Market Talk: FXWW

From the FXWW Chatroom: Citi: Poor liquidity conditions have resulted in an active session for CHF with USDCHF climbing towards 0.9720 level and EURCHF moving towards 1.1360.

CitiFX’s e-Trader writes, “USDCHF saw 6x and EURCHF seeing 11x its average interest over the session so far. The market seems to have been spooked by the unexpected moves in CHF as well with liquidity density lower across the board. Chief amongst them is EURCHF which saw its liquidity density drop by ~ 40%, while USDCHF, EURUSD, USDCNH and USDCAD are all around 15-20% lower.
There is no headline to explain the move but remember the fundamentals are supportive of EURCHF now as the ECB turns hawkish while the SNB has asserted that it is in no hurry to remove accommodation.
HSBC: EURCHF is finally trading again,  with some momentum demand overnight.  While we’ve seen limited institutional demand for EURCHF,  we have witnessed strong demand for USDCHF over the past week.  Yesterday morning,  I bought some 3 week 1.1300 EURCHF calls on the premise that 6.5 vols is too cheap for something that’s been dormant for years.  I have hedged some of these calls up at 1.1330 – and am looking for a dip toward 1.1280 to buy some back.  While it’s quite exciting to see EURCHF on the move,  it has been a one way trade this week,  so it’s reasonable to expect a pullback.  That being said,  I think there will be a long line of people looking to buy dips.  The technical picture is pretty open,  with support not checking in until 1.1200,  but we could find interim support around 1.1260.  The topside remains open,  but if we get another leg higher,  I’ll look to roll these 1.1300 strikes higher.
Meanwhile, although the SNB is undoubtedly celebrating the Swiss francs slide, the move actually highlights the SNB’s limits. For more than two years, the SNB could not force the franc lower through either negative interest rates or a borgeoning balance sheet. EUR/CHF has finally broken through 1.12 because of the strong euro and rising market expectations of ECB policy normalisation. Our original year-end forecast for EUR/CHF was 1.12. As we expect the euro to climb further in coming months, we expect EUR/CHF to rise further to 1.14-1.15 by year-end. So a parallel stories in Switzerland and Japan.
The tepid pullback in EUR to 1.1660 was the dip to buy,  and my concern this morning is that everyone will be buying EUR and selling USDJPY first thing.  While I do think it’s fair to expect a Dollar sell-off today,  I think it prudent to scale into a long toward 1.1675.  US GDP will be the major mover,  and has been the case,  I feel the whisper number is lower than the consensus – so in that regard – the bar feels pretty low.  That being said,  the asymmetric reaction to US data persists,  as you’ll get bigger moves from a disappointment.  For today,  I plan on being long EUR – because it’s immune to risk off,  but I’m hesitant to adopt a broad short Dollar complex. I may even look to cross some long EUR against long USD/EM.  I expect momentum to accelerate through 1.1720/25 – but we need to close above 1.1740/45 to keep this trend in tact.  Support sits at 1.1665 and 1.1645.  Resistance sits at 1.1725 and 1.1750.
BNP shows last time market was this USD short, it was 2/5/2011, nice US index bottom back then.
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