The Swiss Franc attempted to rally once more into European trading but this time the USD/CHF move lower had the support of a fuller market. Adding to the recovery was the CHF strength seen on the crosses that was sorely lacking yesterday. Stops below 1.2440 triggered as the Dollar weakened across the board and bids into 1.2400/10 are now eyed by bears.
Only a break below 1.2400 will add longevity to the CHF rally with 1.2280 then eyed. On the crosses, EUR/CHF dropped back from 1.6162 to 1.6128 as the Franc correction kicked-in. However, bidding into the lows stalled the slide and the cross has since consolidated near the 1.6135 mark. Bids are seen trailing to 1.6120 with more support into 1.6100. In the longer-term, one German is looking for a drop to 1.6080 with the potential for a run at 1.5905.
Against the Pound the Franc saw a steeper appreciation as option related interest was seen influencing short-term volatility. GBP/CHF dropped from the 2.4550 seen yesterday to 2.4415 in the wake of the UK data. Option expiries at 2.45 intraday are set to weigh in the s/t but the 2.4650 barriers are still in focus above.
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Tuesday, January 16, 2007
Yen Outlook (16th January 2007)
JPY was range bound in the European morning. yet bias is still skewed to softer levels. USD/JPY opened at 120.25 and made a run higher on fresh speculative selling of JPY. The pair struggled to move beyond 120.45/50 amid selling interest from CTAs/model funds and reports of option related activity. The pair drifted back into 120.20/25 but found good support from importers and real money names.
The JPY crosses also traded on a supportive footing, with EUR/JPY holding above 156.00. EUR/JPY's upside momentum was lacking and the pair never traded beyond the 156.20 area, with consolidation the theme. GBP/JPY benefited from early GBP demand, with focus on UK CPI. Profit taking persisted after CPI came out at 3% Y/Y. The general bid tone kept the pair underpinned around the mid 236's.
Sentiment towards the JPY remains bearish even though most are now anticipating a BOJ hike rates on Friday. A move higher in key Japanese rates will only provide modest JPY gains, with flight to yield still expected to encourage large outflows from JPY. Focus remains on the USD/JPY barriers at 121.00, with a number of positions expiring tomorrow.
The JPY crosses also traded on a supportive footing, with EUR/JPY holding above 156.00. EUR/JPY's upside momentum was lacking and the pair never traded beyond the 156.20 area, with consolidation the theme. GBP/JPY benefited from early GBP demand, with focus on UK CPI. Profit taking persisted after CPI came out at 3% Y/Y. The general bid tone kept the pair underpinned around the mid 236's.
Sentiment towards the JPY remains bearish even though most are now anticipating a BOJ hike rates on Friday. A move higher in key Japanese rates will only provide modest JPY gains, with flight to yield still expected to encourage large outflows from JPY. Focus remains on the USD/JPY barriers at 121.00, with a number of positions expiring tomorrow.
Sterling Outlook (16th January 2007)
There is a very real risk that the BoE MPC will follow last Thursday's unexpected 25bp base rate hike to 5.25% with another 25bp increase as early as next month (Feb 8). This risk derives from the 09:30GMT disclosure that annualized UK CPI rose to an above-forecast 3.0% in December, from 2.7% in November, and 2.4% in October.
The BoE's target level is 2.0%. Cable scaled a new 13-day peak of 1.9705 in a knee-jerk reaction to the UK inflation data. A bout of profit-taking on long GBP positions was then blamed for a three-quarter cent drop to lows pre-1.9625 (today's Asia low). At 12:00GMT, Andrew Sentance is due to deliver his first-ever speech since joining the BoE MPC last Autumn.
The title of the speech is "Current Issues in UK Monetary Policy". Tim Besley makes his inaugural MPC speech on Thursday. Pre-UK CPI: a US investment house recommended the instigation of long EUR/GBP positions circa 0.6585, targeting 0.6700, with a stop set below 0.6545. January's Empire State manufacturing index will be revealed at 13:30GMT. Forecast: 19.3, from 23.1 in December.
The BoE's target level is 2.0%. Cable scaled a new 13-day peak of 1.9705 in a knee-jerk reaction to the UK inflation data. A bout of profit-taking on long GBP positions was then blamed for a three-quarter cent drop to lows pre-1.9625 (today's Asia low). At 12:00GMT, Andrew Sentance is due to deliver his first-ever speech since joining the BoE MPC last Autumn.
