CIBC: FX Flows: FXWW

From the FXWW Chatroom: The greenback started the day strong across both majors and EM. Like some people gave it a big “likeâ€. But that didn’t last for long. Usd pared gains as market refocussed on trends. Risk on and cross Jpy demand surfaced in the late morning.

Japanese banks were strong buyers of UsdJpy once the Tokyo market opened up, heard from the trenches demand is coming from speculators as well as Mrs. Watanabe. Offers in the 110.80’s have been chewed away when Usd demand came through. Japanese Finance Minister Taro Aso said he doesn’t see a big deal with UsdJpy around 110.80. Demand for cross Jpy returned and took EurJpy to 136-handle. Hearsay leveraged names who sold in the 110.80s have also left stops in the 111.20s.

Do note there is a $1.4bn of 110.80 option strike as well as 111.00 strike for $1.1bn due Jan 18. Downside pretty clean although talk of bids scattered towards 110.00 from Japanese accounts.

Some are watching the share price of Japans Kobe Steel following a report that the company revealed in 2017 that it had doctored quality data on aluminium and copper parts for years, shipping products short of agreed-to standards without customers’ knowledge or consent. Share price has fallen 4.3% since last Fridays close.

In the FT, global investors are watching BoJ with caution following last weeks reduction in volume of longer dated bonds. The obvious reaction was likely amplified, explained FT, after Kurodas surprised remarks late last year about adverse effects of QQE. Now speculators widely see BoJ to keep slowing pace of asset buying during 2018.

For third consecutive day, we saw North Asian names taking profit in long EurUsd. General Usd strength took EurUsd towards 1.2248 from 1.2275, then back to 1.2260s when UsdJpy pared gains. Buying of EurJpy has lifted EurUsd back to the days high. There are talk of bids gather low side of 1.22s and some offers atop 1.2290, could be defending 1.2300 option barrier.

Cable did little. Asia opened at 1.3794 and made its way to 1.3785. GbpJpy demand brought Cable to 1.3804. The Guardian revealed that demands from Michel Barnier that EU plans to insist on the free movement of people throughout the transition period and the inclusion of people moving to the UK before 31 December 2020 in the terms of an agreement on rights for nationals from the rest of Europe post-Brexit. EU also insists that the UK will only continue to enjoy the benefits of trade agreements with non-EU countries unless authorised by Brussels.

UsdCad price action has been disappointing despite Usd strong across the board, the move up in UsdCad has been meagre. We suspect market is still trying to position for BoC tomorrow, which is widely expected to hike by 25 bps. Our macro strategy team published a Cad trade recommendation today putting on NAFTA event risk on Jan 23-28 in Montreal. We like to be long UsdCad risk-reversal, long EurCad and short CadJpy. At the end of Asia morning, UsdCad returned to where Toronto closed.

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Asians

In EM space, the strength of Usd started with USDCNH as it moved up from 6.4325. Onshore USDCNY opened at 6.4405 as supposed to yesterdays close of 6.4363. USDCNH rose to 6.4458 then drifted back to 6.43-handle. Into late morning, Usd trend resumed, USDCNH weakened and printed 6.4243.

UsdThb also advanced short covering is seen from various offshore names, suspect these were same ones who sold into low 31.90s. Yesterday, Thailand Deputy PM Somkid said the BoT will closely monitor the Thb strength, which is moving in line with other Asian currencies. Since Jan 2 2018, the Thb has been the strongest currency amongst the Asians. UsdThb got to 31.985 where exporters returned to put the pair back to 31.93.

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