There are a number of potentially market-moving UK event risks this week, inclusive of tomorrow's disclosure of February inflation figures, Wednesday's publication of minutes from the March 7/8 MPC meeting, Gordon Brown's same-day budget, and Thursday's February retail sales numbers. UK CPI is forecast +2.7% y/y, unchanged from January, from an 11-year peak of 3.0% in December.
2.0% is the BoE's target level. The MPC minutes are expected to reveal that the UK base rate was held at 5.25% by a 7-2 vote, with Besley and Sentence dissenting in favour of another 25bp hike. Cable ran into resistance just shy of touted offers at 1.9460 during the European morning, after tripping stops above 1.9435 (today's Asian session peak).
Friday's two-week top of 1.9505 is a resistance level north of 1.9460. Sterling support points include 1.9400 and 1.9381 (today's Asian session base). March's NAHB housing market index will be revealed at 17:00GMT. Forecast: 38, from 40 in February. This week's key US event risk is the two-day FOMC meeting, which begins tomorrow (Tuesday).
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Monday, March 19, 2007
Yen Outlook (19th March 2007)
Despite the USD/JPY topside dominating the morning session in London, a good supply of liquidity both sides of the market has kept the pair from surging away. The stops initially triggered at 117.50 have so far only managed to spike a high of 117.62 falling short of an expected 117.80 test.
Unless any major surprise is sprung at the BOJ Policy meeting, range plays are likely to hold intact. Maximum risk in the short term would suggest a spike towards 118.40 although any possible move towards this level should be countered by domestic sellers who continue to repatriate aspects of overseas holdings before term end.
Volatilities have remained static with another day of widespread expiries coming off. The main source of interest would still surround a suspected 116.00 barrier which would make Asia"s bounce from 116.26 more credible in terms of defensive bids.
Unless any major surprise is sprung at the BOJ Policy meeting, range plays are likely to hold intact. Maximum risk in the short term would suggest a spike towards 118.40 although any possible move towards this level should be countered by domestic sellers who continue to repatriate aspects of overseas holdings before term end.
Volatilities have remained static with another day of widespread expiries coming off. The main source of interest would still surround a suspected 116.00 barrier which would make Asia"s bounce from 116.26 more credible in terms of defensive bids.
Euro Outlook (19th March 2007)
Into the new week and EUR/USD eased lower in Asia after the Chinese weekend rate hike, however, it was not until early European action that the momentum increased. Stops triggered on the break below 1.3295 to fuel the descent but a "structured" official name was found on the bid into 1.3285.
This stalled the sell-off, to leave the sub-1.3280 intact, and the price bounced. However, 1.3320 sales capped the rebound to leave the downside in view. On the options front, 1.3350 barriers are key to the short-term topside but structures are also seen in place into the 2006 yearly high around 1.3370 with 1.3375 interest also touted before the next barriers at 1.3400. Looking ahead, declining risk aversion has boosted the Dollar slightly into the new week but event-risk on the horizon could keep the US unit from strengthening further.
The FOMC meeting this week should constrain the Dollar but US rates are unlikely to finish the week any different from where they opened. Intraday and the focus is on the 16:00 GMT Chicago Fed Manf. Index (January) followed by the 17:00 GMT release of the NAHB Index (March).
This stalled the sell-off, to leave the sub-1.3280 intact, and the price bounced. However, 1.3320 sales capped the rebound to leave the downside in view. On the options front, 1.3350 barriers are key to the short-term topside but structures are also seen in place into the 2006 yearly high around 1.3370 with 1.3375 interest also touted before the next barriers at 1.3400. Looking ahead, declining risk aversion has boosted the Dollar slightly into the new week but event-risk on the horizon could keep the US unit from strengthening further.
The FOMC meeting this week should constrain the Dollar but US rates are unlikely to finish the week any different from where they opened. Intraday and the focus is on the 16:00 GMT Chicago Fed Manf. Index (January) followed by the 17:00 GMT release of the NAHB Index (March).
Thursday, March 15, 2007
EUR/USD: Option Defence Under Assault From Inter-bank Traders
1.3250 exotic option barriers residing at 1.3250, with short date expiries and an investment bank name in the frame are under assault from antsy spot dealers that yearn for a topside range break. The barriers at 1.3250 are slated to be accompanied by stops at 1.3260, and the highest print was 1.3248 so far.
This seems to be a do or die effort ahead of the US Philly Fed data, and the question is simply who has the most ammo, or put another way the most to lose inter-bank or the US investment bank. Only time will tell, spot trades at 1.3246.
This seems to be a do or die effort ahead of the US Philly Fed data, and the question is simply who has the most ammo, or put another way the most to lose inter-bank or the US investment bank. Only time will tell, spot trades at 1.3246.
USD/JPY: Trend Intensity Signal Remains Neutral
The trend intensity signal for USD/JPY remains neutral and is consolidating, easing one notch to 21. The signal remains above trend-ready levels of 13 or below. The EUR/USD trend signal is neutral at 15. The GBP/USD trend signal is bearish and has stalled at 15.
The USD/CHF trend signal is neutral at 17. The EUR/JPY trend signal is neutral at 18. The EUR/GBP trend signal is bullish but has stalled at 32 for a second session and is near mature levels, of 35 and above, where trends often fail. These proprietary indicators are updated each trading day after the NY close.
The USD/CHF trend signal is neutral at 17. The EUR/JPY trend signal is neutral at 18. The EUR/GBP trend signal is bullish but has stalled at 32 for a second session and is near mature levels, of 35 and above, where trends often fail. These proprietary indicators are updated each trading day after the NY close.
USD/JPY: Still Watching US Stock Moves
USD/JPY edged back down from 117.40 to 117.15/16 as the DJIA came off its highs and then the DJIA popped back up by 15 pts, taking USD/JPY back to current levels at 117.23/26. Dealers continue to keep their eye on CNBC and the stock market charts to fuel the direction in USD/JPY and JPY crosses.
Trading is seen growing defensive however ahead of the Philly Fed release. The market is expecting a 5.0 result. EUR/JPY trades at 115.16 after reaching highs of 115.32 this morning with offers expected at 155.50 now, near the overnight highs of 155.52. Bids remain on dips to 154.60/70.
Trading is seen growing defensive however ahead of the Philly Fed release. The market is expecting a 5.0 result. EUR/JPY trades at 115.16 after reaching highs of 115.32 this morning with offers expected at 155.50 now, near the overnight highs of 155.52. Bids remain on dips to 154.60/70.
EUR/USD: Firmer As Day Traders Bow Out of European Session
EUR/USD has traded back up to 1.3230 as some of the European day traders square up at the end of their session. After trading in a 1.3205-40 range for the US session, and the initial thrust down as Chicago opened with some E200mn transacted mainly on the sell side; EUR/USD has slipped into a more sedate 1.3225-33 range, and Chicago volumes have basically halved.
With the late day trading posis squaring out, traders are paring back ahead of the Philly Fed survey, particularly as the Empire State survey seems to be presaging yet another disappointing data snap. Nonetheless, the offers in the 1.3235-40 range are supposed to be quite substantial, so the data snap needs to be well outside of expectations (IFR estimate 4.5, median 5.0) to break the markets torpor.
With the late day trading posis squaring out, traders are paring back ahead of the Philly Fed survey, particularly as the Empire State survey seems to be presaging yet another disappointing data snap. Nonetheless, the offers in the 1.3235-40 range are supposed to be quite substantial, so the data snap needs to be well outside of expectations (IFR estimate 4.5, median 5.0) to break the markets torpor.
Swiss Outlook (15th March 2007)
Ahead of the SNB rate setting verdict (13:00 GMT) and the Franc has been sold against the Dollar as the mild corrective action, on the back of the perceived stock rebound, forced USD/CHF higher. Stops were triggered on the break into the 1.22's, above 1.2205/10, before a US investment house sold into the highs at 1.2216 to cap further strength.
The SNB is widely expected to ratchet their target 3-month LIBOR band by a further 25bps. Many in the market have already priced in such a move, taking rates from 1.50/2.50% (with a mid-point of 2.00%) to 1.75/2.75% (with a mid-point of 2.25%). As a result, the hike itself may not satisfy many CHF bears as even the higher Swiss rates are still attractive enough to encourage carry interest.
Thus the attention will turn to the accompanying data and official rhetoric from Roth and Co to see if the CHF will still be used as a funding vehicle for carry trade activities in the medium-term. Into North American trading and US data will also play a part with option traders also noting expiries down at 1.2150.
The SNB is widely expected to ratchet their target 3-month LIBOR band by a further 25bps. Many in the market have already priced in such a move, taking rates from 1.50/2.50% (with a mid-point of 2.00%) to 1.75/2.75% (with a mid-point of 2.25%). As a result, the hike itself may not satisfy many CHF bears as even the higher Swiss rates are still attractive enough to encourage carry interest.
Thus the attention will turn to the accompanying data and official rhetoric from Roth and Co to see if the CHF will still be used as a funding vehicle for carry trade activities in the medium-term. Into North American trading and US data will also play a part with option traders also noting expiries down at 1.2150.
Sterling Outlook (15th March 2007)
Cable's retreat from an Asian session three-day peak of 1.9390 extended to an intra-day low of 1.9310 in early European trade, amid talk of fresh Russian selling of GBP/JPY. Highs just shy of 1.9350 have been notched on the rebound rally from 1.9310.
Yesterday's low was 1.9213. 1.9350+ resistance levels include 1.9376 (yesterday's high), 1.9390, 1.9400, 1.9434 (Monday's high), and 1.9448 (March 5 top). Stops are tipped above 1.9450.
2.7% is the median expectation of Britons re: the UK inflation rate over the coming year, according to respondents to a quarterly BoE inflation attitudes survey. 2.7% is the same number touted by respondents to the prior BoE inflation survey in November. 2.7% is also the current actual CPI level (for January).
There are a raft of potentially market-moving US data releases today, inclusive of the 12:30GMT disclosure of February producer prices, and the 13:00GMT unveiling of January TIC data. Headline PPI forecast: +0.5% m/m. Core PPI forecast: +0.2% m/m. Long-term TIC inflows of $65.0/70.0bn are forecast. The MPC's Sentance is slated to speak at 18:00GMT.
Yesterday's low was 1.9213. 1.9350+ resistance levels include 1.9376 (yesterday's high), 1.9390, 1.9400, 1.9434 (Monday's high), and 1.9448 (March 5 top). Stops are tipped above 1.9450.
2.7% is the median expectation of Britons re: the UK inflation rate over the coming year, according to respondents to a quarterly BoE inflation attitudes survey. 2.7% is the same number touted by respondents to the prior BoE inflation survey in November. 2.7% is also the current actual CPI level (for January).
There are a raft of potentially market-moving US data releases today, inclusive of the 12:30GMT disclosure of February producer prices, and the 13:00GMT unveiling of January TIC data. Headline PPI forecast: +0.5% m/m. Core PPI forecast: +0.2% m/m. Long-term TIC inflows of $65.0/70.0bn are forecast. The MPC's Sentance is slated to speak at 18:00GMT.
Yen Outlook (15th March 2007)
Large speculative flows continue to feed volatility into the Yen markets, which led to a choppy overnight session for USD/JPY. The official line remains one of denial and apathy towards the current tremors that have unsettled the financial markets. BOJ Governor, Fukui, suggested overnight that financial markets were merely adjusting and that risk reduction would not harm the real economy.
The central banker also reiterated his view that the BOJ rate hike was not responsible for the equity market moves. USD/JPY broke higher late in the Wednesday session, leading to a New York-Asia hand over at levels around 117.00. A push to 117.58 provided Japanese exporters with a good selling opportunity and the market then settled into a choppy 117.05 to 117.25 range heading into Europe.
Looking ahead, something tells that the USD will struggle to make headway while Japanese corporate interest is expected to top and tail USD/JPY. Option plays are reportedly mixed in with the importer interest on the buy side while the overnight rally reportedly cleared away a large swathe of option offers and stops. On balance a Yen buy while USD/JPY is below 117.60.
The central banker also reiterated his view that the BOJ rate hike was not responsible for the equity market moves. USD/JPY broke higher late in the Wednesday session, leading to a New York-Asia hand over at levels around 117.00. A push to 117.58 provided Japanese exporters with a good selling opportunity and the market then settled into a choppy 117.05 to 117.25 range heading into Europe.
Looking ahead, something tells that the USD will struggle to make headway while Japanese corporate interest is expected to top and tail USD/JPY. Option plays are reportedly mixed in with the importer interest on the buy side while the overnight rally reportedly cleared away a large swathe of option offers and stops. On balance a Yen buy while USD/JPY is below 117.60.
Euro Outlook (15th March 2007)
Into European trading and spot had attained a mild offered tone as the broader stock correction was seen aiding the Dollar. Trading was sold through 1.3210 bids and support into 1.3200 failed to prop also but spot bounced off 1.3195 ahead of the release of Euro Zone data.
On the topside offers into 1.3215/20 have looked to cap the rebound with more sellers 1.3240/50. Looking ahead, a plethora of US numbers are set for release into North American trading. Should the Dollar hold its corrective tone once the dust settles then the move lower will need to clear central bank bids into 1.3190, the stops below, and then the mass of buyers camped into the 1.3180 area.
Stops are also seen below, into the 1.3175 area, so traders should watch and await for any break of this level. Elsewhere, in the wake of the previous hawkish Liebscher comments a host of further hawkish rhetoric, from various ECB speakers, has helped underpin the Euro today. The main crux argument centers on the risk to Euro Zone inflation into late 2007 and early 2008.
On the topside offers into 1.3215/20 have looked to cap the rebound with more sellers 1.3240/50. Looking ahead, a plethora of US numbers are set for release into North American trading. Should the Dollar hold its corrective tone once the dust settles then the move lower will need to clear central bank bids into 1.3190, the stops below, and then the mass of buyers camped into the 1.3180 area.
Stops are also seen below, into the 1.3175 area, so traders should watch and await for any break of this level. Elsewhere, in the wake of the previous hawkish Liebscher comments a host of further hawkish rhetoric, from various ECB speakers, has helped underpin the Euro today. The main crux argument centers on the risk to Euro Zone inflation into late 2007 and early 2008.
Wednesday, March 14, 2007
EUR/USD: Approaches 1.3220 Area Again Before Stalling
EUR/USD came close to yesterday's session highs at 1.3220/225 before stalling on its most recent run. Dealers expect stops above the 1.3225 level but also note a good overhang of supply at 1.3260/70 should EUR/USD extend its rally.
Selling by US investors is rumored as risk aversion tends to prompt liquidation of overseas investments, especially as recent market weakness has been spread evenly around the global. US retail investors who were sold foreign stocks based on the notion of diversification now find the markets closely correlated. EUR/USD changes hands at 1.3214.
Selling by US investors is rumored as risk aversion tends to prompt liquidation of overseas investments, especially as recent market weakness has been spread evenly around the global. US retail investors who were sold foreign stocks based on the notion of diversification now find the markets closely correlated. EUR/USD changes hands at 1.3214.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] has come to within less than $5 of retesting last week's lows with today's break. Despite weakness the past few days, inside week structure remains in place as gold stays near the low end of the nearly $60 range in place since the late February break commenced. Monthly supports are at $632.50-635.00 for Apr gold; weekly supports are a bit lower at $627-29 in the event of a larger move.
The failure to close above 40-day moving averages (now $659) at the recent corrective high on Mar 9 has also left 200-day averages at $634.50 as a target. Bottom line, don"t be surprised to see the $627-35 band tested.
In [oil], the supply data is awaited but the setup into the numbers is not too constructive following the three-day slump that preceded today's session. 40- and 50-day moving averages at $58.43-72 are now closest resistance; Apr futures appear headed towards a 50% retracement of range since prices bottomed in mid-January at $57.08 on any new selling.
Intraday, daily and weekly charts show overlapping resistance on any firm bounce in the $59.00-60.50 zone. Daily Elliott wave counts do not endorse bottom picking here, and monthly trends stay bearish below $60.80-90.
The failure to close above 40-day moving averages (now $659) at the recent corrective high on Mar 9 has also left 200-day averages at $634.50 as a target. Bottom line, don"t be surprised to see the $627-35 band tested.
In [oil], the supply data is awaited but the setup into the numbers is not too constructive following the three-day slump that preceded today's session. 40- and 50-day moving averages at $58.43-72 are now closest resistance; Apr futures appear headed towards a 50% retracement of range since prices bottomed in mid-January at $57.08 on any new selling.
