Option Expiries 2 December 2016

EURUSD 1.0450 (EUR 2.38bln) 1.0500 (1.41bln) 1.0550 (1.86bln) 1.0600 (2.83bln) 1.0650 (2.23bln) 1.0700 (2.3bln) 1.0800 (1.48bln)
USDJPY 110.00 (USD 1.09bln) 111.50 (1.16bln) 111.75 500m) 112.00 (411m) 112.50 (1.6bln) 113.00-05 (422m) 115.00 (420m)
GBPUSD 1.2450 (GBP 531m) 1.2500 (788m) 1.2700 (497m)
AUDUSD 0.7320 (AUD 943m) 0.7425 (337m)
NZDUSD 0.7050 (NZD 834m)
USDCAD 1.3375-80 (USD 472m) 1.3500 (932m) 1.3600 (786m)
AUDNZD 1.0500 (AUD 1.15bln)

EURUSD To Stay Well Contained Into Weekend

EUR/USD is in a near term stalemate going into the weekend, with the US non farm payrolls release set to have a modest impact on the pair as the EUR focus rests squarely on the Italian referendum ahead. The polls are already suggesting a No vote will prevail, but it is hard to see how much of this is priced in to the spot rate, with the USD perspective so strong, and heavily reflected in the pair given the USD index weighting (close to 60%). It is clear however, that 1.0550 is proving a tough nut to crack, below which lie some heavily defend exotic barriers at 1.0500 and the Dec 15 low at 1.0456.


It is also a case of having travelled a long way down (in such a short period), though the oversold status is proving hard to correct in such a USD hungry market. A Yes vote this weekend could prompt a move up to and through 1.0700, but gains are likely to be limited, with the prospect of QE extension from the ECB pencilled in for next March and populism on the rise in EU-land also.

USDJPY tests 115.00, Contained (Temporarily) By Exporter Offers

Earlier today in Asia, we saw the first test on 115.00 in USD/JPY, which was firmly held off by exporter selling. That said, many have been calling for a deeper correction before we test into the next major area, with longer term calls for 120.00 looking increasingly amenable given the pace of gains seen in response to the rise US mid curve yields. The 10yr is the focus for JPY traders traditionally, though the 5yr has mirrored gains, but with such an abrupt turnaround seen yesterday (near 10bps), some will say it is warranted, despite the oversold status in the JPY across the board.

selection_108The next target area on the high side is now 115.50-116.50, while on the downside, only a break back under 113.00 will be considered a deeper correction. US payrolls tomorrow is expected to be strong – as has much of the US data series of late (with the exception of personal spending yesterday – personal income beat f/cs) – so we expect the dip buying to resume, especially with the touted month end USD selling passing without any significance whatsoever. One potential risk to all the JPY pairs is any moderation in the equity markets, and we have to consider this with the Italian referendum this weekend potentially causing some profit taking over today and tomorrow.

GBP In Near Term Stalemate vs USD

Against the tide of USD strength, we have seen GBP recouping some of its Brexit based losses, with the Cable moves (eventually) through 1.2000 from early October being redress to some degree. EUR/GBP has been the key driver more recently, given the USD buying theme since the US elections. The EUR cross rate has been well contained on any material bounces, as the EU political landscape has soured considerably in recent weeks/months.

selection_107However, .8425-30 is a major tech level in the cross rate, with .8333 lower down key for UK corporates (is 1.2000 in the inverse rate) for hedging purposes. As such, near term gains in Cable may struggle into the 1.2550-1.2600 area – as it has this morning, so we look to have a near term stalemate developing and some much needed relaxation in volatility as Brexit concerns slip out of the limelight for now.

Early price action goes with the familiar theme

Early price action suggests some consolidation across the board, but we are expecting the session to liven up through the day. For now, the key majors are trading at mid range levels, so we may need to see some limits tested before the day’s direction is ‘decided. EUR/USD is still running into sellers on the upside, but after a number of tests on the mid 1.0500’s, the upper limits could be a little vulnerable. Cable is back off the 1.2500 level and remains soft in prospect of some fresh EUR/GBP demand. Over the last few days, .8450-70 has seen strong bids holding up the pair, and while the longer term picture and EU wide political risks point to further downside, the short squeeze risk – as in EUR/USD – is stronger at the present time. The cross rate flow is also impacting on AUD and NZD trade; AUD/NZD is now in the mid 1.0400’s. NZD/USD looks more comfortable in the mid .7100’s, while sellers in AUD/USD into .7500’s contain for now.