The title of the speech is "Current Issues in UK Monetary Policy". Tim Besley makes his inaugural MPC speech on Thursday. Pre-UK CPI: a US investment house recommended the instigation of long EUR/GBP positions circa 0.6585, targeting 0.6700, with a stop set below 0.6545. January's Empire State manufacturing index will be revealed at 13:30GMT. Forecast: 19.3, from 23.1 in December.
Euro Outlook (16th January 2007)
Into European trading and the UK was the main focus of the market. Inflation data was key to many but the Euro managed to elicit its own support after a robust January ZEW reading. With the Pound generating the bulk of the headlines EUR/USD was able to move quietly higher and after breaking 1.2960 (to trigger stops) the 1.2990/3000 level is now in sight.
Looking ahead, the early North American trading direction is expected to be generated by a combination of the ability of the Euro to break above 1.3000 and the 13:30 GMT release of NY Fed Empire State data. The January report is expected to come in at 20.00 compared with the previous 23.13 but any deeper drop and the US unit will struggle while the stops seen above 1.3005 are acting as a short-term bull target.
Offers are seen trailing back from 1.2990, that include option related interest (linked to the 1.30 expiry interest rumoured for today and tomorrow), to 1.3000 while on the downside 1.2945/50 props. After the European close the attention will turn to the ECB's Stark comments that are set to air around 19:15 GMT.
Looking ahead, the early North American trading direction is expected to be generated by a combination of the ability of the Euro to break above 1.3000 and the 13:30 GMT release of NY Fed Empire State data. The January report is expected to come in at 20.00 compared with the previous 23.13 but any deeper drop and the US unit will struggle while the stops seen above 1.3005 are acting as a short-term bull target.
Offers are seen trailing back from 1.2990, that include option related interest (linked to the 1.30 expiry interest rumoured for today and tomorrow), to 1.3000 while on the downside 1.2945/50 props. After the European close the attention will turn to the ECB's Stark comments that are set to air around 19:15 GMT.
Monday, January 15, 2007
NEWS: BoE To Publish King Letter at 10:30GMT if CPI Above 3.0%
If annualized UK December CPI comes in above 3.0% at 09:30GMT tomorrow, the BoE will publish Governor Mervyn King's open letter of explanation to Chancellor Gordon Brown at 10:30GMT (Reuters).
Should such a letter be necessary, King will have to explain why CPI has moved over 1.0% from its 2.0% target level. He would also have to detail the policy action he is taking to deal with it, state how long it is likely to take for CPI to return to target, and say how the BoE approach meets the government's monetary policy objectives.
Should such a letter be necessary, King will have to explain why CPI has moved over 1.0% from its 2.0% target level. He would also have to detail the policy action he is taking to deal with it, state how long it is likely to take for CPI to return to target, and say how the BoE approach meets the government's monetary policy objectives.
USD/CHF: 1.2480 Found But Move Higher Encounters Offers
The USD/CHF drift higher has seen 1.2480 print but as we noted earlier offers into this level were left on various order books to limit any further appreciation in the pair into late European trading. As a result, these offers are now being absorbed but should the price run higher then a return towards the next batch of offers will be looked for, around 1.2490 back to the 1.25 area.
GBP/USD: Pivoting 1.9650 Option Expiry, UK CPI Tomorrow
Cable is currently trading close to 1.9650, against a big-picture backdrop of gain consolidation to a London morning 12-day high of 1.9670. A 1.9650 option strike rolls off at today's 10am EST NY cut (15:00GMT). There is another 1.9650 option expiry tomorrow (Tuesday).
This week's key UK event risk comes in the form of tomorrow's 09:30GMT disclosure of UK December inflation figures. Annualized CPI is forecast to rise to 2.8/2.9%, although there is a real risk that it might come in as high as 3.1%, re: last Thursday's unexpected 25bp UK base rate hike to 5.25%. BoE Governor Mervyn King is duty bound to write a letter of explanation to Chancellor Gordon Brown if UK CPI comes in above 3.0%.
CPI rose to 2.7% in November, from 2.4% in October. 2.0% is the BoE's target level. Post-UK CPI: Andrew Sentance is due to deliver his first ever speech since joining the MPC last Autumn, at 12:00GMT. "Current Issues in UK Monetary Policy" is the title of Sentance's slated speech.