Intraday, daily and weekly charts show overlapping resistance on any firm bounce in the $59.00-60.50 zone. Daily Elliott wave counts do not endorse bottom picking here, and monthly trends stay bearish below $60.80-90.
EUR/USD: Breaks North of 1.3200 after Quiet Morning
EUR/USD spent a very quiet first few hours trading between the 1.3185/95 levels as EUR/JPY buying offset any downside impetus as US stocks opened firmer. Prices have since turned lower on Wall Street and the USD has followed.
1.3220/25 offers remain rumored on rallies amid reports of barriers at 1.3225 and 1.3250. Support is seen at 1.3160 but stops are building below that level and below 1.3150. EUR/USD trades at 1.3201.
1.3220/25 offers remain rumored on rallies amid reports of barriers at 1.3225 and 1.3250. Support is seen at 1.3160 but stops are building below that level and below 1.3150. EUR/USD trades at 1.3201.
GBP/USD: Stops Above 1.9250 Tripped, Resistance at 1.9285
Tripped stops above 1.9250 have helped inflate cable to highs just shy of 1.9285 (yesterday's NY session base). Eastern European buying of GBP/JPY has been touted as a catalyst for sterling's break above 1.9250.
Stops below 1.9250 were tripped in early European trade, amid talk of Eastern European selling of GBP/JPY. Sterling resistance levels north of 1.9285 include 1.9300, 1.9321 (today's Asian session peak), 1.9355 (yesterday's high), and 1.9434 (Monday's top). Tomorrow's key UK event risk is the slated 09:30GMT publication of a BoE GfK/NOP inflation attitude survey.
Stops below 1.9250 were tripped in early European trade, amid talk of Eastern European selling of GBP/JPY. Sterling resistance levels north of 1.9285 include 1.9300, 1.9321 (today's Asian session peak), 1.9355 (yesterday's high), and 1.9434 (Monday's top). Tomorrow's key UK event risk is the slated 09:30GMT publication of a BoE GfK/NOP inflation attitude survey.
US TECHS: Bear-Flag or Double Bottom for S&P
The price pattern for June S&P on the daily chart could easily be seen as a bear-flag pattern that implies lower prices are on the horizon. For now, however, leaning towards the double bottom developing is a possibility. The driving force behind that bias is the fact that last week's bounce started from the 38% retracement support of the entire rally from the June lows.
That implies that the larger bullish trend is still the dominant pattern for the market. The danger is that the contract closes a session or two below that support level, which sits at 1371 on the cash index.
Given that the seasonals are still bullish and sentiment, in terms of the 20-day equity put/call ratio, never became overly optimistic the bigger picture still has a chance to recover nicely into the May time frame. From a much shorter time frame, if the June contract can close above the hourly swing point (1395) this morning it will start to put the building blocks in place for a better recovery.
Failure to close above there, however, almost guarantees a test of the prior low for the contract at 1384. From a risk reward perspective that would likely be a good place to try a small long as a break below would be a quick signal that the decline is more significant.
That implies that the larger bullish trend is still the dominant pattern for the market. The danger is that the contract closes a session or two below that support level, which sits at 1371 on the cash index.
Given that the seasonals are still bullish and sentiment, in terms of the 20-day equity put/call ratio, never became overly optimistic the bigger picture still has a chance to recover nicely into the May time frame. From a much shorter time frame, if the June contract can close above the hourly swing point (1395) this morning it will start to put the building blocks in place for a better recovery.
Failure to close above there, however, almost guarantees a test of the prior low for the contract at 1384. From a risk reward perspective that would likely be a good place to try a small long as a break below would be a quick signal that the decline is more significant.
Swiss Outlook (14th March 2007)
The unwinding of carry trades, in what some tip as a pre-Japanese year-end (Mar 31st) move, has helped the Swissie garner further support overnight. The CHF strengthened across the board into European trading but against a slight US unit fight back USD/CHF has managed to bounce.
Offers into 1.2175 failed to cap the rebound but sales ahead of the 1.2190 mark left the topside limited with speculation also noting Swiss name sales into the 1.2220 area in very good size with more stops seen above. Dealers also cite a host of other factors behind the underpinning of the CHF. The near 2% drop in the Dow Jones Index overnight and the impending SNB rate verdict have helped the unit stay bid across the board.
The market still prices in a 25bp hike from Roth but some remain of the opinion that a more aggressive move is not totally out of the question on Thursday. However, the recent publication of a fresh low in the March Swiss ZEW investor sentiment index has left the Franc struggling for traction into early North American trading.
Offers into 1.2175 failed to cap the rebound but sales ahead of the 1.2190 mark left the topside limited with speculation also noting Swiss name sales into the 1.2220 area in very good size with more stops seen above. Dealers also cite a host of other factors behind the underpinning of the CHF. The near 2% drop in the Dow Jones Index overnight and the impending SNB rate verdict have helped the unit stay bid across the board.
The market still prices in a 25bp hike from Roth but some remain of the opinion that a more aggressive move is not totally out of the question on Thursday. However, the recent publication of a fresh low in the March Swiss ZEW investor sentiment index has left the Franc struggling for traction into early North American trading.
Sterling Outlook (14th March 2007)
The pound came under selling pressure from the European open, re: a reduction in risk appetite on global stock market losses. EUR/GBP tripped stops above 0.6850 en route to an eight-month peak of 0.6867, with GBP/USD tripping stops below 1.9250 en route to eight-day lows circa 1.9220. 1.9250 is now a sterling resistance level.
Upper obstacles include 1.9266 (today's Asian session base), 1.9321 (today's Asian session top), and 1.9355. Bear targets south of 1.9220 include 1.9200 and 1.9185 (March 5, 15-week low). EUR/GBP exotic option barriers are located at 0.6875 and 0.6900. These are One Touch options, due to expire this summer, carrying a cumulative E9mn payout.
UK rate hawks touting another 25bp base rate hike to 5.5% either next month (April 5) or in May have elicited a boost from the 09:30GMT disclosure that annualized UK average earnings rose by an above-forecast 4.2% in the three months to January. A 4.0% increase was expected. The US Q4 current account deficit will be revealed at 12:30GMT. It is forecast at $203.0bn, from $225.6bn in Q3.
Upper obstacles include 1.9266 (today's Asian session base), 1.9321 (today's Asian session top), and 1.9355. Bear targets south of 1.9220 include 1.9200 and 1.9185 (March 5, 15-week low). EUR/GBP exotic option barriers are located at 0.6875 and 0.6900. These are One Touch options, due to expire this summer, carrying a cumulative E9mn payout.
UK rate hawks touting another 25bp base rate hike to 5.5% either next month (April 5) or in May have elicited a boost from the 09:30GMT disclosure that annualized UK average earnings rose by an above-forecast 4.2% in the three months to January. A 4.0% increase was expected. The US Q4 current account deficit will be revealed at 12:30GMT. It is forecast at $203.0bn, from $225.6bn in Q3.
Yen Outlook (14th March 2007)
JPY demand subsided in European trade as a number of Japanese accounts emerged below 116.00 in USD/JPY, while EUR/JPY found good support ahead of the 152.65 61.8% fibo support. USD/JPY fell below 116.00 to as low as 115.75 in the wake of broad equity losses linked to more negative sub-prime news. Other JPY pairs followed suit, with many anticipating further equity weakness.
The Nikkei closed over 500 points down underpinning the interest to buy JPY. Focus is expected to remain on the downside for USD/JPY and the JPY crosses, although there was a sizeable Japanese presence on dips. Bidding interest at the lows proved to be strong with Japanese importers seen buying for the month-end. Real money based activity and option related demand was noted.
Gains were limited in USD/JPY, with macro accounts and CTAs looking to sell on strength. The market will eye stops below 115.50, while EUR/JPY's 152.65 support will be pivotal. The focus for US traders will be on further developments in the sub-prime sector and whether this will have any adverse impact on US equities going forward. US data releases, include current account and import prices.
The Nikkei closed over 500 points down underpinning the interest to buy JPY. Focus is expected to remain on the downside for USD/JPY and the JPY crosses, although there was a sizeable Japanese presence on dips. Bidding interest at the lows proved to be strong with Japanese importers seen buying for the month-end. Real money based activity and option related demand was noted.
Gains were limited in USD/JPY, with macro accounts and CTAs looking to sell on strength. The market will eye stops below 115.50, while EUR/JPY's 152.65 support will be pivotal. The focus for US traders will be on further developments in the sub-prime sector and whether this will have any adverse impact on US equities going forward. US data releases, include current account and import prices.
Euro Outlook (14th March 2007)
Into European trading and EUR/USD failed to overcome the 1.3210/15 area to leave the downside open for exploration. Weak Euro Zone numbers aided the move lower but into early North American action and the stops below 1.3175 remain intact. Above it is the 1.3220/35 resistance zone that will be key to further topside actions with 1.3222 the high from yesterday while official sell orders are now seen trailing back into the low 1.3230's.
On the options front, expiries are noted at 1.3175 in decent size. US data at 12:30 GMT comes in the form of February Import and Export numbers with Q4 Current Account data also set for unveiling. Following this the only other significant event risk is Jan Transport Service numbers (15:30 GMT).
Looking ahead, central band and reserve manager bidding into 1.3155 and the stops below 1.3150 are seen as the key intraday downside triggers but should this area of support stay intact then a retest of 1.3220/35 initial resistance zone is expected with any eventual break higher eyeing a return towards the 1.3260 level then the 2007 high at 1.3296.
On the options front, expiries are noted at 1.3175 in decent size. US data at 12:30 GMT comes in the form of February Import and Export numbers with Q4 Current Account data also set for unveiling. Following this the only other significant event risk is Jan Transport Service numbers (15:30 GMT).
Looking ahead, central band and reserve manager bidding into 1.3155 and the stops below 1.3150 are seen as the key intraday downside triggers but should this area of support stay intact then a retest of 1.3220/35 initial resistance zone is expected with any eventual break higher eyeing a return towards the 1.3260 level then the 2007 high at 1.3296.
Tuesday, March 13, 2007
USD/JPY: Heavy Sales Overnight On 118, Crosses Down Too
Various factors look to have worked against USD/JPY overnight including heavy sales at the highs, lower US yields on flight to quality on subprime lending concerns and aggressive selling in some of the JPY crosses, including GBP/JPY and, to an extent, EUR/JPY. Other JPY crossesd remained supportive however with NZD/JPY in particular demand and AUD/JPY also holding its own.
USD/JPY saw a low of 117.22 overnight with recent longs having been forced to shed their positions. It seems a base of sorts looks to have developed near the low. Tokyo itself is likely to see more heated buys from Japanese importers today into the Tokyo with the pair lower by almost a yen.
That said, bulls are not ready to come back out of the closet just yet and heaviness is likely towards 118.00, a level which saw stops tripped on the way down. Initial support ahead of the overnight low is seen in the 117.40-45 area, 117.42 the early low. USD/JPY currently trades 117.55/60.
USD/JPY saw a low of 117.22 overnight with recent longs having been forced to shed their positions. It seems a base of sorts looks to have developed near the low. Tokyo itself is likely to see more heated buys from Japanese importers today into the Tokyo with the pair lower by almost a yen.
That said, bulls are not ready to come back out of the closet just yet and heaviness is likely towards 118.00, a level which saw stops tripped on the way down. Initial support ahead of the overnight low is seen in the 117.40-45 area, 117.42 the early low. USD/JPY currently trades 117.55/60.
EUR/USD: Settles around 1.3200/05 after Dip
EUR/USD washed out a few weak longs on the dip to 1.3193, dealers note, but prices have bounced back and have now settled into a range in the 1.3200/05 area. US equities and bond yields are well off their lows, helping give the USD a bit of a breather at the moment.
Further bids are eyed in the 1.3185/90 area but more small stops are eyed around 1.3180 with larger below 1.3145/50. Asian sellers helped cap gains earlier at 1.3220 and dealers fear a near-term top may be in. Bearishly divergent intraday techs are prompting some momentum-types to trim back longs, dealers report.
Further bids are eyed in the 1.3185/90 area but more small stops are eyed around 1.3180 with larger below 1.3145/50. Asian sellers helped cap gains earlier at 1.3220 and dealers fear a near-term top may be in. Bearishly divergent intraday techs are prompting some momentum-types to trim back longs, dealers report.
USD/CHF: Short-Dated Options Noted Both Here And EUR/CHF
On-going demand has been noted by option players for short-dated USD/CHF strikes. The Thursday SNB meeting combined with speculation that Roth and company might raise rates by more than 25bps has buoyed demand. 2-day interest is reported to be pricing strikes around the 1.2150 mark while 1-Week interest is centered upon 1.2100 and below prices. Spot currently trades around the 1.22 area as the Dollar consolidates its previous weakness with the intraday low now standing at 1.2273.
Offers into 1.2210/15 look to cap rebounds. Technically, the 61.8% Fibo of 1.1885 to 1.2575 (Dec 5th low to Jan 31st high) at 1.2154 was pierced on March 5th as spot spiked to 1.2110. However, the day failed to close lower or below the Fibo and as such some will still look for support to emerge into this technical support area. Below a break of the March 5th low (also the 2007 low) at 1.2110 will eye a full retracement. Against the Euro the Franc has failed to hold its gains as EUR/CHF bounced off the 10-Day moving average line (now at 1.6095).
The cross is now consolidating around the figure, working a rough 10-pip range either side, with similar option structures to the above also seen going through here. 1-Week atmf has been sold down from 5.4 to 5.2/5.7 while 1-Month is reported to have been paid up 4.0/4.1 having traded around 3.7 yesterday. Short dated strikes are reported to the 1.6000/25 area as a target with dealers also noting post-SNB expiries ranging from 1.5750 to 1.5825.
Offers into 1.2210/15 look to cap rebounds. Technically, the 61.8% Fibo of 1.1885 to 1.2575 (Dec 5th low to Jan 31st high) at 1.2154 was pierced on March 5th as spot spiked to 1.2110. However, the day failed to close lower or below the Fibo and as such some will still look for support to emerge into this technical support area. Below a break of the March 5th low (also the 2007 low) at 1.2110 will eye a full retracement. Against the Euro the Franc has failed to hold its gains as EUR/CHF bounced off the 10-Day moving average line (now at 1.6095).
The cross is now consolidating around the figure, working a rough 10-pip range either side, with similar option structures to the above also seen going through here. 1-Week atmf has been sold down from 5.4 to 5.2/5.7 while 1-Month is reported to have been paid up 4.0/4.1 having traded around 3.7 yesterday. Short dated strikes are reported to the 1.6000/25 area as a target with dealers also noting post-SNB expiries ranging from 1.5750 to 1.5825.
US TECHS: Commodities Outlook; Gold and Oil
Aside from modest penetrations at the end of last week, [gold] has not ventured much past 38% retracements of range measured from Feb 27 peaks to Mar 6 floors at $656.70. Daily RSI studies have broken the downtrend formed in the wake of recent selling, and are sticking more to bull market parameters (40-80) than those seen during bear markets (20-60). Daily momentum readings, negative since Mar 5, bottomed out last Friday, unable to make much headway on the downside.
Absent a sizable bounce, weekly trends turn bearish come Friday but monthlies are fence sitting near $652, the level that will determine whether bullish trends on that time frame are held. The higher low in place on the charts will run into resistance at $658-62. A better bounce than seen to date in this market is expected, but the late Feb sell off will not be quickly overcome.
In [oil], yesterday's break has not led to follow-through selling today, and lows set in mid-Feb have been avoided. Converging 40- and 50-day averages at $58.60 today held tests perfectly yesterday, one good sign. The exact center of range since Feb is at $59.80 Apr, the market's current price and a tough place from which to make a buy or sell decision. Having avoided a big break of multiple time frame supports in the $58.50-59.00 zone, daily resistance at $60.50 is a target.
Absent a sizable bounce, weekly trends turn bearish come Friday but monthlies are fence sitting near $652, the level that will determine whether bullish trends on that time frame are held. The higher low in place on the charts will run into resistance at $658-62. A better bounce than seen to date in this market is expected, but the late Feb sell off will not be quickly overcome.
