FX Flows

From the FXWW Chatroom: US dollar firmer across the board in both G10 and EM.

Japanese returned today and early birds were buyers of UsdJpy positioning for Gotobi-Day demand. Buying was good but headed into thick supply ahead of 104.00 believed to be for exporters. Some said selling interests came from option play, a 104.00 option strike expiry Oct 13 both Tokyo and New York cuts. While most are still playing this 100-105 trading range, some chatter of stops above 104.55 coming from momentum/systematic accounts.

Cable was steady until Asia walked in. GbpUsd moved lower in orderly manner unlike last Friday, to test 1.2300. There wasn’t any earth wrecking news but one story in WSJ that the weak Gbp is forcing UK importers to adjust their hedging. Higher costs are expected to hit the supply chains of many companies, and many have already made adjustments. Also remember, weaker Gbp means additional hedging from real money managers.

EurUsd was cushioned by the EurGbp move. Locker room talk of offers stacked up on upside beyond 1.1170 belonging to real money names. Bids are seen near 1.1105. There is a 1.1000 option expiry today for about Eur2bn worth.

Market anticipated a dovish speech RBNZ Assistant Governor McDermott and they were right. Speculative selling started from Asia open, 0.7127. Headline flashed, “McDermott says further policy easing will be required” – and NzdUsd fell from 0.7100 to 0.7087. Momentum accounts took advantage and capped the Kiwi bounce.

Aussie was also steadily lower but remarks from RBNZ’s McDermott caused the pop in AudNzd from 1.0662 to 1.0691, thus AudUsd selling was absorbed.

Price of oil futures have been steady but weak commodity currencies ushered UsdCad towards 1.3200. 200-Day SMA at 1.3203 will be a challenge. Intraday support comes in at  1.3150 but suspect we might see further longs bailing out and this could push us down to 1.30-handle. Order book is rather stale. There is a $1.2bn notional worth of 1.3200 option expiry tomorrow.

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