intraday volume.
Euro Outlook (5th February 2007)
European trading saw the Asian sell-off work spot back to1.2930. EUR/JPY sales on the FT article on pre-G7 Yen wariness weighed but this was soon offset by the European buying on whispers of an upbeat Euro Zone data release. Trading bounced and spot began to absorb the supply from 1.2960 to 1.2970 but the stops around 75 remained intact as post-PMI profit-taking impacted.
The EZ data beat expectations by a whole figure but the Euro failed tomake further gains and sellers into strength remained to depress spot back towards the 1.2930 area. Official buyers are noted into the 1.2915/20 area whilemore bids are seen into 1.2900 with stops below. More offers 1.2985 & 1.3000. Looking ahead, US data is set for release at 15:00 GMT. January Non Manf. ISM data is the key short-term event-risk for USD/CHF and economists currently opt for a 57.0 reading.
Risk is skewed on the downside after the soft manf. data so a weak headline will place the topside stops in jeopardy.On the downside, 1.2900/05 is seen as both key support and a technical trigger so watch for a break below here.
The EZ data beat expectations by a whole figure but the Euro failed tomake further gains and sellers into strength remained to depress spot back towards the 1.2930 area. Official buyers are noted into the 1.2915/20 area whilemore bids are seen into 1.2900 with stops below. More offers 1.2985 & 1.3000. Looking ahead, US data is set for release at 15:00 GMT. January Non Manf. ISM data is the key short-term event-risk for USD/CHF and economists currently opt for a 57.0 reading.
Risk is skewed on the downside after the soft manf. data so a weak headline will place the topside stops in jeopardy.On the downside, 1.2900/05 is seen as both key support and a technical trigger so watch for a break below here.
Saturday, February 03, 2007
Swiss Outlook (2nd February 2007)
Franc buy-backs have continued ahead of the weekend and EUR/CHF sales have weighed on USD/CHF with trading absorbing the 1.2420/25 demand late-on. Bids trail to 1.2400 while EUR/CHF eyes sub-1.6165 & 1.6150. Looking ahead, SNB Chairman, Roth's, failure to broach the subject of CHF weakness in his recent speech will force USD/CHF to be driven by external factors in the short-run.
As a result the 13:30 GMT US Employment report will generate the afternoon bias. Stops are noted above 1.2460 & 75 on the topside should the Dollar strengthen with sellers into 1.2500 then eyed while the sub-1.24 stops (tipped at around 1.2380) will be eyed on further weakness. On the options front, dealers note the EUR 500Mln 1.6120 strikes set to roll off at the NY cut (15:00 GMT).
While these may act as a weight dealers note an increase of downside interest in both EUR/CHF & USD/CHF. EUR/CHF 1.6050,60 & 75 strikes roll off into next week while traders note the USD/CHF recommendation to buy Q1 SNB downside exotics. A French player touted a March 15th 1.2225 one-touch trades while a US player talks of longer dated 1.2000 exotics.
As a result the 13:30 GMT US Employment report will generate the afternoon bias. Stops are noted above 1.2460 & 75 on the topside should the Dollar strengthen with sellers into 1.2500 then eyed while the sub-1.24 stops (tipped at around 1.2380) will be eyed on further weakness. On the options front, dealers note the EUR 500Mln 1.6120 strikes set to roll off at the NY cut (15:00 GMT).
While these may act as a weight dealers note an increase of downside interest in both EUR/CHF & USD/CHF. EUR/CHF 1.6050,60 & 75 strikes roll off into next week while traders note the USD/CHF recommendation to buy Q1 SNB downside exotics. A French player touted a March 15th 1.2225 one-touch trades while a US player talks of longer dated 1.2000 exotics.
Sterling Outlook (2nd February 2007)
Sterling remains the out-performer in the markets at the moment and the support for Sterling dips continues to highlight the demand for GBP ahead of potential further rate hikes from the BoE. In the short-run dealers eye the US employment report at 13:30 GMT as the key event-risk.
A 150K or there-abouts release will maintain the status-quo into the weekend while and significantly different release will give cable its directional bias. From 1-week highs of 1.9735, recorded last session, the market has placed offers tight above 1.9700 and is currently chasing the bid under 1.9650.
Key support comes in at 1.9620 and then 1.9600-10 and we are hearing of stops under 1.9600. On the options front, a GBP 100Mln 1.9600 strike rolls off at the NY cut at 15:00 GMT while into next week 1.9470 expiries could prop on dips.
In other news: UK PM, Tony Blair, issued a statement today that he will NOT resign while further Sterling supportive M&A news centers on the potential leveraged buy-out of UK Grocer Sainsburys.
A 150K or there-abouts release will maintain the status-quo into the weekend while and significantly different release will give cable its directional bias. From 1-week highs of 1.9735, recorded last session, the market has placed offers tight above 1.9700 and is currently chasing the bid under 1.9650.
Key support comes in at 1.9620 and then 1.9600-10 and we are hearing of stops under 1.9600. On the options front, a GBP 100Mln 1.9600 strike rolls off at the NY cut at 15:00 GMT while into next week 1.9470 expiries could prop on dips.