In [oil], yesterday's break has not led to follow-through selling today, and lows set in mid-Feb have been avoided. Converging 40- and 50-day averages at $58.60 today held tests perfectly yesterday, one good sign. The exact center of range since Feb is at $59.80 Apr, the market's current price and a tough place from which to make a buy or sell decision. Having avoided a big break of multiple time frame supports in the $58.50-59.00 zone, daily resistance at $60.50 is a target.
Swiss Outlook (13th March 2007)
Speculation of a more aggressive SNB move on Thursday has kept the Franc supported today. USD/CHF worked a tight 1.2240/60 range for the majority of both the Asian and European sessions. Into North America and the downside was opened up and a run back towards 1.2210 and 1.2200 is now looked for.
However, dealers sound a note of caution that if EUR/USD fails to break above 1.3200/05 then EUR/CHF will need to break below 1.6100 to signal that further Franc strength is sustainable. US data is seen as key to the directional bias set for North American trading. Retail sales numbers for February are first up at 12:30 GMT (+0.3% expected), followed by Consumer Confidence at 14:00 GMT. Elsewhere, the latest reading of the UBS Risk Aversion Index shows it unchanged at +22.
The index has sat in so-called "risk neutral territory" since Monday as players await the next set of global indicators. The bank also noted in their research that emerging market spreads over US Treasury yields have widened and gold appreciated in USD terms while bonds outperformed stocks.
However, dealers sound a note of caution that if EUR/USD fails to break above 1.3200/05 then EUR/CHF will need to break below 1.6100 to signal that further Franc strength is sustainable. US data is seen as key to the directional bias set for North American trading. Retail sales numbers for February are first up at 12:30 GMT (+0.3% expected), followed by Consumer Confidence at 14:00 GMT. Elsewhere, the latest reading of the UBS Risk Aversion Index shows it unchanged at +22.
The index has sat in so-called "risk neutral territory" since Monday as players await the next set of global indicators. The bank also noted in their research that emerging market spreads over US Treasury yields have widened and gold appreciated in USD terms while bonds outperformed stocks.
Sterling Outlook (13th March 2007)
Demand circa 1.9275 based cable's early Europe break below 1.9293 (today's Asian session floor), as the continent absorbed the 00:01GMT disclosure that February's RICS UK house price balance fell to a nine-month low of 24. Further bids are tipped into 1.9250, with some stops touted under 1.9250. 1.9252 was yesterday's six-day low (plumbed during the NY morning).
GBP/USD pushed its recovery envelope from its early Europe lows to highs just shy of 1.9320 after the 09:30GMT unveiling of January's below-forecast UK trade deficit. 1.9331 was today's Asian session top. 1.9434 was yesterday's one-week peak (scaled late in the European morning).
News-wise: KKR is considering whether to raise its bid for Alliance Boots, following yesterday's rejection of the US-based private equity firm's GBP 9.7bn takeover approach, according to The Times. Today's key US event risk is the 12:30GMT disclosure of February retail sales. Forecast: +0.3% m/m, ex-autos +0.3% m/m. UK unemployment and earnings data will be published at 09:30GMT tomorrow.
GBP/USD pushed its recovery envelope from its early Europe lows to highs just shy of 1.9320 after the 09:30GMT unveiling of January's below-forecast UK trade deficit. 1.9331 was today's Asian session top. 1.9434 was yesterday's one-week peak (scaled late in the European morning).
News-wise: KKR is considering whether to raise its bid for Alliance Boots, following yesterday's rejection of the US-based private equity firm's GBP 9.7bn takeover approach, according to The Times. Today's key US event risk is the 12:30GMT disclosure of February retail sales. Forecast: +0.3% m/m, ex-autos +0.3% m/m. UK unemployment and earnings data will be published at 09:30GMT tomorrow.
Yen Outlook (13th March 2007)
USD/JPY and the JPY crosses traded on a heavier footing in European trade after overnight losses in the Asian equity market. There were sell-offs in a number of key pairs, with speculative JPY shorts paring back positions. Offers were heavy on the topside and this limited USD/JPY's potential to rally and EUR/JPY also struggled to rallying out of the 154.30 low.
USD/JPY bid interest from 117.25 and down to 117.00 and below but some stops are seen mixed in, just below 117.00. EUR/JPY ran into some Japanese account interest ahead of the 154.20 10-day moving average and yesterday's low. GBP/JPY which plunged yesterday on sales out of Russia looked weak after giving up the 227.00 handle overnight and traded into 226.20. NZD/JPY and AUD/JPY looked better bid, supported by Japanese retail investor interest.
The European afternoon will focus on a stream of US data, with retail sales, business inventories and a couple of sentiment indicators on the slate. US Treasury Secretary is also due to speak. All these factors are expected to influence, although the equity market and further sub-prime news will determine price action.
USD/JPY bid interest from 117.25 and down to 117.00 and below but some stops are seen mixed in, just below 117.00. EUR/JPY ran into some Japanese account interest ahead of the 154.20 10-day moving average and yesterday's low. GBP/JPY which plunged yesterday on sales out of Russia looked weak after giving up the 227.00 handle overnight and traded into 226.20. NZD/JPY and AUD/JPY looked better bid, supported by Japanese retail investor interest.
The European afternoon will focus on a stream of US data, with retail sales, business inventories and a couple of sentiment indicators on the slate. US Treasury Secretary is also due to speak. All these factors are expected to influence, although the equity market and further sub-prime news will determine price action.
Euro Outlook (13th March 2007)
Into European trading and the path of least resistance in EUR/USD was again followed. 1.3202 traded in NY yesterday but talk of exotic 1.3200 interest remained and barriers into 1.3205 are now speculated to be adding weight to the topside. 1.3196 was the traded high in Asia but spot was only working lower as European players entered the fray.
Bids into the 1.3145/55 zone were targeted by short-term accounts and spot worked as low as 1.3156 before the German data forced a bounce. The ZEW headline came in at 5.8 (against the expectations for 3.3) to force the rebound but smaller offers into the 1.3180 mark have capped the return towards the 1.32's thus far.
Looking ahead, official bidding and the stops down at 1.3145 are seen as the key intraday downside trigger but should this area of support stay intact then a retest of 1.3200 is expected with any eventual break higher eyeing a return towards the 1.3260 level then the 2007 high at 1.3296. US February retail sales data will be key to the North American direction, with economists look for a +0.3% reading.
Bids into the 1.3145/55 zone were targeted by short-term accounts and spot worked as low as 1.3156 before the German data forced a bounce. The ZEW headline came in at 5.8 (against the expectations for 3.3) to force the rebound but smaller offers into the 1.3180 mark have capped the return towards the 1.32's thus far.
Looking ahead, official bidding and the stops down at 1.3145 are seen as the key intraday downside trigger but should this area of support stay intact then a retest of 1.3200 is expected with any eventual break higher eyeing a return towards the 1.3260 level then the 2007 high at 1.3296. US February retail sales data will be key to the North American direction, with economists look for a +0.3% reading.
Monday, March 12, 2007
US TECHS: Commodities Outlook; Gold and Oil
The recovery in [gold] from the selling that commenced on February 27 has been muted, with prices starting the week lower. Bullish monthly trends shift below $652 at month's end; weekly trends (currently neutral) turn bearish at week's end just below $653. These higher time frame periods bear watching as consistency among them would provide a more conducive atmosphere in which to expect follow-through buying or selling.
As matters stand, the trends are too diffuse to have confidence of immediate strong directional activity; in addition, prices are near the exact center of the approximate $610-90 trading band in place since April, a poor spot in terms of trade location. Broader weekly support and resistance levels this week are $638-663.
In [oil], Apr futures touched 200-period moving averages precisely on hourly charts at today's $59.15 low before slipping below. Weekly bull trends were neutralized by the end of last week, and persistent monthly bear trends have not given up their defensive stance as long as prices are just below $61.
Converging 40- and 50-day moving averages near $58.50 underpin the market in the event of additional selling, coincidentally monthly pivot support as well. With weekly supports hit ($59), a break below $58.50-59.00 technically will point to high risk of hitting $56.50-57.50 this week.
As matters stand, the trends are too diffuse to have confidence of immediate strong directional activity; in addition, prices are near the exact center of the approximate $610-90 trading band in place since April, a poor spot in terms of trade location. Broader weekly support and resistance levels this week are $638-663.
In [oil], Apr futures touched 200-period moving averages precisely on hourly charts at today's $59.15 low before slipping below. Weekly bull trends were neutralized by the end of last week, and persistent monthly bear trends have not given up their defensive stance as long as prices are just below $61.
Converging 40- and 50-day moving averages near $58.50 underpin the market in the event of additional selling, coincidentally monthly pivot support as well. With weekly supports hit ($59), a break below $58.50-59.00 technically will point to high risk of hitting $56.50-57.50 this week.
GBP/USD: Runs into Resistance pre-1.9290, GBP/JPY Update
Cable has run into resistance just shy of 1.9290 after lifting off six-day lows just shy of 1.9250. Those lows were plumbed on the back of heavy GBP/JPY selling inclusive of a US fund bailing out of his long GBP/JPY position (the same player has also reportedly closed out his AUD/JPY and USD/JPY long positions).
GBP/CHF has also fallen sharply, amid reports of decent model fund selling. 1.9290 was Friday's approximate post-NFP low. Resistance levels above include 1.9307 (earlier stall point), 1.9322 (today's Asian session base), 1.9343 (Friday's pre-NFP high), 1.9359 (last Wednesday's top), 1.9380 (today's Asian session peak), and 1.9433 (late European morning, one-week high).
Looking ahead: the RICS is slated to release its February UK house price survey at 00:01GMT. The size of January's UK trade deficit will be subsequently unveiled at 09:30GMT. Tomorrow's key US event risk is the 12:30GMT disclosure of February retail sales figures.
GBP/CHF has also fallen sharply, amid reports of decent model fund selling. 1.9290 was Friday's approximate post-NFP low. Resistance levels above include 1.9307 (earlier stall point), 1.9322 (today's Asian session base), 1.9343 (Friday's pre-NFP high), 1.9359 (last Wednesday's top), 1.9380 (today's Asian session peak), and 1.9433 (late European morning, one-week high).
Looking ahead: the RICS is slated to release its February UK house price survey at 00:01GMT. The size of January's UK trade deficit will be subsequently unveiled at 09:30GMT. Tomorrow's key US event risk is the 12:30GMT disclosure of February retail sales figures.
EUR/USD: Crosses Steady; Stocks Not Buying It
US equities are not trading in orderly fashion at the open, seemingly ignoring the wave of risk aversion that has swept through currency markets in the last few hours. Much of the move appears to be flow-driven with an eastern European central bank dumping GBP/JPY with little subtlety. EUR/USD held above support at 1.3140 and is now bouncing back, trading at 1.3158. Offers remain toward 1.3180/85.
USD/CHF: 1.2250 Intact - EUR/CHF Acting As Pressure Value
Some traders report there are no stops in USD/CHF below 1.2250 while others tip a break sub-1.2250 to put spot on the path towards stop-loss city. Either way the latest stab lower in USD/CHF has sparked the pair to life with renewed buyers emerging below 1.2260 (1.2254 the low according to EBS). As a result the price is looking to bounce but selling into bounces is likely to be preferred going forward.
The impending SNB meet (Thursday) and the buying back of the Swiss Franc, amid the Countrywide and New Century Financial inspired worries, should help cap spot into 1.2280. Into North American trading and EUR/CHF has been forced to act as a pressure value to relieve the tension as EUR/USD remains capped ahead of the 1.3200 option triggers. With the Franc rallying and the Euro caged the cross has been forced lower and the option strikes at 1.6125 are fast coming into view.
The break below 1.6150 has seen stops removed but option related buying (ahead of the expiry) combined with the USD/CHF bids should help stall the move lower. Elsewhere, the expectations for an SNB hike later this week will do little to boost the Franc over the medium-term. Any such SNB hike will more than likely be followed by a further ECB rate rise therefore spreads are unlikely to be altered massively into Q2.
The impending SNB meet (Thursday) and the buying back of the Swiss Franc, amid the Countrywide and New Century Financial inspired worries, should help cap spot into 1.2280. Into North American trading and EUR/CHF has been forced to act as a pressure value to relieve the tension as EUR/USD remains capped ahead of the 1.3200 option triggers. With the Franc rallying and the Euro caged the cross has been forced lower and the option strikes at 1.6125 are fast coming into view.
The break below 1.6150 has seen stops removed but option related buying (ahead of the expiry) combined with the USD/CHF bids should help stall the move lower. Elsewhere, the expectations for an SNB hike later this week will do little to boost the Franc over the medium-term. Any such SNB hike will more than likely be followed by a further ECB rate rise therefore spreads are unlikely to be altered massively into Q2.
GBP/USD: Extends South on Fresh Selling of GBP/JPY
Another bout of GBP/JPY selling is being blamed for cable's latest tumble to six-day lows just shy of 1.9250. The name-in-the-frame re: the GBP/JPY selling is an Eastern European Central Bank. Formerly noted support points south of 1.9250 include 1.9240, 1.9230, 1.9200, and 1.9185 (last Monday's 15-week floor).
USD/JPY: Stops Tripped At 117.50, Larger Touted Under 117.10
Yen buy backs through GBP/JPY have helped shunt USD/JPY through 117.50 stops as the dollar capitulates. Rumours of larger sell stops under 117.10 and 116.90 and stops in the Sterling cross under 225.80-85 are heard
EUR/USD: Caught in Cross-Fire but Weaker
Fresh risk aversion trades are pounding the JPY crosses, but with GBP/JPY a bigger victim than EUR/JPY at the moment, EUR/GBP is buffering the EUR/USD slide. 1.3140 is next support for EUR/USD as it eases from growing resistance at 1.3185. Dealers note talk that 1.3200 barriers are linked to fresh 1.2800/1.3200 DNT plays. EUR/USD trades at 1.3153.
Swiss Outlook (12th March 2007)
Speculators were quick to buy the Franc into European trading as the impending SNB rate verdict (Thursday 15th) is expected to generate some short-term CHF strength. USD/CHF was tipped as being heavy in the 1.23's and spot was sold back from 1.2345 to 1.2320 bids in the initial European move lower.
Bids trailing back to 1.2310 helped stave off further weakness but the pair remained offered and eventually broke below 1.2300 to trip short-term stop loss orders. These have helped fuel a drop to 1.2274 and bids are now noted into the 1.2255/65 area. Into the North American open and trading is consolidating the sell-off around 1.2280 with US event-risk now seen as the next directional indicator.
In other news, Swiss M&A is in the media spotlight. State-backed telecoms group Swisscom recently launched a EUR 3.7Bln friendly takeover bid for Italian broadband operator Fastweb. British Smith & Nephew plc has agreed to buy Swiss Plus Holdings for an estimated USD 889Mln in cash while on a slightly smaller scale Swiss Sike has acquired MRT.
Bids trailing back to 1.2310 helped stave off further weakness but the pair remained offered and eventually broke below 1.2300 to trip short-term stop loss orders. These have helped fuel a drop to 1.2274 and bids are now noted into the 1.2255/65 area. Into the North American open and trading is consolidating the sell-off around 1.2280 with US event-risk now seen as the next directional indicator.
In other news, Swiss M&A is in the media spotlight. State-backed telecoms group Swisscom recently launched a EUR 3.7Bln friendly takeover bid for Italian broadband operator Fastweb. British Smith & Nephew plc has agreed to buy Swiss Plus Holdings for an estimated USD 889Mln in cash while on a slightly smaller scale Swiss Sike has acquired MRT.
Sterling Outlook (12th March 2007)
Cable rallied by half-a-cent to new one-week highs just shy of 1.9435 following the 09:30GMT disclosure of February's UK producer price data. The stronger-than-expected numbers are good news for UK rate hawks forecasting another 25bp base rate hike to 5.5% either next month or in May. Bull targets north of 1.9435 include 1.9448 (last Monday's high), 1.9460, and 1.9487.
The latter level is a 61.8% Fibo retracement point of the fall from 1.9674 (Feb 27 high) to 1.9185 (last Monday's 15-week low). 1.9398 (pre-UK PPI peak) is now a pullback support point. Lower props include 1.9380 (today's Asian session top), 1.9359, 1.9343, and 1.9322.
News-wise: the Boots board is meeting to decide whether to open up its books to Kohlberg Kravis Roberts, following Friday's GBP 9.7bn takeover approach from the US-based private equity group (BBC website). The IoD is urging UK Chancellor Gordon Brown to cut UK corporation tax from 30% to 28% in his 10th and final budget next week (March 21). Brown is expected to succeed Tony Blair as PM this summer.
