Felt like some month-end flows started this morning – general selling of Usd for rebalancing. Japanese banks bought UsdJpy supposedly for the importers but thick offers above 104.15. One US bank mentioned of stops at 104.25 but no threat at all. Usd drifted towards 104.00 into late morning. There is still the 104.50 option barrier and bids are seen at 103.50-60. Into our midday, UsdJpy broke 104.00 and registered 103.94. Some traders said sales came from leveraged accounts after Nikkei225 broke 15.5k.
Hearing some discussion here re potential FX reserve changes if there is a big dip in Euro yields….various big shops looking for German 10-year to get down to as much as 65bps. Talk is that we could see some CBs/SWFs move out of Euro into the likes of Ausssie/Nzd/Cad…. especially given Aus/Cad got IMF reserve status last year…
Is USDCAD sending a signal? Following on from a couple of earlier posts on CitiFX Wire (DXY tests short-term uptrend; Large selling: What’s Predicted for USDCAD?), it might be worth asking if USDCAD (& NZDUSD) is seding a big signal – that the USD is turning. The market remains bulled up USD and bearish on EUR, but USDCAD has broken below what looks like good trend-lie support on the daily chart this morning – see below. This came in around 1.0935/40. Our turnover’s high and selling accounts for 69% of our flow today. USDCAD is now 1.0914.
Spot CAD : European open After trading offered all week the loonie has regained colours on heavy stops in EURCAD thru 1.44 and in USDCAD thru 1.0935. I have used this dip to go long USDCAD as I think 1.09 will hold for now. However, decent strike at 1.10 rolling off today should keep topside heavy. Look at 1.0940 for first resistance and sell zone on the day.
Spot EUR: European open Well the spike I was looking for failed to materialize yesterday and we slowly drifted off over the day . This morning however, we have seen a 30 pip spike which has been linked to the Schauble comments: ECB’S DRAGHI’S COMMENTS ON GROWTH-AUSTERITY DEBATE HAVE BEEN “OVERINTERPRETED” . These comments were infact out last night and as such this rally should be an opportunity to sell into . The resistance levels remain the same as yesterday, firstly at 1.3225 then 1.3250. The move lower will remain slow and steady as it has for the last 500 pips , with the downside dominated by option related bids.
Cad looks set to benefit as well from month end flows….French seller in early Asia of E/Cad got the ball rolling …got support at C$1.0893-87 then recent low at C$1.0861….as you say stops C$1.0860…got some option expiries today at C$21.0900 and C$1.0930 which may hold rate up…this apart from the very big ones at C$1.1000-25 ($2.5bn)
So.,. whats going on this morning. EUR in a bit of consolidation mode.. Is it Schaeuble comments ? Is it simple consolidation ? Hard to say especially as the comments have been out since yesterday ! But this rally should be an opportunity to sell into . The resistance levels remain the same as yesterday, firstly at 1.3225 then 1.3250. The move lower will remain slow and steady as it has for the last 500 pips , with the downside dominated by option related bids. GBP the secret mover ? UK 10y yields have risen aggressively against the US and German peers over the past few days, 6 bps and 11 bps, respectively. This move, however, has yet to translate to GBP strength. Our traders understand the move in GBPUSD as we are in the midst of a broad based USD rally, but EURGBP should be lower. EURGBP needs to break .7950 to open up the downside towards the July lows of .7875. Today is very quiet on the data front but it is value-date month end so US corporates should be USD buyers towards the 4pm fix.
With EUR weakness now firmly in place on rising expectations of further ECB easing and CAD showing unwarranted weakness, BNP Paribas is recommending a short EUR/CAD trade to target 1.38. The bank says the market’s excessive bearishness on CAD is increasingly at odds with the U.S. economic recovery, noting that over the past 20 years U.S. and Canadian GDP have a positive correlation of around 84%. Adds short-term interest rate spreads also suggest significant EUR/CAD downside. EUR/CAD touched a fresh 9-month low of 1.4352 Wednesday.