This week's key UK event risk comes in the form of tomorrow's 09:30GMT disclosure of UK December inflation figures. Annualized CPI is forecast to rise to 2.8/2.9%, although there is a real risk that it might come in as high as 3.1%, re: last Thursday's unexpected 25bp UK base rate hike to 5.25%. BoE Governor Mervyn King is duty bound to write a letter of explanation to Chancellor Gordon Brown if UK CPI comes in above 3.0%.
CPI rose to 2.7% in November, from 2.4% in October. 2.0% is the BoE's target level. Post-UK CPI: Andrew Sentance is due to deliver his first ever speech since joining the MPC last Autumn, at 12:00GMT. "Current Issues in UK Monetary Policy" is the title of Sentance's slated speech.
EUR/USD: Gonzalez-Paramo Concentrates On Slovenia
So deeper into the holiday impacted North American session and EUR/USD now works a 1.2935/50 comfort-band. Dealers cite fix potential and the impending closes as the only real hope for an injection of volatility (in either direction) but with orders building on either side to protect the wider 1.2625/55 range the flat-lining looks set to continue for the moment.
Elsewhere, the ECB's Gonzalez-Paramo has concentrated on Slovenia in the latest comments. While in other news, the Iraqi vice President has noted that "Iran has a deep and exceptional influence in Iran".
Elsewhere, the ECB's Gonzalez-Paramo has concentrated on Slovenia in the latest comments. While in other news, the Iraqi vice President has noted that "Iran has a deep and exceptional influence in Iran".
EUR/USD: Pullback Fails To Reach 1.2930
To say things were lacklustre may be an understatement. EUR/USD pulled back after failing to break clearly above 1.2955 but this dip has only managed to work spot as low as 1.2935. This fails to match to 1.2930 seen amid the early European pullback and as a result the focus us likely to remain on the topside. However, while the 1.2960+ stops remain intact the topside will continue to look unsustainable.
Swiss Outlook (15th January 2007)
The Franc had a free run at a corrective rally against the Dollar into the new week. With the US holiday today, for Martin Luther King Day, weighing on the US unit the CHF initially looked to rebound but bids in USD/CHF into 1.2445/50 propped. Add to equation the EUR/USD stalling into 1.2955 and the pair looks set to bounce with the sellers into 1.2480 offering the pair a decent topside target in the short-term.
However, we at IFR still favour the downside and a return and re-test of the 1.2400/10 area looks viable. The real volume needed to push such a move would not be that impressive amid the current conditions. Yet in real terms any such drop will be seen in the medium-term as a lightened corrective dip with only a break below 1.24 said to negate the renewed bullish bias on the charts.
In the longer-term the focus should remain on the 1.2490/2500 area with a break back into the 1.25's needed to return the attention to the Friday failure level at 1.2527.
However, we at IFR still favour the downside and a return and re-test of the 1.2400/10 area looks viable. The real volume needed to push such a move would not be that impressive amid the current conditions. Yet in real terms any such drop will be seen in the medium-term as a lightened corrective dip with only a break below 1.24 said to negate the renewed bullish bias on the charts.
In the longer-term the focus should remain on the 1.2490/2500 area with a break back into the 1.25's needed to return the attention to the Friday failure level at 1.2527.
Sterling Outlook (15th January 2007)
This week"s key UK event risk is tomorrow's 09:30GMT disclosure of December inflation figures. Annualized CPI is forecast to rise to 2.8/2.9%--although there is a chance that it might come in as high as 3.1%. BoE Governor King is duty-bound to write a letter of explanation to Chancellor Brown if CPI comes in above 3.0%. CPI rose to 2.7% in November, from 2.4% in October.
The BoE MPC saw an advance estimate of tomorrow's UK inflation figures ahead of last Thursday's unexpected 25bp UK base rate hike to 5.25%. GBP/USD rallied by three-quarters-of-a-cent to 1.9670 offers during the London morning, with buoyancy aided by the M&A news that Smiths Group has sold its aerospace division to GE for $4.8bn in cash (FT website). Noted bull targets north of 1.9670 include 1.9700, 1.9730, 1.9750, 1.9580, 1.9900, and 2.00.
Cable elicited support just below 1.9650 on its pullback from 1.9670. 1.9650 option strikes expire at the 10am NY cuts today and tomorrow. Tomorrow will also see Sentance deliver his first ever speech since joining the BoE MPC last Autumn. Besley speaks Thursday.