The latter level is a 61.8% Fibo retracement point of the fall from 1.9674 (Feb 27 high) to 1.9185 (last Monday's 15-week low). 1.9398 (pre-UK PPI peak) is now a pullback support point. Lower props include 1.9380 (today's Asian session top), 1.9359, 1.9343, and 1.9322.
News-wise: the Boots board is meeting to decide whether to open up its books to Kohlberg Kravis Roberts, following Friday's GBP 9.7bn takeover approach from the US-based private equity group (BBC website). The IoD is urging UK Chancellor Gordon Brown to cut UK corporation tax from 30% to 28% in his 10th and final budget next week (March 21). Brown is expected to succeed Tony Blair as PM this summer.
Yen Outlook (12th March 2007)
USD/JPY and the JPY crosses remained supported in the European session. Ongoing improvement in the Asian equity markets underscored the renewed appetite for risk, leaving JPY on a broadly softer footing. USD/JPY made a fresh attempt on the 118.51 Asian high, with European interbank names joined by short-term speculative accounts. The pair struggled around 118.45 amid an overhang of exporter offers.
This fueled some profit taking activity and the pair drifted lower, with option names entering the market around 118.30 reportedly working gamma relating activity linked to 118.00 and 118.25 strikes. The pair held above 118.00 amid importer bids and ongoing interest by Japanese investors via the JPY crosses. EUR/JPY pushed up to 155.75 and gains were made in AUD/JPY, NZD/JPY and GBP/JPY.
Offers from exporters and general commercial activity capped but the pair remained bid ahead of the US open. This weakening JPY trend is expected to continue in the near-term amid the stabilisation in the global equity markets. However, US sub-prime fears still remain a background influence and could see some choppy price swings in the medium-term.
This fueled some profit taking activity and the pair drifted lower, with option names entering the market around 118.30 reportedly working gamma relating activity linked to 118.00 and 118.25 strikes. The pair held above 118.00 amid importer bids and ongoing interest by Japanese investors via the JPY crosses. EUR/JPY pushed up to 155.75 and gains were made in AUD/JPY, NZD/JPY and GBP/JPY.
Offers from exporters and general commercial activity capped but the pair remained bid ahead of the US open. This weakening JPY trend is expected to continue in the near-term amid the stabilisation in the global equity markets. However, US sub-prime fears still remain a background influence and could see some choppy price swings in the medium-term.
Euro Outlook (12th March 2007)
Into the new week and the Asian session saw only cursory interest paid to FX markets. European action was a different story with the "path of least resistance" offered by selling the Dollar. Having consolidated the US data driven gains from Friday the thinking into early Monday was that the Dollar will be hurt by the economic offerings later in the week (including CPI).
Add to the equation the hawkish ECB rhetoric from Bini Smaghi and Liebscher and EUR/USD looked to the topside. Spot stalled around the 1.3120 area (where a strike is set to expire at the NY cut at 14:00 GMT) before being bought up to 1.3180 ahead of the North American open. 1.3188 is seen as a key technical bull-trigger (the 61.8% Fibo of 1.3259 to 1.3073) and any break above this level intraday will see rates in the 1.32's looked for, should the initial momentum hold.
On the downside, stops are still seen below 1.31 with a break sub-1.3085 needed to add interest in the short-term. US data comes in the form of Mastercard Spending at 15:00 GMT and February budget numbers at 18:00 GMT.
Add to the equation the hawkish ECB rhetoric from Bini Smaghi and Liebscher and EUR/USD looked to the topside. Spot stalled around the 1.3120 area (where a strike is set to expire at the NY cut at 14:00 GMT) before being bought up to 1.3180 ahead of the North American open. 1.3188 is seen as a key technical bull-trigger (the 61.8% Fibo of 1.3259 to 1.3073) and any break above this level intraday will see rates in the 1.32's looked for, should the initial momentum hold.
On the downside, stops are still seen below 1.31 with a break sub-1.3085 needed to add interest in the short-term. US data comes in the form of Mastercard Spending at 15:00 GMT and February budget numbers at 18:00 GMT.
Friday, March 09, 2007
EUR/USD: Sovereign Bids Holding Back Tide
Sovereign bids continue to absorb EUR/USD sales as the market pares bearish bets on the greenback across the board. Stops below the 1.3075 level may prove too tempting to ignore if the market can gain one-more does of downside momentum. 1.3045 is support should that scenario unfold.
Helping the USD today is the renewed focus on interest rate differentials as Fed rate cut expectations are postponed and dealers contemplate a top in the ECB tightening process. 10-year spreads have widened out to 63.5 bp in favor of the USD versus 57.5 ahead of the data. 1.3115/20 offers are eyed on rebounds while small stops are seen on a rebound above that area. EUR/USD trades at 1.3100.
Helping the USD today is the renewed focus on interest rate differentials as Fed rate cut expectations are postponed and dealers contemplate a top in the ECB tightening process. 10-year spreads have widened out to 63.5 bp in favor of the USD versus 57.5 ahead of the data. 1.3115/20 offers are eyed on rebounds while small stops are seen on a rebound above that area. EUR/USD trades at 1.3100.
US TECHS: S&P Continues to Attack Retracement Resistance
June S&P is seeing a fairly strong response to the as-expected jobs number and is breaking through the 38% retracement level at 1420 early today. The contract had broken past that level yesterday but failed to close above it so today's close will be important for the bullish case.
It would be unusual for the market to stage a strong recovery after the harsh decline that was seen last week but a close above that retracement level would be very encouraging to the bullish case. There's also the point that the contract decline to much longer-term retracement support at 1370 and recovered from there.
The look on the weekly chart is that this decline was just a correction of the larger bullish trend and not the start of a long-term decline. So for now the focus on the ability of the market to close the session above 1420. Failure to do that will put the focus back on another test of the recent lows at 1384.
It would be unusual for the market to stage a strong recovery after the harsh decline that was seen last week but a close above that retracement level would be very encouraging to the bullish case. There's also the point that the contract decline to much longer-term retracement support at 1370 and recovered from there.
The look on the weekly chart is that this decline was just a correction of the larger bullish trend and not the start of a long-term decline. So for now the focus on the ability of the market to close the session above 1420. Failure to do that will put the focus back on another test of the recent lows at 1384.
USD/JPY: Capped Just Ahead of 118.40, Good Offers Touted
The data fueled rally has taken USD/JPY to 118.33-35 from 117.20-25 and there is talk of bids building in the 118.00-10 area and again at 117.90. The balance of an initially tight Friday market has swung in favour of the US unit and with the data suggesting that the US economy is fairing better than some had predicted the Dollar should be able hang onto the bid.
However, to the topside, hearing of good offers pegged close to 118.40, which may already have capped the market. At push the dollar could reach 118.85 before the week is out but it remains to be seen if the volatility seen earlier in the week brings about an unusually quieter late Friday session.
However, to the topside, hearing of good offers pegged close to 118.40, which may already have capped the market. At push the dollar could reach 118.85 before the week is out but it remains to be seen if the volatility seen earlier in the week brings about an unusually quieter late Friday session.
Swiss Outlook (9th March 2007)
The Dollar has been little moved ahead of the US Employment numbers (due at 13:30 GMT) despite the slight pick-up in global risk appetite. Economists look for a 100K headline, down from the 110K previous. Fresh carry implications have not boosted the US unit either and as a result some suggest the USD will remain range-bound until it sees the next batch of fundamentals fully pan out.
According to the latest reading of the UBS Risk Index, aversion has fallen to 0.44 from 0.46 yesterday. The research note also suggests this has been reflected "in a rebound AUD/JPY and AUD/CHF" price. Bids in USD/CHF into 1.2250/55 have propped the pair into European morning trading while sellers remained camped ahead of the 1.2290/2300 level.
However, should the US unit be boosted into North American trading and a 1.2300/05 break will eye 1.2315/35 before a full retracement back to 1.2437 (the February 22nd daily high) is eyed. Also set for release at 13:30 GMT is the US January Trade data (a deficit of around USD 59.5Bln forecast) with the attention then turning to the various Fed speakers set to comment after the European close.
According to the latest reading of the UBS Risk Index, aversion has fallen to 0.44 from 0.46 yesterday. The research note also suggests this has been reflected "in a rebound AUD/JPY and AUD/CHF" price. Bids in USD/CHF into 1.2250/55 have propped the pair into European morning trading while sellers remained camped ahead of the 1.2290/2300 level.
However, should the US unit be boosted into North American trading and a 1.2300/05 break will eye 1.2315/35 before a full retracement back to 1.2437 (the February 22nd daily high) is eyed. Also set for release at 13:30 GMT is the US January Trade data (a deficit of around USD 59.5Bln forecast) with the attention then turning to the various Fed speakers set to comment after the European close.
Sterling Outlook (9th March 2007)
Today's key event risk is the 13:30GMT publication of February's US employment report. The market appears bias towards a disappointing NFP number re: Wednesday's weak 57k ADP number, so an unexpectedly strong figure may possess the most market-moving potential. NFP consensus forecast: 95k. The size of January's US trade deficit will also be revealed at 13:30GMT.
Forecast: $59.8bn, from $61.2bn. The US unemployment rate is forecast at 4.6%. GBP/USD plumbed a two-day low of 1.9270 in a knee-jerk reaction to the 09:30GMT disclosure of January's sub-forecast UK industrial and manufacturing production data. Demand at 1.9275/80 propped cable into the data. Highs just shy of 1.9318 have been notched on the recovery from 1.9270. 1.9318 was yesterday's rebound top from a post-BoE rate verdict low of 1.9277.
Upper resistance levels include 1.9339 (today's Asian session top), 1.9352 (yesterday's pre-BoE rate verdict peak), and 1.9359 (Wednesday's high). Another EUR/GBP 0.6800 option strike rolls off at today's 10am EST NY cut, after prior 0.6800 expiries yesterday and Tuesday.
Forecast: $59.8bn, from $61.2bn. The US unemployment rate is forecast at 4.6%. GBP/USD plumbed a two-day low of 1.9270 in a knee-jerk reaction to the 09:30GMT disclosure of January's sub-forecast UK industrial and manufacturing production data. Demand at 1.9275/80 propped cable into the data. Highs just shy of 1.9318 have been notched on the recovery from 1.9270. 1.9318 was yesterday's rebound top from a post-BoE rate verdict low of 1.9277.
Upper resistance levels include 1.9339 (today's Asian session top), 1.9352 (yesterday's pre-BoE rate verdict peak), and 1.9359 (Wednesday's high). Another EUR/GBP 0.6800 option strike rolls off at today's 10am EST NY cut, after prior 0.6800 expiries yesterday and Tuesday.
Yen Outlook (9th March 2007)
USD/JPY and the JPY crosses remained steady in the European morning. USD/JPY traded up, moving through 117.50 option triggers to print a 117.67 high. Exporter and speculative name offers at 117.65/70 weighed on the pair and consolidation around 117.45/50 was noted for the remainder of the session. EUR/JPY moved higher but was unable to overcome 154.70 offers and pulled back in tandem with USD/JPY.
Other JPY pairs were similarly bid with NZD/JPY and AUD/JPY both performing well as Japanese retail investor demand was noted via the high yielders. Attention is now on the US non-farm payroll release. Expectations revolve around a rise of 95-100K. The market looks to be leaning towards a weaker number. If the number proves to be as expected or stronger, USD/JPY could get a boost, shoring up sentiment in other JPY pairs.
A clean break through 117.65/70 would see exporter offers at 117.80/00 come into play. EUR/JPY will need to overcome offers at 154.70 and over 155.00, with good size option triggers noted in the latter. Elsewhere, strikes at 117.25 could influence USD/JPY, while EUR/JPY open interest is noted at 153.50 and 154.00.
Other JPY pairs were similarly bid with NZD/JPY and AUD/JPY both performing well as Japanese retail investor demand was noted via the high yielders. Attention is now on the US non-farm payroll release. Expectations revolve around a rise of 95-100K. The market looks to be leaning towards a weaker number. If the number proves to be as expected or stronger, USD/JPY could get a boost, shoring up sentiment in other JPY pairs.
A clean break through 117.65/70 would see exporter offers at 117.80/00 come into play. EUR/JPY will need to overcome offers at 154.70 and over 155.00, with good size option triggers noted in the latter. Elsewhere, strikes at 117.25 could influence USD/JPY, while EUR/JPY open interest is noted at 153.50 and 154.00.
Euro Outlook (9th March 2007)
Into North American trading and the Dollar is poised to rally but factors may just conspire against the US unit ahead of the weekend. Dealers remain pessimistic ahead of the 13:30 GMT February US Employment numbers with data around the 100K mark doing the rounds the unveiling is generally not expected to be USD supportive.
Add to the risk-profile the January trade data (also set for release at 13:30 GMT) and EUR/USD has retained a "buy on dips" outlook. Dips back to the 21-Day moving average line and the daily low from yesterday (1.3118) are seen to offer value with 1.3165 to 1.3175 seen as the initial barrier to further Euro strength. 1.3165 offers trail back to official sellers camped in the 1.3175/80 area while above technical accounts look to the 61.8% Fibo of 1.3259 to 1.3073 at 1.3188.
This level is seen as the key intraday topside trigger while on the downside a break below 1.3100 will see 1.3073 come into view with 1.3040/50 then eyed. Following the early data the attention will turn to the Bies, Lacker and Kohn comments due after the European close.
Add to the risk-profile the January trade data (also set for release at 13:30 GMT) and EUR/USD has retained a "buy on dips" outlook. Dips back to the 21-Day moving average line and the daily low from yesterday (1.3118) are seen to offer value with 1.3165 to 1.3175 seen as the initial barrier to further Euro strength. 1.3165 offers trail back to official sellers camped in the 1.3175/80 area while above technical accounts look to the 61.8% Fibo of 1.3259 to 1.3073 at 1.3188.
This level is seen as the key intraday topside trigger while on the downside a break below 1.3100 will see 1.3073 come into view with 1.3040/50 then eyed. Following the early data the attention will turn to the Bies, Lacker and Kohn comments due after the European close.
Thursday, March 08, 2007
USD/JPY: Holds Firm Despite Exporter Offers
USD/JPY holds firm despite an overhang off exporter offers. The presence of Japanese names on the topside has limited gains but sentiment is firmly on 117.50-117.65 resistance. Momentum accounts and model funds increased their interest once 116.80/85 gave way in the European morning and there has been a marked pick up in leverage account activity.
According to sources some of the names that sold in the recent downturn have been turning positions. The market is less exposed to short JPY and global risk premiums have reduced, which is encouraging for further gains. Larger real money names have been less active, although there has been good Japanese retail investor flows and we anticipate further offshore demand if the US employment picture is favourable.
According to sources some of the names that sold in the recent downturn have been turning positions. The market is less exposed to short JPY and global risk premiums have reduced, which is encouraging for further gains. Larger real money names have been less active, although there has been good Japanese retail investor flows and we anticipate further offshore demand if the US employment picture is favourable.
US TECHS: Recovery in S&P Approaching First Hurdle
Tuesday's strong candlestick pattern for June S&P was a good indication that this market was ready to retrace some of the decline. This morning's price action is approaching the 38% retracement (1419) of that decline and the reaction there will be a good clue as to the sustainability of this bounce.
It does not appear that the market has the momentum required to break through that hurdle today, especially ahead of tomorrow's important NFP report. As long as the contract can hold near that level, however, it will have a strong chance to break through it over the next few trading days.
In the larger picture the market managed to bottom, at least temporarily, from the 38% retracement of the rally since the June 2006 lows so if it can extend this bounce just a bit over the next day or two it will be a strong indication that the weekly bullish trend is still influencing the market.
It does not appear that the market has the momentum required to break through that hurdle today, especially ahead of tomorrow's important NFP report. As long as the contract can hold near that level, however, it will have a strong chance to break through it over the next few trading days.
In the larger picture the market managed to bottom, at least temporarily, from the 38% retracement of the rally since the June 2006 lows so if it can extend this bounce just a bit over the next day or two it will be a strong indication that the weekly bullish trend is still influencing the market.