In other news: UK PM, Tony Blair, issued a statement today that he will NOT resign while further Sterling supportive M&A news centers on the potential leveraged buy-out of UK Grocer Sainsburys.
Yen Outlook (2nd February 2007)
Japanese investor demand weighed on JPY. USD/JPY climbed from 120.65 back into 121.00. Good size interest was noted from a Japanese securities house reportedly working an interest on behalf of real money names. Interbank names and model funds joined the buying, yet good size offers from 121.00 capped.
A clean break above 121.00 (121.05/10) would trigger modest size stops and increase momentum, with some CTAs and momentum funds expected to buy the break. European players were encouraged by remarks from US Treasury Secretary Paulson last night. He said that he has been watching JPY more closely since the European complaints. However, JPY was still set in free and fair markets, which allayed fears of any US reprisals at the G7.
This has fueled short covering rather than fresh positioning, yet could result in an increase in speculative positioning and leverage fund activity as the market looks for yield. Japanese investment trust launches are also expected to weigh on JPY, with a clearer and a securities house working a good interest against a variety of currencies. EUR/JPY has benefited, rallying from 157.10 up to 157.60.
A clean break above 121.00 (121.05/10) would trigger modest size stops and increase momentum, with some CTAs and momentum funds expected to buy the break. European players were encouraged by remarks from US Treasury Secretary Paulson last night. He said that he has been watching JPY more closely since the European complaints. However, JPY was still set in free and fair markets, which allayed fears of any US reprisals at the G7.
This has fueled short covering rather than fresh positioning, yet could result in an increase in speculative positioning and leverage fund activity as the market looks for yield. Japanese investment trust launches are also expected to weigh on JPY, with a clearer and a securities house working a good interest against a variety of currencies. EUR/JPY has benefited, rallying from 157.10 up to 157.60.
Euro Outlook (2nd February 2007)
Into the NorAm open and the US Employment report, due at 13:30 GMT, has kept the bulk of the market on the sidelines during Friday trading. As a result, EUR/USD continued to trade inside the already formed 1.3015/30 range. The broader 1.3000/50 comfort-zone has failed to be troubled as spot flat-lined to pivot 1.3020, the level where a fair sized expiry sits at the NY cut (15:00 GMT).
The early European dip was soon corrected as bids into 1.3010/15 left the downside limited and Euro Zone data failed to impact the market significantly. Offers again trail from 1.3040 back to 1.3050 with talk of O/N 1.3050 strikes set to expire also. On the downside stops are seen from 1.2990 back to 1.2980 before official demand into the 1.2975/80 area kicks in. Stops are also seen above 1.3055 but not in great size.
Looking ahead, it will be the US numbers that set the tone for the pre- weekend directional bias with economists opting for a 149K consensus. A strong number will have EUR/USD looking for a close back below 1.30 while a weak number will have trading eyeing a 1.3060+ contra bear-trend close higher.
The early European dip was soon corrected as bids into 1.3010/15 left the downside limited and Euro Zone data failed to impact the market significantly. Offers again trail from 1.3040 back to 1.3050 with talk of O/N 1.3050 strikes set to expire also. On the downside stops are seen from 1.2990 back to 1.2980 before official demand into the 1.2975/80 area kicks in. Stops are also seen above 1.3055 but not in great size.
Looking ahead, it will be the US numbers that set the tone for the pre- weekend directional bias with economists opting for a 149K consensus. A strong number will have EUR/USD looking for a close back below 1.30 while a weak number will have trading eyeing a 1.3060+ contra bear-trend close higher.
Thursday, February 01, 2007
Swiss Outlook (1st February 2007)
The Franc has overlooked mixed domestic data intraday as dealers remain wary over the Roth speech. Sales in USD/CHF into 1.2460 capped the early European correction and the price has since drifted lower. Bids into 1.2425 still prop the downside but better size demand is seen at 1.2400.
On the topside more sellers are seen into 1.2475/80 with talk of stops now above 1.25. The downside in EUR/CHF has continued to be pressured intraday with medium-term targets now eyeing 1.6060 should the move lower continue. Stops in the cross were triggered in the break under 1.6200 and 1.6188 has printed thus far. One Swiss bank has again reaffirmed their belief that the cross will be at 1.60 at the end of Q1 & 1.58 in Q2.
The SNB's Roth is due to speak later today (after 14:00 GMT) on central bank policy and the housing market but many are wary that his rhetoric will hold a more hawkish tone. A 25bps hike in Q1 is widely expected but some are already talking up the 50bp Q1 potential so any such tone will give credence to this argument and give the Franc another boost.
On the topside more sellers are seen into 1.2475/80 with talk of stops now above 1.25. The downside in EUR/CHF has continued to be pressured intraday with medium-term targets now eyeing 1.6060 should the move lower continue. Stops in the cross were triggered in the break under 1.6200 and 1.6188 has printed thus far. One Swiss bank has again reaffirmed their belief that the cross will be at 1.60 at the end of Q1 & 1.58 in Q2.
