SocGen’s Kit Juckes:
So – where are we? On track for a June hike as long as market volatility doesn’t de-rail growth. If that’s the case, 2yr rates are still too low, the curve not flat enough, and the dollar rally set to resume. A tougher but arguably bigger question is how EM and DM credit and equity markets react. Can they now shrug this off? Or is vol on its way back up and more market mayhem in store. Trick, in fact, or treat? I’ll confess to being both unsure and nervous. A smooth transition to a new regime seems a big ask.
Back in the land of FX… We are bearish of GBP, and of SEK, and looking for a bounce that never comes to sell EUR/USD. USD/JPY is up and opening the door for EUR/JPY shorts. AUD, CAD, NZD are all at least as sensitive to what happens in China as they are to the Fed now. We’ll get really excited about shorting AUD/USD on a break of .8650. Till then, not sure…
GS: G10 FX SPOT TRADER VIEWS POSITIONING => We added to our USD long across the board (vs EUR, JPY and GBP) and reduced our long AUDNZD.
New Short EURUSD => 1.2630 seems a good level if you wish to add on rally. The key support on the downside is 1.2500 (that we failed to break in beginning Oct). S/L at 1.2680 now.
Long USDJPY => Levels to watch : first support 108.80 while first target is 109.50. S/L trailed through 108.50.
Reduced Long AUDNZD => We reduced part of our longs with the catalysts from here less clear. Levels : support at 1.1220/30. S/L trailed through 1.1170, or ideally 1.1140.
New Short GBPUSD => We entered a short post-Fed and will have for 1st target the YTD lows of 1.5875. We should now struggle to get back above 1.6030.
The USD is gaining across the board in European open, after taking a pause mid-morning Asia. EUR has led the losses against USD so far as there seems to be a scramble to own the USDs against all the G10 currencies at Volume in EURUSD has picked up since Europe walked in and has a strong 55% sell bias at the moment. Most of this is led by leveraged names and banks. GBPUSD turnover has also picked in the last 2hours, with sellers dominating the proceedings.
USDJPY is also a one way street with buyers taking control right in the Asian morning and continuing as Europe walked in. Citi FX flows have a 54% buy USD bias.
NZDUSD and AUDUSD seem to be taking a bit of a breather after the thrashing they took in the Asian session. Profit taking could be the reason behind it. NZDUSD flows have no bias at the moment while AUDUSD has a small buy bias of 51%. Banks have led the buying in AUD and leveraged names and real money investors are net sellers.