EUR/USD: Interest Rate Differentials Move Against EUR
Trichet's slight rhetorical shift in a dovish direction (despite voluminous hawkish talk) has helped widen interest rate differentials in favor of the USD today. 10-year yields spreads have widened to 60.5 bp from 57.5 bp earlier today. Spreads have been falling for a month on the growing notion that the Fed could cut rates as early as June while the ECB was seen hiking at least one more time after today's move. No the market is much less certain. EUR/USD is consolidating losses, trading now at 1.3128. 1.3140/45 is resistance near-term.
EUR/USD: US Investment Name Leads Selling
EUR/USD probed below 1.3120 on selling from a powerful US investment house. Prices find support at 1.3116, the 61.8% if the 1.3070/1.3185 rise after breaking the 50% Fibo in the last few moments at 1.3130. The perception is growing that the ECB is at or near a peak in rates after Trichet shifted his verbiage, saying rates are now "moderate". Covering of shorts in the US index is helping undermine EUR/USD, which markets up the largest single chunk of the index, indeed nearly 60% of it. 1.3140/45 is now resistance on rebounds near-term.
USD/CHF: 1.2290/2300 Retest On Cards After 1.2250 Falls
Those bulls that managed not to book profit on long trades into 1.2250 have been left with the prospect of a run towards 1.2290/2300 after much-hyped central bank buyers in EUR/USD failed to emerge at 1.3130. EUR/USD has fallen and USD/CHF has erased 1.2250 in the move higher. More stops are reported to have gone off amid the latest leg higher.
Swiss Outlook (8th March 2007)
Into European trading and USD/CHF had edged back above 1.2200 (1.2206 the high) but Swiss inflation numbers forced a bout of profit-taking from macro names before the Dollar rally continued. Stops above 1.2225 have been threatened all session but have yet to be triggered.
More offers are noted into 1.2240/50 and short-term bulls now look for a retest here. Elsewhere, dealers await the ECB verdict for support for the Euro and de facto the Franc. Looking ahead, Swiss inflation data has highlighted the benign nature of price pressure in the mountain economy at present. February CPI came in below expectations at +0.2% M/M and Unch Y/Y (+0.2% & +0.4% Forecast), however, few see the numbers impeding the SNB "normalization path".
The SNB will widely expected to announce a 25bp hike on March 15th but where we go from there is beginning to be the source of much debate. In their post-Swiss data research note one Swiss players touted the prospect of a Q2 hike as a "toss up". The name in question is still opting for another 25bp hike in June but much will be data and other external factor dependant.
More offers are noted into 1.2240/50 and short-term bulls now look for a retest here. Elsewhere, dealers await the ECB verdict for support for the Euro and de facto the Franc. Looking ahead, Swiss inflation data has highlighted the benign nature of price pressure in the mountain economy at present. February CPI came in below expectations at +0.2% M/M and Unch Y/Y (+0.2% & +0.4% Forecast), however, few see the numbers impeding the SNB "normalization path".
The SNB will widely expected to announce a 25bp hike on March 15th but where we go from there is beginning to be the source of much debate. In their post-Swiss data research note one Swiss players touted the prospect of a Q2 hike as a "toss up". The name in question is still opting for another 25bp hike in June but much will be data and other external factor dependant.
Sterling Outlook (8th March 2007)
The BoE MPC is expected to keep the UK base rate at 5.25% when it delivers its monthly verdict at 12:00GMT--although 10 of 68 economists polled by Bloomberg forecast another 25bp hike to 5.5%. An unexpected hike would likely spur fresh demand for GBP. Middle Eastern buying helped inflate cable to intra-day highs just shy of touted offers at 1.9355 during the European morning.
EUR/GBP has also been sold to an intra-day low of 0.6796 since the Halifax's 08:00GMT disclosure that UK house prices rose by another 1.8% last month, to stand 9.9% higher on an annualized basis. A EUR/GBP 0.6800 option strike rolls off at today's 10am EST NY cut (15:00GMT). Another "more substantial" 0.6800 expiry is tipped for tomorrow. 1.9275 was today's Asian session GBP/USD low, plumbed after a bout of GBP/JPY selling by US funds.
That selling weighed on GBP/JPY to a low of 222.90. Today's key US event risk is the 13:30GMT disclosure of weekly US jobless claims. Forecast: 330k. February's US employment report will be published tomorrow. NFP consensus forecast: 95k.
EUR/GBP has also been sold to an intra-day low of 0.6796 since the Halifax's 08:00GMT disclosure that UK house prices rose by another 1.8% last month, to stand 9.9% higher on an annualized basis. A EUR/GBP 0.6800 option strike rolls off at today's 10am EST NY cut (15:00GMT). Another "more substantial" 0.6800 expiry is tipped for tomorrow. 1.9275 was today's Asian session GBP/USD low, plumbed after a bout of GBP/JPY selling by US funds.
That selling weighed on GBP/JPY to a low of 222.90. Today's key US event risk is the 13:30GMT disclosure of weekly US jobless claims. Forecast: 330k. February's US employment report will be published tomorrow. NFP consensus forecast: 95k.
Yen Outlook (8th March 2007)
USD/JPY and the JPY crosses moved higher in the European morning as funds moved back into the short JPY trade. Activity picked up as the European morning progressed, with players encouraged by the pick in Asian equities. USD/JPY moved through 116.80-117.00 offers and squeezed out shorts through 117.20 to record a 117.25 high.
EUR/JPY traded higher in tandem moving through 154.00 offers to print a 154.19 high. Funds were active via a Japanese name and a UK clearer that were both spotted throughout the European morning. Gains have been hampered to a degree by an overhang of exporter offers and some light selling by lifers reportedly looking to repatriate some of their JPY proceeds ahead of March fiscal year end.
The near-term outlook will be driven by US equity performance and tomorrow's US NFP data. The stabilisation in the global equity market has seen a reduction in risk, which has boosted model fund and hedge fund activity. However, flows have been kept to a minimum ahead tomorrow's US employment data. Today's Fed speakers and the ECB policy announcement and accompanying press conference should also clip gains.
EUR/JPY traded higher in tandem moving through 154.00 offers to print a 154.19 high. Funds were active via a Japanese name and a UK clearer that were both spotted throughout the European morning. Gains have been hampered to a degree by an overhang of exporter offers and some light selling by lifers reportedly looking to repatriate some of their JPY proceeds ahead of March fiscal year end.
The near-term outlook will be driven by US equity performance and tomorrow's US NFP data. The stabilisation in the global equity market has seen a reduction in risk, which has boosted model fund and hedge fund activity. However, flows have been kept to a minimum ahead tomorrow's US employment data. Today's Fed speakers and the ECB policy announcement and accompanying press conference should also clip gains.
Euro Outlook (8th March 2007)
Into North American trading and EUR/USD continues to trade heavy inside the late European 1.3145/55 comfort band. Spot had been sold back in the European morning as dealers saw the Euro as slightly overvalued when you consider the risk that the ECB President may not allude to further rate hikes.
More bids are noted into 1.3130 but ahead of the 12:45 GMT verdict and flows are expected to be dominated by position squaring out of NY. The market remains braced for a 25bp hike from Trichet but it will be his accompanying statement (due after 13:30 GMT) that will be key to the direction of the Euro going forward. Should the path of normalization continue to walked then expect spot to remain supported while any further vigilance will see 1.3185/3200 retested with option barriers up at 1.3300 then coming back into view.
However, if Trichet has failed to don his hawkish suit then the Euro come under increased pressure and EUR/USD would look for a run towards 1.3130 and 1.3075 into the weekend. On the options front, decent sized maturities are noted up at 1.3375 & 1.3385.
More bids are noted into 1.3130 but ahead of the 12:45 GMT verdict and flows are expected to be dominated by position squaring out of NY. The market remains braced for a 25bp hike from Trichet but it will be his accompanying statement (due after 13:30 GMT) that will be key to the direction of the Euro going forward. Should the path of normalization continue to walked then expect spot to remain supported while any further vigilance will see 1.3185/3200 retested with option barriers up at 1.3300 then coming back into view.
However, if Trichet has failed to don his hawkish suit then the Euro come under increased pressure and EUR/USD would look for a run towards 1.3130 and 1.3075 into the weekend. On the options front, decent sized maturities are noted up at 1.3375 & 1.3385.
Wednesday, March 07, 2007
USD/JPY: Better Bid As Risk Concerns Abate, Mid-117 Area Eyed
USD/JPY and JPY crosses rose again overnight on the back of dissipating concerns over risk assets, including carry trades. Stock markets around the world recovered, taking their cues from the bounce in the Nikkei. Some emerging markets including India saw their stock indices up as much as 2.27%.
USD/JPY traded up to as high as 116.74 in New York overnight. It has added on to these gains this morning, trading up to the 116.85/90 level. Although some offers are eyed ahead of 117.00, further tests up are eyed. The talk is some Japanese exporters may be waiting for moves up to the 117 handle. This is likely but Japanese exporters are mixed as to what to do currently, with may of the more sophisticated operations well-hedged to end-June and some partially hedged out to as far out as end-September, and there seems to be no urgency to sell this rally.
With crosses still mostly bid and supportive, it may take only another rally in the Nikkei for USD/JPY to break higher. Topside resistance above 117.00 is eyed 117.46, where the 200-day moving average comes in. This level may be harder to pierce. Support below is seen at 116.20, the New York low, if not ahead. USD/JPY currently trades 116.72/77, off a touch from early highs.
USD/JPY traded up to as high as 116.74 in New York overnight. It has added on to these gains this morning, trading up to the 116.85/90 level. Although some offers are eyed ahead of 117.00, further tests up are eyed. The talk is some Japanese exporters may be waiting for moves up to the 117 handle. This is likely but Japanese exporters are mixed as to what to do currently, with may of the more sophisticated operations well-hedged to end-June and some partially hedged out to as far out as end-September, and there seems to be no urgency to sell this rally.
With crosses still mostly bid and supportive, it may take only another rally in the Nikkei for USD/JPY to break higher. Topside resistance above 117.00 is eyed 117.46, where the 200-day moving average comes in. This level may be harder to pierce. Support below is seen at 116.20, the New York low, if not ahead. USD/JPY currently trades 116.72/77, off a touch from early highs.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] was flat on the week at yesterday's close, and current small gains leave it in position to exit bearish daily trends above $645 Apr at today's settle. Keeping an eye on former monthly supports, now resistance at $649.50-52.00 as a key pivot zone. Projected resistance into next week is $657-62, that band shifting higher on each new high this week.
Though yesterday's advance was much less robust than what occurred in equities, the pattern was similar, with both markets setting bullish outside-day-up structure. No market gets quickly past the kind of break experienced last week, though, and despite daily barriers at $652.50-53.00 currently targeted, 40-day averages at $656 aren't far behind.
In [oil], the market can shift to a bearish trend on daily models today below $60.80 Apr at the close, still impacted by Monday's sizable break. Trend Intensity has not been triggered either here or in gold. $62 remains a pivotal number for Apr futures, marking both 100-day moving averages, a weekly trendline and the base of a large band of activity slightly larger than what transpired during the last quarter of 2006.
Though yesterday's advance was much less robust than what occurred in equities, the pattern was similar, with both markets setting bullish outside-day-up structure. No market gets quickly past the kind of break experienced last week, though, and despite daily barriers at $652.50-53.00 currently targeted, 40-day averages at $656 aren't far behind.
In [oil], the market can shift to a bearish trend on daily models today below $60.80 Apr at the close, still impacted by Monday's sizable break. Trend Intensity has not been triggered either here or in gold. $62 remains a pivotal number for Apr futures, marking both 100-day moving averages, a weekly trendline and the base of a large band of activity slightly larger than what transpired during the last quarter of 2006.
EUR/USD: Edging Higher, EUR/JPY in Demand
EUR/USD is edging higher, trading up to 1.3150 on seemingly renewed buying interest in EUR/JPY. Real money accounts in the US have been seen buying both legs of the cross this morning, so it is unclear whether the spots are acting in concert or independently. Offers remain in the 1.3150 area with more eyed toward 1.3160.
Channel top resistance in EUR/USD comes in a shade above the 1.3150 level near-term. Dealers remained concerned that US payrolls will be disappointing Friday but optimists note a set-back is to be expected with payrolls averaging over 170k over the last three months.
Channel top resistance in EUR/USD comes in a shade above the 1.3150 level near-term. Dealers remained concerned that US payrolls will be disappointing Friday but optimists note a set-back is to be expected with payrolls averaging over 170k over the last three months.
FX OPTIONS: USD/JPY Vols Tick Up As Spot Struggles To Rally
USD/JPY vols tick up as spot struggles to rally. The lack of upside movement has increase the pressure on 116.25 bids, with US names increasing their selling interest. 1-wk vols are underpinned at 10.25/11.00 and the 1-mth contract has recaptured the 9% handle and currently indicates 9.05/9.35.
Interest has been mixed today, with O/N given down to 12.75% and the 1-wk seeing good two-way interest over the course of the session. 1-mth 25-d JPY calls traded as higher as 1.8% via the risk reversals, while interest in the opposite direction has seen 1-mth 15-d JPY puts trade up to 7.9% in USD 200 million. Monday 115.70 strikes changed hands and 24th April 117.00 interest has also been noted, along with selling of 119.15 strike for 25th May.
Interest has been mixed today, with O/N given down to 12.75% and the 1-wk seeing good two-way interest over the course of the session. 1-mth 25-d JPY calls traded as higher as 1.8% via the risk reversals, while interest in the opposite direction has seen 1-mth 15-d JPY puts trade up to 7.9% in USD 200 million. Monday 115.70 strikes changed hands and 24th April 117.00 interest has also been noted, along with selling of 119.15 strike for 25th May.
FX OPTIONS: EUR/USD 1-Year Vol Offered at 6.4% Traded Level
1-year implied volatility is currently offered at the 6.4 pct level at which an ATM option strike reportedly traded in nearly two-thirds-of-a-yard yesterday. The 1-year traded at 6.35 pct earlier today. Less than a fortnight ago, a 1-year ATM strike traded at an all-time low of 6.075 pct (Feb 22).
GBP/USD: Pivoting 1.9300, BoE Base Rate Verdict Tomorrow
Cable is currently pivoting the 1.9300 level, against a big-picture backdrop of gain consolidation from 1.9185 (Monday's 15-week floor). Resistance levels include 1.9323 (yesterday's high) and 1.9359 (today's Asian session top). The latter level is six pips shy of a 38.2% Fibo retracement point of the fall from 1.9674 (Feb 27 high) to 1.9185.
Fresh demand for the pound may ensue if the BoE MPC surprises the market and raises the base rate by another 25bp to 5.5% at 12:00GMT tomorrow (Thursday). No change is the consensus expectation although it is worth noting that the market has been surprised at the timing of two of the three 25bp hikes delivered through the current tightening cycle (in January and last August).
Sterling support points include 1.9270 (approximate European morning low), 1.9260 (today's Asian session base), 1.9250, and 1.9230 (yesterday's approximate NY session floor).
Fresh demand for the pound may ensue if the BoE MPC surprises the market and raises the base rate by another 25bp to 5.5% at 12:00GMT tomorrow (Thursday). No change is the consensus expectation although it is worth noting that the market has been surprised at the timing of two of the three 25bp hikes delivered through the current tightening cycle (in January and last August).
Sterling support points include 1.9270 (approximate European morning low), 1.9260 (today's Asian session base), 1.9250, and 1.9230 (yesterday's approximate NY session floor).
Swiss Outlook (7th March 2007)
There is a theme of stability running through the market so far this session and one that data has had little impact on. The market appears to be taking a breather after the volatility at the start of the week and before Friday's US employment report. USD/CHF opened in London at levels around 1.2235-41 and traded sideways in early action.
A small spike to 1.2248 brought out fresh selling and the market dropped to 1.2217. No real trend in the names involved but broad based European interbank action reportedly shaped much of the morning session. Swiss February unemployment data showed that employment remains high. The jobless rate was unchanged at 3.0%, a four-year low.
Employment indicators continue to suggest that any slowing in the economy will be brief. EUR/CHF has also walked a tight line so far Wednesday with 1.6080 Asian highs and 1.6040 European lows. The bulk of the action in Europe has been focused within a tighter 1.6040-1.6060 range. Key levels remain at 1.5930 and 1.6120 with 1.2120 and 1.2255 for the Dollar pairing.
A small spike to 1.2248 brought out fresh selling and the market dropped to 1.2217. No real trend in the names involved but broad based European interbank action reportedly shaped much of the morning session. Swiss February unemployment data showed that employment remains high. The jobless rate was unchanged at 3.0%, a four-year low.
