Aggressive Inflow Into U.S. Sovereigns Squeezed FX
Ipek Ozkardeskaya | Oct 16, 2014 05:02AM ET
Market Brief
The softness in September US retail sales data pushed USD slightly lower in New York yesterday, but the big move came from heavy leveraged inflow into US 10-years according to rumors on the market. The aggressive decline in U.S. 10-Year yields squeezed heavily the FX trading. Commodity and EM currencies took a breather as the US 10-year yields fell below 2.0% (quick spike to 1.8622) for the first time in over a year. USD broadly pares losses today.
EUR/USD spiked to 1.2886, GBP/USD hit 1.6068 as US yields dropped sharply. The rally remained short-lived. The sentiment in euro and pound remains negative given the soft recovery concerns. The strong labor data out of the UK failed to revive GBP-bulls yesterday. Given the soft inflation dynamics, markets now price in delay in BoE’s first rate hike. Dovish shift in expectations should further weigh on GBP-complex. The strength in EUR/USD is unconvincing before the Euro-zone CPI report (due at 09:00 GMT). Soft inflation reading should reinforce the top-selling strategies.
USD/JPY sold-off to 105.23 (lowest since Sep 8th) approaching the most its ascending daily Ichimoku cloud cover (104.13/99) since August. The Nikkei stocks lost 2.22% in Tokyo. The bias on JPY crosses remains negative given the discomfort regarding the rapid JPY decline. There is room for more downside correction. USD/JPY calls are seen at 104.50/105.50 pre-weekend. EUR/JPY tests 135.00-support. Large vanilla put seen at 136.50, more resistance presumed at daily cloud (137.14/51).
In New Zealand, the faster expansion in manufacturing in September and 2.4% growth in job adverts kept NZD/USD in demand (after US related rally). NZD/USD trades above its 21-dma (0.7919) for the first time since mid-July. Technical indicators suggest deeper upside correction. Option bids trail above 0.7900/40, offers are noted at 0.80+(psychological lvl).
The RBA sold 910 million AUD in September (vs 381mn in Aug & 433mn in July). Announcement capped AUD/USD gains at 0.8830 in Sydney. The selling pressures continue given soft Chinese data and further drop in iron ore prices on global growth worries. Dalian iron ore active futures contract wrote-off -4.0% since yesterday. The key AUD/USD support stands at 0.8643/60 (2014 lows), option barriers abound between 0.8650/0.8800 for today expiry. More support is presumed at 0.8545 (Fib 50% on 2008-2011 rise).
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CAD, RUB and NOK remain under selling pressures as slide in oil prices continue. WTI crude hit $80.01 in New York yesterday, Brent retreated to $82.72.
Today, traders watch Italian and Euro-zone August Trade Balance, Euro-zone September Final CPI m/m & Y/y, Canadian August International Securities Transactions & Manufacturing Sales m/m, Us October 11th Initial Jobless Claims & October 4th Continuing Claims, US September Industrial Production m/m & Capacity Utilization, Philadelphia Fed October Business Outlook, US August Net Long-term TIC flows and Total TIC Flows.
Currency Tech
EUR/USD
R 2: 1.2901
R 1: 1.2845
CURRENT: 1.2790
S 1: 1.2606
S 2: 1.2501
GBP/USD
R 2: 1.6182
R 1: 1.6068
CURRENT: 1.5985
S 1: 1.5855
S 2: 1.5738
USD/JPY
R 2: 107.75
R 1: 106.64
CURRENT: 106.21
S 1: 105.23
S 2: 104.50
USD/CHF
R 2: 0.9598
R 1: 0.9480
CURRENT: 0.9436
S 1: 0.9368
S 2: 0.9301
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