Comments and forex-analytics from FBS Brokerage Company - page 136
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Large options expiring today
Here are the options expiring today at 2 p.m. GMT.
EUR/USD: 1.3025, 1.3080, 1.3100, 1.3145 and 1.3200;
GBP/USD: 1.5800, 1.5900;
USD/CHF: 0.9140;
AUD/USD: 1.0250, 1.0300 and 1.0425 (large);
EUR/GBP: 0.8260;
AUD/JPY: 83.70;
USD/JPY: 81.00 (large), 81.50, 81.65.
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure.
Westpac: trading EUR/CAD
Strategists at Westpac Institutional Bank are bearish on euro vs Canadian dollar and advise to sell the EUR/CAD at $1.3080 level with a stop at $1.3170 and a target of $1.2770.
In their view, Canada’s surprising job growth (82K in March versus 11K forecasted) and possible hawkish actions of the Bank of Canada (on a meeting 17-18 April key interest rate may be hiked from current 1%) will support the loonie. However, if the U.S. labor market data will remain negative, it may weigh on the Canadian currency.
Analysts: outlook for sterling
Analysts at Morgan Stanley are bearish on the euro and the pound vs. the greenback. In their view, in a year the EUR/USD and the GBP/USD will weaken to $1.15 and $1.46 respectively. According to the specialists, there are signals that the market's optimism has started to fade as the European economies are still facing plenty of difficulties. Risk aversion and increased asset market volatility will hurt the pound.
UniCredit currency strategists also don’t expect the cable to climb higher than $1.60 unless something extraordinary happens.
However, Mizuho analysts believe the U.K. economy is gradually growing, and the sterling will gather momentum when the global markets stabilize. Moreover, the pound benefits from serving as a safe haven within Europe.
Euro area: debt auctions, EUR/USD
Germany: sold 3.87 billion of 10-year benchmark bunds euro out of targeted 5 billion euro. Yield declined to 1.77% (from 1.83%).
Italy: sold a total 11 billion of 3- and 12-month BOT’s:
- 3 billion euro of 91-day bills, yield 1.249% (from 0.492%);
- 8 billion euro of 361-day bills, yield 2.84% (from 1.405%).
EUR/USD dip back briefly below $1.3100 on the news that German government failed to borrow as much as it has planned, but then recovered as periphery stocks extended their rallies and as periphery/German bond spreads kept narrowing.
Resistance: $1.3136 (100-day MA), $1.3165 (April 5 maximum) and $1.3200.
Support: $1.3033 (April 9 minimum), $1.3004 (March 15 minimum) and $1.2974 (February 16 minimum).
SNB and the market’s confidence
The Swiss National bank had no problem in defending the EUR/CHF floor set in September for more than half a year. How the difficulties have finally appeared as last Thursday euro breached the minimal level due to the surge of demand for francs and the SNB had to step in selling about 1 billion euro (so the estimates say) to bring it back.
Swiss monetary authorities repeated their pledges to constrain franc’s appreciation by the level mentioned above. So, if the market once again pushes euro below that point, the SNB will push it up again.
The central bank didn’t eliminate the threat of euro’s plunging below 1.20. The core of the problem is that there are the banks trading EUR/CHF and the transactions of which the SNB can’t monitor in time as they don’t have credit lines with it. If such lines were established and the SNB all dealers on the ICAP-owned EBS system it would be able to prevent piercing of the EUR/CHF floor. In addition, the SNB could mandate some banks to help it defend the floor.
However, the Swiss central bank already accepts more than 100 banks with more than 700 trading desks as counterparties and it’s hard to capture every single legitimate trading account on EBS at all times, so this probably wouldn’t work either.
The fact is: almost a week passed since April 5, but the ‘breaking the floor’ story hasn’t repeated. It means that the market still has enough faith in the SNB. At the same time, new attempts of euro bears to test the central bank’s resolve are still quite likely as the policymakers delivered nothing new.
Key options expiring today
EUR/USD: $1.3050, $1.3120, $1.3170, $1.3175;
USD/JPY: 81.00, 81.45, 81.50, 82.00;
EUR/GBP: 0.8320;
AUD/USD: $1.0250, $1.0300.
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Short-term outlook for loonie
Canadian dollar hit yesterday the minimal level against its US counterpart since the end of January: USD/CAD posted high at 1.0051 before returning today to the parity level.
On the fundamental part, CAD has its main drivers rising equities and oil prices in action. The current fluctuations are by the approaching release of the Bank of Canada’s monetary policy report (the central bank will meet on April 17 and publish quarterly report on April 18).
From the technical point of view, there may be a “double top pattern” confirmed in case of steady trading back below the neckline of the pattern at 1.0010, so we may expect more bearish moves today.
Scotia Capital: buying loonie seems OK for now, though one should close USD/CAD shorts if the pair closes above 1.0050/1.0070 breaking out of the range within which it has been stuck for months.
RBS: bullish on CAD versus euro and US dollar. As conditions in Canada, the United States and the world as a while have improved, the BOC should revise up the domestic and international outlook.
Data to watch: Canada’s February trade balance (forecast: 2.2 billion surplus), New housing price index (forecast +0.2% m/m in February).
AUD/USD grows after employment data
The Australian dollar jumped to a one-week high on the backdrop of the surprisingly positive employment data.
Strong labor market figures lower concerns that the RBA will cut interest rates from current 4.25% level. Australia’s 3- and 10-year bond yields increased 8 and 3 basis points respectively.
In March 44K new jobs were created in Australia versus 6.4K forecasted and 15.4K decline in February. The unemployment rate remains unchanged at 5.2%, compared with forecasts to grow to 5.3%.
BNP Paribas specialists expect the Aussie to trade at $1.0500 level in Q2. Moreover, China’s GDP data on Friday may surprise the market and create additional support for AUD/USD.
However, analysts at Commerzbank remain bearish on the Aussie vs. the greenback. In their view, there is a strong resistance on the $1.0405 level. They expect the pair to weaken to $0.9863 (Dec. 15 minimum).
Early Thursday AUD/USD strengthened to $1.0391, the highest level since April 3.
Beige book: no surprises
According to the Beige book report, released on Wednesday, each of the 12 U.S. bank districts keeps expanding at a modest-to-moderate pace from mid-February through the end of March.
The Fed pointed at stronger manufacturing sector, consumer spending, better demand for professional business services, increased tourism and some improvement in the real-estate market. The survey also noted that hiring was steady or increased in most of the country.
In general, the estimates remain unchanged from previous Beige book release, but with slightly increased optimism on the back of positive March U.S. data.
BNY Mellon: USD/JPY is to get higher
Analysts at Bank of New York Mellon think that Japanese authorities will refrain from active monetary interventions for now using only verbal comments ahead of the next Bank of Japan’s meeting at the end of April. BNY Mellon reminds that the quantitative easing conducted by the BOJ in February was much more effective than the previous intervention.
According to the economists, Japanese Ministry of Finance “has (sensibly) tried to keep a degree of unpredictability about its operations in order to preserve their effectiveness.”
So, the bank’s main scenario is more asset purchases on April 27 and positive near-term outlook for the greenback. USD/JPY may rise to 83 and 84 yen.