Employment indicators continue to suggest that any slowing in the economy will be brief. EUR/CHF has also walked a tight line so far Wednesday with 1.6080 Asian highs and 1.6040 European lows. The bulk of the action in Europe has been focused within a tighter 1.6040-1.6060 range. Key levels remain at 1.5930 and 1.6120 with 1.2120 and 1.2255 for the Dollar pairing.
Sterling Outlook (7th March 2007)
The monthly two-day BoE MPC meeting begins today. The Old Lady is expected to keep the base rate at 5.25%, although there is a risk that it might hike by another 25bp to 5.5%. Sell interest at 1.9323 (yesterday's high) kept a lid on cable in early European trade, as it pushed its recovery envelope from an Asian session low of 1.9260.
That low was plumbed on the back of a good size Japanese GBP/JPY sell order, reportedly relating to a GBP 12.0bn Gilt redemption. Support points south of 1.9260 are noted at 1.9250, 1.9230, 1.9200 and 1.9185 (Monday's 15-week floor). 1.9355/65 is a resistance window north of 1.9323. The window encompasses today's 1.9359 Asian session high. 1.9365 is a 38.2% Fibo retracement point of the fall from 1.9674 (Feb 27 high) to 1.9185.
News-wise: Jack Straw is the new favourite to become Gordon Brown's Chancellor after Tony Blair leaves Number 10, according to the Daily Telegraph. The Fed's Moskow speaks at 18:00GMT, with the Fed's Beige Book ensuing at 19:00GMT. US consumer credit data is due at 20:00GMT.
That low was plumbed on the back of a good size Japanese GBP/JPY sell order, reportedly relating to a GBP 12.0bn Gilt redemption. Support points south of 1.9260 are noted at 1.9250, 1.9230, 1.9200 and 1.9185 (Monday's 15-week floor). 1.9355/65 is a resistance window north of 1.9323. The window encompasses today's 1.9359 Asian session high. 1.9365 is a 38.2% Fibo retracement point of the fall from 1.9674 (Feb 27 high) to 1.9185.
News-wise: Jack Straw is the new favourite to become Gordon Brown's Chancellor after Tony Blair leaves Number 10, according to the Daily Telegraph. The Fed's Moskow speaks at 18:00GMT, with the Fed's Beige Book ensuing at 19:00GMT. US consumer credit data is due at 20:00GMT.
Yen Outlook (7th March 2007)
USD/JPY and other JPY crosses were range bound in a quiet European session. The Asian market tested both sides of the range, with little progress in either direction. This left indecision in the European market. USD/JPY made tentative gains after finding good Japanese support at the lows.
Buying was noted by UK and US name on behalf of speculative funds. Momentum was lacking though and the pair only progressed to 116.55 and eventually drifted back into 116.45. EUR/JPY saw similar price action. Bids at 152.70 and 152.50 from Japanese retail investors underpinned and the pair pushed towards 153.00. Offers from short-term CTAs and interbank names kept the pair close to 152.80. Dealers noted a large GBP/JPY sell order following the Tokyo fix, perhaps on the back of large UK Gilt redemptions and coupon payments.
This was cited as a potential JPY positive for the European session but the pair also struggled for direction. US equity performance and the US ADP employment report may fuel some speculative activity. Risk is still on the downside for USD/JPY and EUR/JPY after both pairs struggle to sustain a move higher in the European morning.
Buying was noted by UK and US name on behalf of speculative funds. Momentum was lacking though and the pair only progressed to 116.55 and eventually drifted back into 116.45. EUR/JPY saw similar price action. Bids at 152.70 and 152.50 from Japanese retail investors underpinned and the pair pushed towards 153.00. Offers from short-term CTAs and interbank names kept the pair close to 152.80. Dealers noted a large GBP/JPY sell order following the Tokyo fix, perhaps on the back of large UK Gilt redemptions and coupon payments.
This was cited as a potential JPY positive for the European session but the pair also struggled for direction. US equity performance and the US ADP employment report may fuel some speculative activity. Risk is still on the downside for USD/JPY and EUR/JPY after both pairs struggle to sustain a move higher in the European morning.
Euro Outlook (7th March 2007)
An end to the EUR rot last session but we have seen very little in the way of EUR pep so far Wednesday. The better tone top the European equity market and the poor results from the German January manufacturing order data had little impact on the market. EUR/USD traded to 1.3142 in early Asian trade then slipped to 1.3110 into the European open.
Price has steadied and climbed back to 1.3125 by London midday but action remains extremely tight. There is talk in the market of reasonable sized offers in the 1.3140-50 area. A choppy Cable market saw the EUR slack taken up through EUR/GBP. The cross drawing support from just under 0.6800 from German names.
German manufacturing orders for January surprised to the downside with a full 1.0% drop on the month from a 0.7% rise in December. The December number was revised up from -0.2%. The market had been looking for a 0.4% gain on the month. EUR/USD looks heavy in the high 1.3120's and bid at 1.3110.
Price has steadied and climbed back to 1.3125 by London midday but action remains extremely tight. There is talk in the market of reasonable sized offers in the 1.3140-50 area. A choppy Cable market saw the EUR slack taken up through EUR/GBP. The cross drawing support from just under 0.6800 from German names.
German manufacturing orders for January surprised to the downside with a full 1.0% drop on the month from a 0.7% rise in December. The December number was revised up from -0.2%. The market had been looking for a 0.4% gain on the month. EUR/USD looks heavy in the high 1.3120's and bid at 1.3110.
USD/JPY: Bearish Trend Intensity Signal Advances
After yesterday's fall in USD/JPY, the bearish trend signal has advanced another notch to 23. The bearish EUR/JPY trend signal has also advanced, rising two notches to 21. The EUR/USD bullish signal failed with the signal now neutral at 18.
The GBP/USD bearish signal advanced two notches, rising to 11. The USD/CHF bearish signal stalled at 20. The EUR/GBP bullish signal rose two notches to 28. These proprietary indicators are updated each trading day after the NY close.
The GBP/USD bearish signal advanced two notches, rising to 11. The USD/CHF bearish signal stalled at 20. The EUR/GBP bullish signal rose two notches to 28. These proprietary indicators are updated each trading day after the NY close.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] is setting outside day structure up today, its first sign of near-term recovery since the market first got hammered a week ago. This more upbeat structure is still sharply overshadowed by last week's large range outside-down week. $652.50-55.50 is where daily resistance hurdles are first found.
Monthly levels are even closer at $649.50-52.00 200-day moving averages at $633.50 were never quite reached, with prices coming within $1 today. On a dip, intraday supports are at $642-45 and rising. The break below 62% retracements of 2007 range yesterday at $640 did not persist, and the push back above provides short-term relief.
In [oil], follow-through action from yesterday's break has not been forthcoming, with inside day structure forming today. Trend Intensity is neutral (also neutral in gold). Daily resistance is well formed at $61.05-45 Apr. With intraday momentum turning bearish yesterday, the market is still above 100-and 200-period averages on hourly charts on either side of $60.
Major resistance from 200-day averages at $62 has effectively thwarted the advance before this week and remains the level that must be breached to the upside before thinking that the broader $62-67 from the last quarter of 2006 will be challenged.
Monthly levels are even closer at $649.50-52.00 200-day moving averages at $633.50 were never quite reached, with prices coming within $1 today. On a dip, intraday supports are at $642-45 and rising. The break below 62% retracements of 2007 range yesterday at $640 did not persist, and the push back above provides short-term relief.
In [oil], follow-through action from yesterday's break has not been forthcoming, with inside day structure forming today. Trend Intensity is neutral (also neutral in gold). Daily resistance is well formed at $61.05-45 Apr. With intraday momentum turning bearish yesterday, the market is still above 100-and 200-period averages on hourly charts on either side of $60.
Major resistance from 200-day averages at $62 has effectively thwarted the advance before this week and remains the level that must be breached to the upside before thinking that the broader $62-67 from the last quarter of 2006 will be challenged.
USD/JPY: Drifts Towards European Base After US Factory Orders
USD/JPY drifts towards the European base after weak US factory orders. The US stock market has lost some ground after starting the session at modestly improved levels. The dollar is edging lower and bids at 116.20/25 should come into play in slow trade.
Further bids are seen at 115.90/00. Elsewhere, EUR/JPY has slipped into the 152.40 area from levels above 152.50. The pair has struggled to make a sustainable push higher since the European morning and looks vulnerable on the downside.
Any accelerated losses in the US equity market would encourage speculative JPY demand, which has tapered off as action turns more two-way rather than the one-way liquidation of positions seen over the last few sessions.
Further bids are seen at 115.90/00. Elsewhere, EUR/JPY has slipped into the 152.40 area from levels above 152.50. The pair has struggled to make a sustainable push higher since the European morning and looks vulnerable on the downside.
Any accelerated losses in the US equity market would encourage speculative JPY demand, which has tapered off as action turns more two-way rather than the one-way liquidation of positions seen over the last few sessions.
EUR/USD: Soft Data Sparks Further Bounce; Watch Stocks
EUR/USD blipped up to the 1.3105 area after weak US factory orders (-5.6%) and pending home sales (-4.1%) but rallies may be limited if US equities sell off on the on the weak data. So far, stocks are rallying despite the poor reports. Go figure. Offers are seen in the 1.3120/30 area with stops eyed at 1.3130/40; Offers return toward 1.3160.
Tuesday, March 06, 2007
USD/CHF: Fibo Attracts, EUR/CHF RSI Repels
In the absence of any fundamental shift, spot traders are reverting to the technicals, as USD/CHF rebounds from yesterday's test of the year's lows. The last significant high and low on the daily study, 1.2775 and 1.1885 provides Fibo attraction at 1.2225 (38.2%) and price action today is getting magnetically drawn to it as traders try to make their minds up what to do next.
Meanwhile on the EUR/CHF daily study RSI slammed into a low of 19.7 yesterday, the first time it has been that low since last May, just ahead of the last significant low on that chart (1.5450) so techies are trimming back some of those posis, particularly as the slow stochastics look set to cross upwards tomorrow.
Spot USD/CHF trades at 1.2245 whilst spot EUR/CHF trades at 1.6037, and the twin impacts of a rising EUR/CHF and a rebound off yesterday's USD lows is giving the greenback a lift this morning. There are good sized stops in USD/CHF above 1.2260 and modest stops below 1.2195.
Meanwhile on the EUR/CHF daily study RSI slammed into a low of 19.7 yesterday, the first time it has been that low since last May, just ahead of the last significant low on that chart (1.5450) so techies are trimming back some of those posis, particularly as the slow stochastics look set to cross upwards tomorrow.
Spot USD/CHF trades at 1.2245 whilst spot EUR/CHF trades at 1.6037, and the twin impacts of a rising EUR/CHF and a rebound off yesterday's USD lows is giving the greenback a lift this morning. There are good sized stops in USD/CHF above 1.2260 and modest stops below 1.2195.
Swiss Outlook (6th March 2007)
The European market looks to be adjusting the adjustment and this has left USD/CHF to trade higher for the second consecutive session. Equity markets have held to a recovery bias and this looks to have brought calm to the broader financial market. Swiss fourth quarter GDP provided the data focus.
A slight pick up in economic activity with Q4 posting a 0.5% gain Q/Q, 2.2% Y/Y and overall the Swiss economy grew by 2.7% in 2006. The market had been looking for a better return but any data disappointment was lost within the general corrective nature to the forex market. Looking to this year the early analyst estimates point to a 2.0% pace with the US performance cited as a key factor for the year ahead.
USD/CHF based at 1.2110 last session, closed at 1.2210 and worked to a Tuesday high of 1.2243. Technically the 10-day moving average stands over the market at 1.2260 and minor intraday support comes in at 1.2195. EUR/CHF has also seen corrective action with a bounce to 1.6044 from Monday lows of 1.5930. A softer Swissy but the carry trade nervousness is likely to remain.
A slight pick up in economic activity with Q4 posting a 0.5% gain Q/Q, 2.2% Y/Y and overall the Swiss economy grew by 2.7% in 2006. The market had been looking for a better return but any data disappointment was lost within the general corrective nature to the forex market. Looking to this year the early analyst estimates point to a 2.0% pace with the US performance cited as a key factor for the year ahead.
USD/CHF based at 1.2110 last session, closed at 1.2210 and worked to a Tuesday high of 1.2243. Technically the 10-day moving average stands over the market at 1.2260 and minor intraday support comes in at 1.2195. EUR/CHF has also seen corrective action with a bounce to 1.6044 from Monday lows of 1.5930. A softer Swissy but the carry trade nervousness is likely to remain.
Sterling Outlook (6th March 2007)
Demand circa 1.9260 has propped cable since its retreat from early Europe highs just shy of touted offers at 1.9305 (today's Asian session peak). The early Europe rise was attributed to good size corporate buying. Further demand is noted at 1.9240, with some stops tipped below 1.9225/30. 1.9200 and 1.9185 (yesterday's 15-week floor) are support points south of 1.9225.
Central Bank demand was noted near 1.9225 and 1.9185 yesterday. Today's Asian session base was 1.9186. Additionally flagged sell interest at 1.9320 represents a bull target north of 1.9305. Some stops are pegged above 1.9330. US Q4 revised productivity and labor cost data is due at 13:30GMT, with January factory orders and pending home sales ensuing at 15:00GMT.
Annualized productivity growth is expected to be revised down to 1.5%, with annualized labor costs forecast at 3.2%. Factory orders are forecast down 4.5% m/m. Pending home sales are forecast down 1.2% m/m. Former Fed chairman Alan Greenspan says there is a "one-third probability" of a US recession this year (Bloomberg).
Central Bank demand was noted near 1.9225 and 1.9185 yesterday. Today's Asian session base was 1.9186. Additionally flagged sell interest at 1.9320 represents a bull target north of 1.9305. Some stops are pegged above 1.9330. US Q4 revised productivity and labor cost data is due at 13:30GMT, with January factory orders and pending home sales ensuing at 15:00GMT.
Annualized productivity growth is expected to be revised down to 1.5%, with annualized labor costs forecast at 3.2%. Factory orders are forecast down 4.5% m/m. Pending home sales are forecast down 1.2% m/m. Former Fed chairman Alan Greenspan says there is a "one-third probability" of a US recession this year (Bloomberg).
Yen Outlook (6th March 2007)
The bounce seen in the Nikkei and the higher US equity futures left JPY on a heavier footing. Asian traders saw decent demand from Japanese importers, retail margin players and investment trust-related demand. The European session saw offshore funds, leverage account interest and speculative activity as US futures extended gains, which reduced the pressure on JPY carry trades.
USD/JPY moved from the 116.25/30 area up to a 116.67 high. Offers at 116.60 were cleared but the pair met decent supply at 116.70, with exporters and intra-day profit taking noted. EUR/JPY saw a similar theme, pushing up from 152.35/40 up to the 153.00 handle. Offers at 153.00/05 capped gains and the pair slipped back towards the 152.70 area, while USD/JPY consolidated around 116.50 ahead of the US open.
Today's equity performance will drive price action and will determine whether the latest recovery in USD/JPY and EUR/JPY are simply corrections from their recent lows or the catalyst for fresh carry trade interest. Suspection raises that any price movement will be restricted ahead of Friday's US NFP, which will have implications for the dollar ahead.
USD/JPY moved from the 116.25/30 area up to a 116.67 high. Offers at 116.60 were cleared but the pair met decent supply at 116.70, with exporters and intra-day profit taking noted. EUR/JPY saw a similar theme, pushing up from 152.35/40 up to the 153.00 handle. Offers at 153.00/05 capped gains and the pair slipped back towards the 152.70 area, while USD/JPY consolidated around 116.50 ahead of the US open.
Today's equity performance will drive price action and will determine whether the latest recovery in USD/JPY and EUR/JPY are simply corrections from their recent lows or the catalyst for fresh carry trade interest. Suspection raises that any price movement will be restricted ahead of Friday's US NFP, which will have implications for the dollar ahead.
Euro Outlook (6th March 2007)
EUR/USD opened in Asia around 1.3095 after breaking lower on sustained EUR/JPY selling. EUR/USD eased to 1.3081 in early Asia when the EUR/JPY fell to 150.74, but this was followed by a reversal higher in the EUR/JPY up to 152.86 when Japanese investors bought aggressively. Into Europe and EUR/USD traded up to 1.3130 before a small wave of EUR/GBP selling knocked the cross from 0.6812-14 to 0.6800.