The BoE MPC saw an advance estimate of tomorrow's UK inflation figures ahead of last Thursday's unexpected 25bp UK base rate hike to 5.25%. GBP/USD rallied by three-quarters-of-a-cent to 1.9670 offers during the London morning, with buoyancy aided by the M&A news that Smiths Group has sold its aerospace division to GE for $4.8bn in cash (FT website). Noted bull targets north of 1.9670 include 1.9700, 1.9730, 1.9750, 1.9580, 1.9900, and 2.00.
Cable elicited support just below 1.9650 on its pullback from 1.9670. 1.9650 option strikes expire at the 10am NY cuts today and tomorrow. Tomorrow will also see Sentance deliver his first ever speech since joining the BoE MPC last Autumn. Besley speaks Thursday.
Yen Outlook (15th January 2007)
The market shrugged off rising expectations of a BoJ rate hike. Various media reports out Friday and over the weekend tipped a move in rates at the end of the week. The talk weighed on USD/JPY and the JPY crosses overnight but they bucked the trend in Europe, led by heavy GBP/JPY demand.
Real money names and Middle Eastern accounts were big GBP buyers and this filtered through the cross, with the pair scaling 237.00 after starting the European session at 235.65. EUR/JPY made up ground as a consequence of this activity, with the pair rallying from the mid 155's and extending through 155.85-156.00 offers to record a 156.09 session high. Offers above 156.00 manage to contain price action and the pair hovered around 156.00 for the remainder of the session.
USD/JPY was capped early on by 120.45 but pushed higher amid good cross JPY activity. Interbank demand and real money interest via the legs saw the pair trade up to 120.60. An increase in exporter offers kept the pair within a narrow range, with bid interest offset by Japanese name presence between 120.50-120.60. We expect the crosses to lead action in the European afternoon session.
Real money names and Middle Eastern accounts were big GBP buyers and this filtered through the cross, with the pair scaling 237.00 after starting the European session at 235.65. EUR/JPY made up ground as a consequence of this activity, with the pair rallying from the mid 155's and extending through 155.85-156.00 offers to record a 156.09 session high. Offers above 156.00 manage to contain price action and the pair hovered around 156.00 for the remainder of the session.
USD/JPY was capped early on by 120.45 but pushed higher amid good cross JPY activity. Interbank demand and real money interest via the legs saw the pair trade up to 120.60. An increase in exporter offers kept the pair within a narrow range, with bid interest offset by Japanese name presence between 120.50-120.60. We expect the crosses to lead action in the European afternoon session.
Euro Outlook (15th January 2007)
Into the new week and the US holiday for Marin Luther King Day is expected to keep action tight into the latter portion of the day. However, as one dealer so succinctly put it "this could put a little added spice into the European close". If volatility is to increase then the current range extremities will be pressured and model and algorithmic accounts will be at the forefront of action given the intraday conditions.
Euro Zone industrial data disappointed weighed on the Euro but the EUR/USD appreciation has already choked on the decent sized offers into 1.2955. Offers back from 1.2940 were absorbed in the early European rally but the emergence of a quality name on the offer, and in good size, helped fill the orders pushing spot higher. As a result, until this level is broken we would suggest there is risk of a return to the 1.2900/10 area.
Elsewhere, 1.2950 expiries are noted. On the downside, the 1.2868 low from Friday and the reported 1.2850 option barriers will come into view should the Dollar strengthen further but 1.3000 looks a more interesting dynamic target.
Euro Zone industrial data disappointed weighed on the Euro but the EUR/USD appreciation has already choked on the decent sized offers into 1.2955. Offers back from 1.2940 were absorbed in the early European rally but the emergence of a quality name on the offer, and in good size, helped fill the orders pushing spot higher. As a result, until this level is broken we would suggest there is risk of a return to the 1.2900/10 area.
Elsewhere, 1.2950 expiries are noted. On the downside, the 1.2868 low from Friday and the reported 1.2850 option barriers will come into view should the Dollar strengthen further but 1.3000 looks a more interesting dynamic target.
Friday, January 12, 2007
EUR/USD: ECB's Garganas Turns Table on EU
Greek central banker Garganas has turned the tables on the EU Commission, complaining that they are not doing enough to prompt structural reforms in Europe. Usually it is the EU governments complaining about the ECB, so this looks like one of those "man bites dog" stories.
