GS: JPY note from trading – A wild night for the Asian session, as memories of the ‘’mini flash crashes’’ of the summer of 2013 in the Nikkei and USD/JPY came flooding back to investors. An a-typical spike higher in USD/JPY through the psychological 115.00 lvl, as the barrier was taken out of the market and an impulsive move to breach the 115.50 area, saw participates chasing the move higher, as option structures eroded overall Dollar weighting. It appears the Nikkei was the initial turn and once again we saw just how fragile these fast moving markets can be, as USD/JPY reverted some 140 pips and with it taking many of the break out traders out of the market. Unfortunately it would appear these moves will characterise the USD/JPY up-trend into year end and caution is needed around core positions. We feel we are in for a choppy ride ahead of NFP and will look to trade around the broader 113.80-115.20 range, whilst holding 1 week and 3 week options further out.
Commerz: JPY Vols: Vols take another leg higher this morning from very volatile Asian price action, 1m 11/11.3 from 10.25/10.35 NY close yesterday. Moreover we have seen v large structured usdjpy flow from Taiwanese banks, the market is now very over supplied topside usdjpy strikes 118/124 region via leveraged fwd type structures. Risk reversals have retreated back from being heavily bid for USD calls to only a marginal premium now.
GS: EUR from trading:
I suspect Euro positioning whilst still short is the lightest its been on the morning of an ECB meeting since the spring. The Reuters story referencing challenges to Draghi’s leadership and opposition to his style can be interpreted as either more likely to make him conciliatory to the hawks or alternatively more inclined to assert his leadership and press home the dovish policy path. The recent data does not force his hand to act at this meeting so it’s a tough call. The bigger reaction on the back of low expectations and lighter poitioning will be if Draghi is meaningfully dovish or proactive most likely via a firm and specific reference to the currency or less likely to sovereign QE. I want to be flexible given the uncertainty but have a bearish bias due to low expectations, light positioning and the underlying dynamics. I will go into the meeting a bit short, leaving room to fade a minor disappointment rally to 1.2575 on nothing new but no game changer. We should not trade back above 1.2600 unless we get a distinctly less dovish delivery. Key support at the YTD 1.2439 low followed by 1.2400.Spot reference: EURUSD – 1.2498 View from: Jon Pierce
Citi: Spot GBP: European open – Head scratcher
Ok so services data was a little worse than expected (56.2 versus 58.7) but the subsequent price action caused the market to ask a lot of questions. We made the mistake of taking off the EURGBP short only to see it move from 0.7860 down to 0.7815 in what looked like a large GBP buying episode in the market. It didn’t really sit correctly with what was going on elsewhere in USD pairs. With large event risk over the next 48 hours I still prefer to wait to re-enter the EURGBP short position with 0.7875-80 my ideal location.IP, Manufacturing production the pre-party drinks before the MPC, ECB us jobless claims and Fed speakers tonight.
Citi: Quick Spot update ex-EUR :
AUD – our trader has taken back his short after the employm. report. Danger here is break down level @ 0.8645/50 which could open 0.8750/75. We remain sellers on rallies but a lot of event risk in next 24hrs.
NZD: similar. Flat and sell above 0.7800 or if we break 0.7650
CAD: Break of 1.14 didnt see the momentum we were hoping for. We are now flat and will byy back towards 1.1325/50
GBP: yesterday’s price action left many puzzled. Still.. looks more one-off than structural, and very at odds with rest of the market.. event risk ahead means we wait to re-sell 0.7875/80 levels now.