CIBC FX Flows: FXWW

From the FXWW Chatroom: UsdJpy higher following Nikkei 225 and UST yields. There was also fixing demand, lifted UsdJpy to 112.80’s where we ran into offers from locals, believed to be for exporters. Talk of more offers at 113.00. Do note there are interesting option strikes rolling off today New York cut. 112.25 strike for $1.5bn and $1bn at 112.00.

British PM Theresa May wrote in 2 Sunday papers and vowed would “not be derailed” from securing an “ambitious” deal. She said talks would now start on the implementation period for Brexit and the future of trading relationships. The FT wrote cabinet ministers will meet today for preliminary formal discussions on trade with EU. Meanwhile, EU chief negotiator Michel Barnier warned that Britain must face the consequences of Brexit. Barnier said PM May will not be able to “cherry pick” what she wants in a future trade deal with the EU. Cable closed at 1.3320 last Friday and we traded mildly higher. There are bids low-end of 1.33 and we should see some offers linked to tomorrow’s option expiry strike 1.3350 for Gbp2.2bn.

Oracle from US has agreed to buy Australia’s Aconex for Aud7.80 per share in cash. That is a 47% jump from last Friday’s closing price of Aud5.30. Hardly any impact on FX front. Even the strong Dalian Iron-Ore futures failed to stir the Aussie. Market is aware of large option expiry this week at 0.7700, total Aud3.7bn. I was reading IMM position and market positioning is long Aud, which could be reason why this pair is struggling.

UsdCad peaked 1.2880 same time when AudUsd traded low 0.7640’s. Some offers surround 1.2900 but a move above 1.2920 could trigger stop loss orders. Large 1.3000 option rolls off on Wednesday Dec 20 for $2.5bn.

CIBC Macro Strategy team has just published Themes and Thought of Dec 2017 – Thoughts into 2018. In short, we anticipate both Fed tightening and a fiscal boost, we look for the USD to maintain its structural downtrend in 2018. We do not expect the USD to benefit from sizeable repatriation flows. Expect positive Eurozone fundamentals to soon be reflected in hawkish ECB language. On Brexit, while the agreement reduces the risk of the UK crashing out in March ’19 expect upcoming negotiations on trade to be hard fought, underlining elevated Sterling volatility.

Asians
While Asian EM has been slow and mixed, all eyes on South African Rand this morning after the ANC officially selected 2 contenders to succeed Jacob Zuma. But there was a report that ANC also disqualified near 500 delegates from voting at its leadership conference for fear of vote rigging. The report in WSJ said their credentials couldn’t be verified or had been struck down by courts. UsdZar closed at 13.0885 on Friday, got sold down to 12.7300 and then bounced back to 13.2075. No one likes uncertainty.
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