The SNB's Roth is due to speak later today (after 14:00 GMT) on central bank policy and the housing market but many are wary that his rhetoric will hold a more hawkish tone. A 25bps hike in Q1 is widely expected but some are already talking up the 50bp Q1 potential so any such tone will give credence to this argument and give the Franc another boost.
Sterling Outlook (1st February 2007)
Tripped stops above 1.9671 (yesterday's post-FOMC peak) helped cable push its recovery envelope from yesterday's 19-day low of 1.9483 to a fresh peak of 1.9684 late in the London morning. Corporate sell interest is touted at 1.9700--three pips above Tuesday's five-day high notched on the back of good size GBP/JPY buying.
Helping underpin the pound is January's much better-than-expected UK manufacturing sector PMI. This rose to 52.8, from an upwardly revised 52.0 in December, against a forecast deterioration to 51.7. The strong number is good news for UK rate hawks variously touting another 25bp base rate hike to 5.5% next week/next month/in April/in May. 1.9671 is now a pullback support point.
Lower props include 1.9655 (today's Asian session top), 1.9623 (early Europe intra-day low), 1.9600, and 1.9550. A batch of US data is due at 13:30GMT, inclusive of December's core PCE deflator. Forecast: +2.3% y/y, from 2.2% previously. January's ISM manufacturing index ensues at 15:00GMT. Forecast: 51.8.
Helping underpin the pound is January's much better-than-expected UK manufacturing sector PMI. This rose to 52.8, from an upwardly revised 52.0 in December, against a forecast deterioration to 51.7. The strong number is good news for UK rate hawks variously touting another 25bp base rate hike to 5.5% next week/next month/in April/in May. 1.9671 is now a pullback support point.
Lower props include 1.9655 (today's Asian session top), 1.9623 (early Europe intra-day low), 1.9600, and 1.9550. A batch of US data is due at 13:30GMT, inclusive of December's core PCE deflator. Forecast: +2.3% y/y, from 2.2% previously. January's ISM manufacturing index ensues at 15:00GMT. Forecast: 51.8.
Yen Outlook (1st February 2007)
JPY traded on a firmer footing as speculative accounts continued to reduce some of their exposure to short JPY positions. Japanese officials responded to recent pressure, suggesting that JPY would not feature as the main discussion at the G7 meeting. They asserted that the market should determine JPY values, yet added the standard line that forex movement should reflect fundamentals.
USD/JPY and the JPY crosses largely ignored the Japanese rhetoric and spent a large part of the session challenging interest on the downside. USD/JPY pushed on the 120.50 area and eventually took at bid interest from macro accounts and option names. The pair extended lower to trade through Japanese support at 120.40 to record a 120.36 low.
Reports of quasi-official interest emerged on dips and the remainder of the European morning resulted in slow price action close to 120.40, with technical based accounts and model funds running into Japanese name bids. EUR/JPY saw a similar pattern, trading below 156.80 after a number of failed attempts. Real money name support stemmed the losses, yet bias remains on the downside amid steady selling pressure.
USD/JPY and the JPY crosses largely ignored the Japanese rhetoric and spent a large part of the session challenging interest on the downside. USD/JPY pushed on the 120.50 area and eventually took at bid interest from macro accounts and option names. The pair extended lower to trade through Japanese support at 120.40 to record a 120.36 low.
Reports of quasi-official interest emerged on dips and the remainder of the European morning resulted in slow price action close to 120.40, with technical based accounts and model funds running into Japanese name bids. EUR/JPY saw a similar pattern, trading below 156.80 after a number of failed attempts. Real money name support stemmed the losses, yet bias remains on the downside amid steady selling pressure.
Euro Outlook (1st February 2007)
Late Asian trading saw spot work lower as the option related sales contained the post-FOMC strength to 1.3042. The offers are said to trail back to 1.3050 and are linked to the topside trigger of the 1.2850/3050 DNT that will expires soon (both NY cut at 15:00 GMT & Tokyo cut at 06:00 GMT tomorrow are rumoured). The pair eased lower in Europe as cross sales added pressure. However, talk of central bank buy interest into 1.2990 dissuaded aggressive sellers and momentum soon waned. Thus reinforcing the 1.3000/50 band.
Looking ahead, more US data is set for release intraday. This could increase the volatile nature of spot in the short-run with the deluge kicking off at 12:30 GMT. Challenger job cut numbers will be followed by the 13:30 GMT release of weekly jobless & December personal income&speding data. Attention then turns to the 15:00 GMT brace of Dec pending home sales and Jan ISM. Only a break outside 1.3000/50 will add momentum with topside stops reported around 1.3055 before the next layer of sellers while 1.2970/75 is seen as a significant downside technical trigger.
Looking ahead, more US data is set for release intraday. This could increase the volatile nature of spot in the short-run with the deluge kicking off at 12:30 GMT. Challenger job cut numbers will be followed by the 13:30 GMT release of weekly jobless & December personal income&speding data. Attention then turns to the 15:00 GMT brace of Dec pending home sales and Jan ISM. Only a break outside 1.3000/50 will add momentum with topside stops reported around 1.3055 before the next layer of sellers while 1.2970/75 is seen as a significant downside technical trigger.
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