Updates from the FXWW Chatroom

Since Mark Carney gave his Mansion House speech in June, it has become increasingly clear that the outlook for the U.K. economy has changed, currency strategists at UBS write in a note. “This is not dramatic and at this stage does not make us anxious that the U.K. is about to experience a significant growth deceleration. But the near-term outlook and – importantly – the risks around it have moved enough for us to believe the MPC will delay the timing of the first rise in bank rate,” they write in a note. “we now believe the MPC will delay the first rise in Bank Rate until August next year.” 

The day before RBS put out a note saying:
a) First hike is moved from +25bp in February 2015, to +25bp in August 2015.
b) Second hike of +25bp in November 2015, so Bank rate is 1% end 2015 (forecast was 1.5% previously).
c) 2016? total of just 50bp of hikes, same as previously expected. So end 2016 Bank rate is 1.5%, not 2%.
 
TOKYO, Oct 16 (Reuters) – The dollar was sharply lower on Thursday, its appeal deeply dented after poor U.S. data sparked growth concerns that sent equities tumbling and Treasury yields plunging.
Already on shaky ground after being buffeted by lingering growth concerns over the past few sessions, a string of downbeat economic data including weak retail sales and manufacturing activity numbers dealt Wall Street a fresh blow overnight, sending the S&P 500 .SPX down by as much as 4.4 percent. (Full Story) (Full Story)
Safe-haven U.S. Treasuries rallied in response, with the benchmark 10-year yield US10YT=RR momentarily slicing below the 2 percent threshold to a 17-month trough.
The dollar fell to a five-week trough against the yen and a three-week low versus the euro as yields slid. The greenback came off lows as Treasury yields partially retraced their decline, although bargain hunters were half-hearted in their bids.
“There are those out there buying the dollar on dips, but it is difficult for them to commit themselves unless U.S. equities first recover and stop the decline in Treasury yields,” said Junichi Ishikawa, a market strategist at IG Securities.
“There was a fair number of long positions on the dollar that had built up and the recent volatility has provided a good opportunity for fast money accounts to clear out their positions before their books close in November,” he said.
Against the yen, which tends to benefit from risk aversion, the dollar was little changed at 105.885 JPY= after hitting the five-week low of 105.195.
A slide in Tokyo stocks .N225 to a 4-1/2 month low boosted demand for safe-haven yen and firmly capped the dollar.
The greenback has come hurtling down from a six-year high of 110.09 hit at the start of the month, when expectations of an early rate hike by the Federal Reserve were significantly stronger amid a rosier outlook for the U.S. econo
 
I’ve heard from 2 different retail brokers that the retail trading community have been selling heavily into these rallies in AUD/USD and EUR/USD. This normally means that they will get stopped out in the short-term as they trade with stops too tight, but that these pairs will eventually fall as sentiment remains bearish
 
From Sco Gen 
The liquidity crisis many had waited for is unfolding. Theoretically it is an absence of speculators willing to absorb risk, triggering a self feedback loop first identified by Keynes (did my thesis on this). The Fed QE fulfilled this function of risk absorption as did foreign reserves buying long dated bonds. While they may be extending duration in the US searching desperately for yield it is not the case in non core euro while they stop buying or reduce eur holdings.The most illiquid asset is high yield credit (and its equivalent such as Greece) and it has stated its correction triggering an impact on equity and broad volatility which then becomes self-fulfilling. VIX reach the band of 30 40 or stressed regime. More broadly credit and liquidity are highly interlinked feeding on each other.The impact on FX of this risk reduction is to pressure the long usd position with usdjpy still the most at risk. For EUR, reserves needing to offload EUR and a widening of credit spreads should help keep the lid on eurusd and likely pressure it lower as we reach the European time zone.Citi: CitiTechs going long USDJPY at 105.80 with a target of 109+ and stop at 103.95. 
GS: USDJPY vols firming up again.  First sign of traditional risk moves here with crossjpy correlations picking up.  6m RR trades 0.9 in a clip.  1m 8.85 and 3m 8.5 paid bid on. 

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