EUR/USD steadied between 1.3105/15 for the balance of the European morning session. The slightly softer bias helped by poor EZ retail sales data for January. EUR sentiment is mixed ahead of the ECB meeting Thursday. Some analysts feel that the EUR might suffer on concerns over global growth, as the hawkish ECB has not established credentials in promoting growth.
This could explain why the EUR has lost ground despite lower US yields. The recovery in the EUR/JPY has helped to underpin the EUR, but the big test will be the market's reaction to the ECB meeting. The consensus is that the ECB will hike, but some warn that if global markets are still wobbly it might make their decision a difficult one.
EUR/USD steadied between 1.3105/15 for the balance of the European morning session. The slightly softer bias helped by poor EZ retail sales data for January. EUR sentiment is mixed ahead of the ECB meeting Thursday. Some analysts feel that the EUR might suffer on concerns over global growth, as the hawkish ECB has not established credentials in promoting growth.
This could explain why the EUR has lost ground despite lower US yields. The recovery in the EUR/JPY has helped to underpin the EUR, but the big test will be the market's reaction to the ECB meeting. The consensus is that the ECB will hike, but some warn that if global markets are still wobbly it might make their decision a difficult one.
Monday, March 05, 2007
USD/JPY: Watanabe Sees No Major Carry Trade Unwinding
Traders are quite frankly questioning which market Japan's Watanabe is watching, who states from Italy, that he sees no major carry trade unwinding. That is all the market is seeing with little bounce seen in JPY crosses today as the carry trade unwinding continues.
JPY gains are being aided by the strong rise in Japan Capex data last night with a surge of 16.8% in Q4 and expectations that GDP data will be revised higher as a result. USD/JPY is at 115.53/57 but with offers reported at 115.80 and traders report that the sell orders are stacked up as high as 116.20 now, and expected to stall bounces.
JPY gains are being aided by the strong rise in Japan Capex data last night with a surge of 16.8% in Q4 and expectations that GDP data will be revised higher as a result. USD/JPY is at 115.53/57 but with offers reported at 115.80 and traders report that the sell orders are stacked up as high as 116.20 now, and expected to stall bounces.
USD/CHF: Swiss Name The Big Buyer Of USD/CHF & EUR/CHF
A Swiss name is reportedly the best of the earlier buyers in both USD/CHF and EUR/CHF. However, they have since passed the baton to a US investment house with the name in question now seen buying the Dollar pair. Both their NY and London offices have been spotted on the toys and this demand has helped elevate USD/CHF towards the 1.2250 level.
1.2244 represents the current session high but better sized supply is tipped to sit from 50 back to 1.2260. Against the Euro the Franc has been corrective since the European bounce off 1.5932. Offers into 1.6000/10 are attempting to curb further strength after the already mentioned Swiss name Euro buying. Corporate interest to sell the cross is behind the latest offers with one Swiss name still tipping 1.58 as a Q2 target.
Looking ahead, Swiss data is due tomorrow but GDP numbers could largely be overlooked as the markets awaits the outcome of the March 15th SNB meeting. Many still opt for Roth and Co. to hike rates by a further 25bps but there is a very clear cut argument for rates to be left on hold as price pressure is still benign.
1.2244 represents the current session high but better sized supply is tipped to sit from 50 back to 1.2260. Against the Euro the Franc has been corrective since the European bounce off 1.5932. Offers into 1.6000/10 are attempting to curb further strength after the already mentioned Swiss name Euro buying. Corporate interest to sell the cross is behind the latest offers with one Swiss name still tipping 1.58 as a Q2 target.
Looking ahead, Swiss data is due tomorrow but GDP numbers could largely be overlooked as the markets awaits the outcome of the March 15th SNB meeting. Many still opt for Roth and Co. to hike rates by a further 25bps but there is a very clear cut argument for rates to be left on hold as price pressure is still benign.
EUR/USD: Markets Attempting to Stabilize, EUR Still Heavy
Equity markets are attempting to stabilize as S&P futures halve their losses and European shares bounce moderately from their lows. EUR/USD remains under pressure, however, trading just above fresh session lows in the mid 1.3070s.
Below 1.3075, support comes in at 1.3050. A break through this zone is seen leading to fresh liquidation of EUR/USD longs which should only added to the EUR/JPY woes. EUR/USD trades at 1.3082.
Below 1.3075, support comes in at 1.3050. A break through this zone is seen leading to fresh liquidation of EUR/USD longs which should only added to the EUR/JPY woes. EUR/USD trades at 1.3082.
USD/JPY: Offers Eyed at 115.80 on Any Bounce
A plethora of factors have been cited behind the fall in USD/JPY overnight including talk of margin calls forcing fresh carry trade unwinding, talk of a hedge funds culling carry trades and Japanese accounts both closing carry trades but also repatriating ahead of the fiscal year end.
USD/JPY is currently at 115.53 with offers now eyed at 115.80. Bids remain at 115.15 and 115.00 with talk of a semi-official Japanese investment bid at 115.15. Option defense of a 115.00 barrier is also tipped but with talk of large stops under 115.00 from Japanese exporters.
Remember that 115.00 is the average hedge target for most exporters. US yields are bouncing sharply this morning, with ten-year bonds rising from 4.45% to 4.50% but this may not be a good sign for the USD but signs of more asset unwinding in order to offset losses elsewhere.
USD/JPY is currently at 115.53 with offers now eyed at 115.80. Bids remain at 115.15 and 115.00 with talk of a semi-official Japanese investment bid at 115.15. Option defense of a 115.00 barrier is also tipped but with talk of large stops under 115.00 from Japanese exporters.
Remember that 115.00 is the average hedge target for most exporters. US yields are bouncing sharply this morning, with ten-year bonds rising from 4.45% to 4.50% but this may not be a good sign for the USD but signs of more asset unwinding in order to offset losses elsewhere.
GBP/USD: Lent Support by IMF's 2007 UK GDP Forecast Upgrade
Cable has reclaimed a 1.92 handle since Reuters reported that the IMF has revised up its 2007 UK GDP forecast to 2.9%, from 2.75% previously. The IMF additionally opines that the sterling exchange rate "may be slightly overvalued, but not enough to be a concern", and says the UK may need further monetary policy tightening.
GBP/USD tripped stops sub-1.9200 en route to a new 15-week low of 1.9185, prior to Reuters reporting the IMF news. Further stops are touted below 1.9180. 1.9220 and 1.9260 (Jan 8 low) are sterling resistance levels. Funds and CTA's have been seen selling into rallies.
GBP/USD tripped stops sub-1.9200 en route to a new 15-week low of 1.9185, prior to Reuters reporting the IMF news. Further stops are touted below 1.9180. 1.9220 and 1.9260 (Jan 8 low) are sterling resistance levels. Funds and CTA's have been seen selling into rallies.
Swiss Outlook (5th March 2007)
In European trading and downside follow-through was limited in the USD/CHF break below 1.2125 and spot soon bounced as 1.2110 bids emerged. Ahead of the North American open, the pair broke into the 1.22's with stops triggered in the break above 1.2205. These have fueled the run to the fresh intraday high at 1.2222 and the price is now looking to consolidate the break higher.
More sellers are seen into 1.2250 and 1.2260 but US data is now seen as the key driver for the price in the short-term. US Non-Manf. ISM data for February is set for release at 15:00 GMT. Economists have opted for a 57.2 consensus but with the risk skewed clear to the downside the Dollar may struggle come what may.
Following this, Poole is due to talk (16:00 GMT) on "inflation, financial stability and economic growth". Stops in [EUR/CHF] have been removed in the intraday drive lower and 1.5932 printed in European trading as the Franc was bought back on carry trade unwinding. Add to the mix the potential for an SNB hike on March 15th and the CHF should remain supported on dips.
More sellers are seen into 1.2250 and 1.2260 but US data is now seen as the key driver for the price in the short-term. US Non-Manf. ISM data for February is set for release at 15:00 GMT. Economists have opted for a 57.2 consensus but with the risk skewed clear to the downside the Dollar may struggle come what may.
Following this, Poole is due to talk (16:00 GMT) on "inflation, financial stability and economic growth". Stops in [EUR/CHF] have been removed in the intraday drive lower and 1.5932 printed in European trading as the Franc was bought back on carry trade unwinding. Add to the mix the potential for an SNB hike on March 15th and the CHF should remain supported on dips.
Sterling Outlook (5th March 2007)
Cable tripped stops below 1.9260 in early European trade, as GBP/JPY came under fresh selling pressure. A prior torrent of GBP/JPY selling was attributed as the cause of cable's Asian session slump from 1.9448 to 1.9260 (Jan 8 low). The exiting of long positions by Japanese retail investors and US model funds was blamed for that cross selling.
1.9213 defines the 15-week low-to-date. Touted bear targets/support points below include 1.9200, 1.9180, 1.9150, 1.9130, and 1.9100. On the topside: 1.9260 is now a resistance level. The probability of the BoE MPC hiking the UK base rate by another 25bp to 5.5% as early as this Thursday has lessened on the back of February's disappointing UK service sector PMI.
M&A-wise: UK residential estate agency Countrywide has agreed to be acquired by US private equity group Apollo Advisors for GBP 1.0bn (FT website). February's US ISM non-manufacturing index will be disclosed at 15:00GMT. Forecast: 57.3, from 59.0 in January.
1.9213 defines the 15-week low-to-date. Touted bear targets/support points below include 1.9200, 1.9180, 1.9150, 1.9130, and 1.9100. On the topside: 1.9260 is now a resistance level. The probability of the BoE MPC hiking the UK base rate by another 25bp to 5.5% as early as this Thursday has lessened on the back of February's disappointing UK service sector PMI.
M&A-wise: UK residential estate agency Countrywide has agreed to be acquired by US private equity group Apollo Advisors for GBP 1.0bn (FT website). February's US ISM non-manufacturing index will be disclosed at 15:00GMT. Forecast: 57.3, from 59.0 in January.
Yen Outlook (5th March 2007)
JPY strength and Nikkei weakness look to be feeding on each other with FX players eyeing the plunge on the TSE and buying back or afresh more JPY against an assortment of currencies. Recent stock market declines, for their part, have been on the back of JPY strength with Japanese exporter shares leading the way down. USD/JPY sold off from the get go, trading down from 116.78 to as low as 115.15 before steadying.
Since, it has whipped around between 115.15-115.60. Offers up top look to be building and many players eye more downside, perhaps to 114.43, the spike low on December 5 or even the 114.00 level, 61.8% retracement of the move up from 109 to 122.20. EUR/JPY traded down from 154.10 initially to 151.99 in Asia and then 151.15 in London.
It has since bounced back to 151.35 but the bias here too remains down with many players closely eyeing how the US stock market trades All other JPY crosses have seen similar sell-offs, especially heated in NZD/JPY and GBP/JPY. NZD/JPY plunged from 80.36 to levels around 78.00. GBP/JPY fell from just under 227 to 221.50. Carry trade paring set to continue.
Since, it has whipped around between 115.15-115.60. Offers up top look to be building and many players eye more downside, perhaps to 114.43, the spike low on December 5 or even the 114.00 level, 61.8% retracement of the move up from 109 to 122.20. EUR/JPY traded down from 154.10 initially to 151.99 in Asia and then 151.15 in London.
It has since bounced back to 151.35 but the bias here too remains down with many players closely eyeing how the US stock market trades All other JPY crosses have seen similar sell-offs, especially heated in NZD/JPY and GBP/JPY. NZD/JPY plunged from 80.36 to levels around 78.00. GBP/JPY fell from just under 227 to 221.50. Carry trade paring set to continue.
Euro Outlook (5th March 2007)
EUR cross sales (EUR/JPY, EUR/CHF & EUR/GBP) have weighed on EUR/USD intraday. Further stock volatility and the early failure to crack the 10-Day M/A line at 1.3175 left the price open to renewed selling, while EZ data only managed to disappoint. Bids from 1.3120 back to 1.3100 attempted to prop but official bids failed to emerge and this left spot open to a break into the 1.3090's.
Stops triggered in the move with 1.3087 printing into the NorAm open. Looking ahead, US Tres. Sec, Hank Paulson, is on his Asian tour so the early attention falls to the next round of comments from Poole. The St. Louis President is due to talk in Santiago at around 16:00 GMT on "inflation, financial stability and economic growth". However, before the key intraday rhetoric and US Non-Manf.
ISM data for February is set for release at 15:00 GMT. Economists have opted for a 57.2 consensus but with the risk skewed clear to the downside the Dollar may struggle come what may. Stops in EUR/USD remain in play below 1.3080 while 1.3050 and 1.3000 will then become viable bear targets as leveraged players increase follow-through momentum on the break lower.
Stops triggered in the move with 1.3087 printing into the NorAm open. Looking ahead, US Tres. Sec, Hank Paulson, is on his Asian tour so the early attention falls to the next round of comments from Poole. The St. Louis President is due to talk in Santiago at around 16:00 GMT on "inflation, financial stability and economic growth". However, before the key intraday rhetoric and US Non-Manf.
ISM data for February is set for release at 15:00 GMT. Economists have opted for a 57.2 consensus but with the risk skewed clear to the downside the Dollar may struggle come what may. Stops in EUR/USD remain in play below 1.3080 while 1.3050 and 1.3000 will then become viable bear targets as leveraged players increase follow-through momentum on the break lower.
Friday, March 02, 2007
EUR/USD: ECB Crystal Ball Clouding Up
Dealers note a story making the rounds that an ECB source says that there is not a consensus on what the ECB should do past a near-certain rate hike in March. Recent events would very much put future hikes in jeopardy if this week's market decline turns into a deeper correction.
Just a feeling that says the ECB may even be forced to hold fire on Thursday if the markets are under heavy stress next week, not wanting to be blamed for a crash like the Buba was back in 1987. EUR/USD trades at 1.3172 after a peek into the 1.3180s. Central bank bids are rumored in the 1.3145/50 area.
Just a feeling that says the ECB may even be forced to hold fire on Thursday if the markets are under heavy stress next week, not wanting to be blamed for a crash like the Buba was back in 1987. EUR/USD trades at 1.3172 after a peek into the 1.3180s. Central bank bids are rumored in the 1.3145/50 area.
FX OPTIONS: JPY Vols Maintain Their Lofty Levels
JPY vols maintain their lofty levels, with further gains being recorded in the underlying since the European morning. USD/JPY 1-wk is now indicating 10.25/11.00 and the 1-mth is at 8.40/8.70 as ATM demand goes through. Risk reversals have also steepened their skew for JPY calls over at 1.45/1.75 in the 1-mth 25-d.
EUR/JPY vols are steady at 9.75/10.50 in the 1-wk and 8.65/9.05 in the 1- mth. 3-mth risk reversal interest was noted in early Europe at 1.45% following yesterday's 6-mth interest at 1.35%. Yesterday saw good 3-mth 160 interest, while today's session has seen O/N 156.65, 2-wk 155 and 3-wk 157.50 go through.
EUR/JPY vols are steady at 9.75/10.50 in the 1-wk and 8.65/9.05 in the 1- mth. 3-mth risk reversal interest was noted in early Europe at 1.45% following yesterday's 6-mth interest at 1.35%. Yesterday saw good 3-mth 160 interest, while today's session has seen O/N 156.65, 2-wk 155 and 3-wk 157.50 go through.
US TECHS: Test of Retracement for S&P May be Key Event
Yesterday's volatile and weak open for the major equity indices saw the Mar S&P test the 38% retracement (1381) of the entire rally from last June's low. The contract was able to bounce from there but so far the recovery is on shaky ground.
If the contract can hold above there and start to move into positive territory it will be an excellent sign that the market is poised to move back toward the highs as that time frame will retain the larger bullish trend signal. Should the contract break and close a session below 1381 a much more significant correction is underway.
If the contract can hold above there and start to move into positive territory it will be an excellent sign that the market is poised to move back toward the highs as that time frame will retain the larger bullish trend signal. Should the contract break and close a session below 1381 a much more significant correction is underway.
USD/CHF: Back Pivoting 1.22 As European Player Buys
A European household name is said to have been the best of the buyers in USD/CHF amid the drop back towards 1.22. Spot has in fact edged just below 1.2200, to hit 1.2192, but fresh buyers helped stall further Dollar weakness and the price is now back to pivoting the 1.22 mark.