EUR/USD pushed up as high as 1.2944 on the most recent run, triggering more stops amid reports of heavy reserve diversification from a Mid-Eastern name this morning. With oil prices down about $15 in the last few weeks, they will have less of it to do ahead.
EUR/USD pushed up as high as 1.2944 on the most recent run, triggering more stops amid reports of heavy reserve diversification from a Mid-Eastern name this morning. With oil prices down about $15 in the last few weeks, they will have less of it to do ahead.
GBP/USD: Extends North to New Nine-Day Highs Amid USD Selling
Good size USD selling from a Middle Eastern name has reportedly helped inflate cable to a new nine-day peak of 1.9581. Touted bull targets above include 1.9600, and 1.9650. A large 1.9650 option strike rolls off next Tuesday, post-UK inflation data. 1.9558 (earlier stall point) is now a pullback support point. Lower props include 1.9538 (yesterday's low), and 1.9510.
US ECON: Business Inventories Rise 0.4%; As Expected
Business inventories rose as expected by 0.4% in November while sales rose 0.5%.
EUR/USD: Former Range Lows Tested; Mid-East Blamed for Rally
EUR/USD has tested the mid-1.2930s twice so far but has not been able to overcome it as yet. Dealers are blaming the bulk of the EUR rally on Mid-East buying of EUR/USD, with talk of upwards of EUR 3 bln taken out of the market. The buying has helped turn the crosses higher as well, fueling the surge. Offers are seen through 1.2950 while an hourly downtrend comes in at 1.2965. Expect more short-covering if broken.
USD/JPY: Dollar Profit Taking Fuels Further Losses
Broad dollar profit taking has sent USD/JPY to a fresh session low of 120.21. Progress is slow as standing bids soak up steady dollar supply. Price action has turned a little corrective after USD/JPY struggles to reassert itself on the topside despite the healthy US retail sales data.
Speculative account selling picked up after some decent dollar buying ran into quasi-official selling above 120.50. A long weekend in the US and waning upside momentum should encourage a small offered tone into the London close. Fresh dollar buyers may be cautious given the "semi-official" selling toward the highs.
However, there is no reason to believe there is anything unusual in this interest. Japanese selling of treasuries was prevalent yesterday and as spot extends gains we would expect to see ongoing interest as Asian accounts take advantage of considerable currency returns.
Speculative account selling picked up after some decent dollar buying ran into quasi-official selling above 120.50. A long weekend in the US and waning upside momentum should encourage a small offered tone into the London close. Fresh dollar buyers may be cautious given the "semi-official" selling toward the highs.
However, there is no reason to believe there is anything unusual in this interest. Japanese selling of treasuries was prevalent yesterday and as spot extends gains we would expect to see ongoing interest as Asian accounts take advantage of considerable currency returns.
GBP/USD: Runs into Resistance Ahead of 1.9560 Fibo Level
Cable has run into resistance just shy of 1.9560 following its approximate one-cent rally from post-US retail sales data lows. 1.9560 is an approximate 61.8% Fibo retracement point of the fall from 1.9752 (Jan 2 high) to 1.9260 (Monday's six-week low). 1.9538 (yesterday's post-UK rate hike high) is now a pullback support point.
Lower props include 1.9510 (pre-US retail sales data peak), and 1.9460. 1.9600 and 1.9650 are among touted bull targets north of 1.9560. Large 1.9650 option strikes roll off today and next Tuesday (post-UK CPI). 1.9849 was last month's 14-year high (Dec 1).
Lower props include 1.9510 (pre-US retail sales data peak), and 1.9460. 1.9600 and 1.9650 are among touted bull targets north of 1.9560. Large 1.9650 option strikes roll off today and next Tuesday (post-UK CPI). 1.9849 was last month's 14-year high (Dec 1).
USD/CHF: EUR/USD Bounce Adds To Profit-Taking
The Dollar has initially failed to hold its post-US data gains as a host of profit-takers emerged just ahead of 1.2530. Earlier we noted that the long week-end caused by the US holiday on Monday could force such actions into the latter half of the day and such action in USD/CHF has also been aided by the bounce in EUR/USD. Looking ahead 1.2530 is still seen as the next key topside trigger with 1.2550 & 1.2580 then coming into view but into the European close and further stalling around the 1.2500 mark could be witnessed.
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