Swiss Outlook (2nd March 2007)
Ahead of the North American open and spot failed to find significant follow-through in the break of 1.2250 and as a result the intraday high at 1.2260 was not held. 1.2225/50 now looks to keep the pair in check. According to one German name USD/CHF is expected to move sideways, however, the name in question suggests "if there is a risk then there it is most definitely skewed to the upside".
In the short-term the pair has held above its key support of 1.2110-1.2140 and a run at 1.2270/90 resistance cannot be discounted. Profit-taking related sales from speculative accounts are still noted in the 70/75 area while bids into 1.2200 will look to prop should the Dollar weaken into North American trading.
On the crosses, one Swiss name sees the path of EUR/CHF as "equity driven". They suggest that market sentiment often impacts the Franc and recent EUR/CHF volatility can be linked to international sentiment. As a result, the name in question looks to stock futures for signals over the next path for the pair.
In the short-term the pair has held above its key support of 1.2110-1.2140 and a run at 1.2270/90 resistance cannot be discounted. Profit-taking related sales from speculative accounts are still noted in the 70/75 area while bids into 1.2200 will look to prop should the Dollar weaken into North American trading.
On the crosses, one Swiss name sees the path of EUR/CHF as "equity driven". They suggest that market sentiment often impacts the Franc and recent EUR/CHF volatility can be linked to international sentiment. As a result, the name in question looks to stock futures for signals over the next path for the pair.
Sterling Outlook (2nd March 2007)
Sterling caught one of its severe colds this session and lost further significant ground to both the EUR and Dollar. The reasons for the Sterling's demise are not up for debate but they are quiet old and there appears to be an overall air of nervousness within the forex market and this more than anything else has spooked the Pound.
Cross action is another factor at play and a big one at that. The collapse of GBP/JPY, which has seen price fall from 238.20 a week ago to 227.15 this session. The Yen is up across the board and looks set to go higher still. The Yen cross has fallen under key support at 228.05, the spike low from January 8. Little to hold the cross up until 225.75, lows from Dec 6 06.
GBP/USD has traded down to 1.9430 having opened around 1.9575 in London. EUR/GBP has reversed course from Thursday's 0.6735 low to reach 0.6777, taking out the key 0.6755 resistance point with apparent ease. US Michigan sentiment up next at 15:00 GMT and the Sterling market will look to next week's BoE-MPC rate meeting.
Cross action is another factor at play and a big one at that. The collapse of GBP/JPY, which has seen price fall from 238.20 a week ago to 227.15 this session. The Yen is up across the board and looks set to go higher still. The Yen cross has fallen under key support at 228.05, the spike low from January 8. Little to hold the cross up until 225.75, lows from Dec 6 06.
GBP/USD has traded down to 1.9430 having opened around 1.9575 in London. EUR/GBP has reversed course from Thursday's 0.6735 low to reach 0.6777, taking out the key 0.6755 resistance point with apparent ease. US Michigan sentiment up next at 15:00 GMT and the Sterling market will look to next week's BoE-MPC rate meeting.
Yen Outlook (2nd March 2007)
JPY gained in nervous European trade. Focus remained on the global equity markets. There was a calmer tone but tentative gains petered out and European stocks ended the morning in negative territory adding weight to the risk reduction theme. USD/JPY and the crosses again saw good buying interest from Japanese players during the course of Asia, which fueled an early European run higher.
EUR/JPY topped out at 155.10 and USD/JPY was unable to overcome offers from 117.80 on behalf of exporters and speculative accounts. Heavy losses in NZD/JPY and good interest via GBP/JPY also influenced price action. EUR/JPY cleared 154.50 bids and triggered stops below and USD/JPY filled in Japanese bids at 117.50 and 117.40 to end the European morning, with focus on the 117.00 area. The afternoon session will trade directly off US stock market movement.
A thin data schedule may increase risk reduction, with sub-prime lenders still a focus and risk premiums up across the board. In this environment risky asset class/trades will be pared back. Large USD/JPY stops at 116.90 will be pivotal going forward given yesterday's BOJ rate checking rumours.
EUR/JPY topped out at 155.10 and USD/JPY was unable to overcome offers from 117.80 on behalf of exporters and speculative accounts. Heavy losses in NZD/JPY and good interest via GBP/JPY also influenced price action. EUR/JPY cleared 154.50 bids and triggered stops below and USD/JPY filled in Japanese bids at 117.50 and 117.40 to end the European morning, with focus on the 117.00 area. The afternoon session will trade directly off US stock market movement.
A thin data schedule may increase risk reduction, with sub-prime lenders still a focus and risk premiums up across the board. In this environment risky asset class/trades will be pared back. Large USD/JPY stops at 116.90 will be pivotal going forward given yesterday's BOJ rate checking rumours.
Euro Outlook (2nd March 2007)
Into European trading and the disappointment from the German retail numbers saw spot sold. However, sovereign buyers and corporate support for EUR/USD helped offset any knee-jerk drop. Selling into strength prevailed and trading saw the offered tone continue to dominate with offers into 1.3180/85 capping.
Bids into the 1.3150 level were targeted by bears and speculative sales increased amid the move lower. Option related buying did little but stall the move lower and into the Euro Zone data release and the sub-1.3150 stops were removed. 1.3146 printed as PPI matched expectations and the pair rallied slightly. However, sellers still remain and the sub-1.3145 stops remain threatened with talk now turning to official bids into 1.3130/35.
Looking ahead and dealers saw the Poole comments as the only real potential saviour for the Dollar ahead of the weekend. Michigan data is not expected to be US unit supportive so the focus has turned to the St Louis President to boost the buck by erring on the side of growth and continued recovery.
Bids into the 1.3150 level were targeted by bears and speculative sales increased amid the move lower. Option related buying did little but stall the move lower and into the Euro Zone data release and the sub-1.3150 stops were removed. 1.3146 printed as PPI matched expectations and the pair rallied slightly. However, sellers still remain and the sub-1.3145 stops remain threatened with talk now turning to official bids into 1.3130/35.
Looking ahead and dealers saw the Poole comments as the only real potential saviour for the Dollar ahead of the weekend. Michigan data is not expected to be US unit supportive so the focus has turned to the St Louis President to boost the buck by erring on the side of growth and continued recovery.
Thursday, March 01, 2007
FX OPTIONS: EUR/USD 1-Year Vol Pivoting 6.35% Traded Level
1-year implied option volatility is currently pivoting the 6.35 pct level at which an ATM strike reportedly traded yesterday. The big-picture story is gain consolidation from last Thursday's all-time traded low of 6.075 pct (Feb 22).
At the front of the curve: the 1-mth is 5.9/6.1 last, having been given at 6.15 pct yesterday. At the start of the week, the 1-mth was paid at 5.7 pct in an estimated E400mn. At the end of last week, the period matched its euro lifetime indicated low of 5.3/5.5 (Feb 22 & 23).
At the front of the curve: the 1-mth is 5.9/6.1 last, having been given at 6.15 pct yesterday. At the start of the week, the 1-mth was paid at 5.7 pct in an estimated E400mn. At the end of last week, the period matched its euro lifetime indicated low of 5.3/5.5 (Feb 22 & 23).
USD/JPY: Short Covering Rally Under Way After Strong ISM
A short covering rally is under way in USD/JPY after the strong US ISM release. A headline of 52.3, the highest level since September 2006, has seen USD/JPY rally from 117.25 up to 117.70. Profit taking by small intra-day players and short-term accounts has aided the bounce, yet bias remains on the downside. Stocks have pared back their losses, with the Dow showing losses of 70 after being down almost 200 points at one stage.
However, risk reduction aside these JPY moves appear to be feeding themselves and JPY gains are likely to continue in the near-term. Further stops are noted below 117.00. It is possile to suspect that they lie around the 116.90/95 area given the bounce out of 116.97 earlier on. Technically, the 116.95 multi-year trendline will be significant going forward. As liquidity thins into the London close we may see some speculative names make another run on this key level.
However, risk reduction aside these JPY moves appear to be feeding themselves and JPY gains are likely to continue in the near-term. Further stops are noted below 117.00. It is possile to suspect that they lie around the 116.90/95 area given the bounce out of 116.97 earlier on. Technically, the 116.95 multi-year trendline will be significant going forward. As liquidity thins into the London close we may see some speculative names make another run on this key level.
EUR/USD: 1.3180 Support Overcome; 1.3150/60 Bids Eyed
EUR/USD is on the defensive in the wake of the firmer than expected ISM figures. Also helping is a rise in the OFHEO home price index, a government report based on resales and refinancings. Small stops were seen below 1.3180 but bids are seen in the 1.3150/60 area which should keep further dips limited. Many stale EUR/USD longs have thrown in the towel, frustrated by the constant weight of EUR/JPY. Offers are seen toward 1.3200/05 near-term. EUR/USD is rebounding at the moment, trading at 1.3185.
GBP/USD: Elicits Support pre-1.9570 after ISM-Spurred Drop
Cable elicited support ahead of 1.9570 (today's early Europe intra-day low) following quarter-cent losses spurred by February's much better-than-expected US ISM manufacturing index. This surged to 52.3, from 49.3 in January. A much more modest rise to 50.0 was expected. Noted bids at 1.9550 represent a bear target south of 1.9570. On the topside: offers are touted at 1.9650 and 1.9675.
USD/CHF: ISM-Linked Bounce Brings Renewed Selling
US February ISM data hit 52.3, the highest level since September 2006, to aid the Dollar. However, construction spending fell by 0.8% to leave the US unit a sell on balance. The ISM linked USD/CHF bounce worked spot back to the 1.2200 level but renewed sales have emerged and are now depressing the pair back towards the pre-data 1.2145/50 area.
Swiss Outlook (1st March 2007)
Into North American trading and USD/CHF is pivoting the 1.22 mark as spot looks to draw its next short-term directional bias from the up-and-coming US numbers. Should the Dollar be further depressed by the data then 1.2175/80 will come back into sight with 1.2145 then eyed as the current range-base.
First up the 13:30 GMT release of Income and Personal Spending numbers is eyed before the release of the latest ISM numbers at 15:00 GMT. Should the Dollar strength on better than expected numbers then offers are noted into 1.2220 with better size seen into 1.2245/50. On the topside, Swiss names see only a break above 1.2300 as a clear contra-trend move at present. Elsewhere, Swiss domestic data confirmed the duel SNB hike scenario today as February PMI beat expectations to surge to 63.5.
The index had been expected to rally from 62.0 to 63.0 but in the wake of the solid UBS consumption numbers and the robust KoF Leading Indicator the topside was in focus. Economists now look for a 25bp hike from Roth and Co. at the Q1 meeting (mid-March) and again at the Q2 meeting in June.
First up the 13:30 GMT release of Income and Personal Spending numbers is eyed before the release of the latest ISM numbers at 15:00 GMT. Should the Dollar strength on better than expected numbers then offers are noted into 1.2220 with better size seen into 1.2245/50. On the topside, Swiss names see only a break above 1.2300 as a clear contra-trend move at present. Elsewhere, Swiss domestic data confirmed the duel SNB hike scenario today as February PMI beat expectations to surge to 63.5.
The index had been expected to rally from 62.0 to 63.0 but in the wake of the solid UBS consumption numbers and the robust KoF Leading Indicator the topside was in focus. Economists now look for a 25bp hike from Roth and Co. at the Q1 meeting (mid-March) and again at the Q2 meeting in June.
Sterling Outlook (1st March 2007)
Demand at 1.9570 based cable after the pound came under early European selling pressure for the second day in succession. German and Asian name buying aided the subsequent recovery which has reached highs just shy of 1.9645 since the 11:00GMT disclosure that the CBI's quarterly expected selling price index soared to +19 in February, from minus 3 in November.
That index jump is further good news for UK rate hawks touting another 25bp hike to 5.5% as early as next week (March 8). Those hawks were already squawking following the 09:30GMT unveiling of February's much better-than-expected UK manufacturing sector PMI. This leapt to a 31-month high of 55.4, from an upwardly revised 53.2 in January. The forecast number was 53.0.
GBP/USD offers are touted at 1.9650 three pips ahead of today's Asian session top. More offers are noted at 1.9675 a pip above Tuesday's 12-day top. A raft of US data is due today, including January's core PCE deflator at 13:30GMT. Forecast +0.2% m/m, +2.3% y/y. February's ISM manufacturing index will be revealed at 15:00GMT. Forecast: 50.0.
That index jump is further good news for UK rate hawks touting another 25bp hike to 5.5% as early as next week (March 8). Those hawks were already squawking following the 09:30GMT unveiling of February's much better-than-expected UK manufacturing sector PMI. This leapt to a 31-month high of 55.4, from an upwardly revised 53.2 in January. The forecast number was 53.0.
GBP/USD offers are touted at 1.9650 three pips ahead of today's Asian session top. More offers are noted at 1.9675 a pip above Tuesday's 12-day top. A raft of US data is due today, including January's core PCE deflator at 13:30GMT. Forecast +0.2% m/m, +2.3% y/y. February's ISM manufacturing index will be revealed at 15:00GMT. Forecast: 50.0.
Yen Outlook (1st March 2007)
JPY edged higher in European trade, extending the gains made in the Asian afternoon. Losses on the Asian equity markets fueled further risk reduction and this added pressure on positions. USD/JPY made a test of the 118.10 level as a bout of US name selling was noted, with model funds and speculative based accounts looking to force an extended move lower.
A number of players covered shorts in the wake of decent Japanese demand. However, both USD/JPY and EUR/JPY struggled to make sustainable gains and downside pressure increased. Reports of Kampo bids in USD/JPY at 118.10 and 118.00 reduced volatility but recovery was negligible, with the pair stuck at 118.10. MOF's Watanabe was very vocal on carry trades.
He did not think the recent JPY gains was true carry trade unwinding as the move would have been much larger. He made a guesstimate of Y10-20 trillion as the size of carry trades but acknowledged that data was unavailable and it was difficult to come up with an accurate number. Focus has turned to US data after yesterday's weakness raised US recession risk. US PCE and ISM are due at 13:30GMT and 15:00GMT respectively.
A number of players covered shorts in the wake of decent Japanese demand. However, both USD/JPY and EUR/JPY struggled to make sustainable gains and downside pressure increased. Reports of Kampo bids in USD/JPY at 118.10 and 118.00 reduced volatility but recovery was negligible, with the pair stuck at 118.10. MOF's Watanabe was very vocal on carry trades.
He did not think the recent JPY gains was true carry trade unwinding as the move would have been much larger. He made a guesstimate of Y10-20 trillion as the size of carry trades but acknowledged that data was unavailable and it was difficult to come up with an accurate number. Focus has turned to US data after yesterday's weakness raised US recession risk. US PCE and ISM are due at 13:30GMT and 15:00GMT respectively.
Euro Outlook (1st March 2007)
Into Thursday and the Euro still looks a prime candidate for a rally and EUR/USD has been coiled tighter than a cobra after two consecutive days of consolidation and failures in both directions. 1.3259 capped on the 27th but equally the downside looks limited as option expiries at 1.3200 help prop.
Intraday another downside strike is set to mature at the NY cut (15:00 GMT). A retest of the 2007 high at 1.3296 remains a viable bull target but 1.3040/50 must first be overcome but US data will be key if a rally towards the 1.3300 option barriers is to be seen. Central bank offers and gamma-related protection kick in around 1.3275 should the Dollar trade softer in the wake of the 13:30 GMT Income and Personal spending data or the 15:00 GMT February ISM release.
On the downside, only a break below 1.3180 adds momentum with a break of the 10-Day M/A line at 1.3175 putting potential on the charts for a retracement to 1.3150 and 1.3080. Elsewhere, more Paulson comments are expected after the European close but China will no doubt dominate once more.
Intraday another downside strike is set to mature at the NY cut (15:00 GMT). A retest of the 2007 high at 1.3296 remains a viable bull target but 1.3040/50 must first be overcome but US data will be key if a rally towards the 1.3300 option barriers is to be seen. Central bank offers and gamma-related protection kick in around 1.3275 should the Dollar trade softer in the wake of the 13:30 GMT Income and Personal spending data or the 15:00 GMT February ISM release.
On the downside, only a break below 1.3180 adds momentum with a break of the 10-Day M/A line at 1.3175 putting potential on the charts for a retracement to 1.3150 and 1.3080. Elsewhere, more Paulson comments are expected after the European close but China will no doubt dominate once more.
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