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Month-end flows in focus. Bank of Canada surprises with rate cut + QE

Erik March 27th, 2020

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SUMMARY

 

  • Dealers reporting month end demand for USD and JPY into 10amET London fix.  Liquidity is thin.
  • Over 1.7blnEUR in EURUSD options expiring around 1.1000 strike into 10amET NY options cut as well.
  • USD rallying broadly into NY trade, but lots of technical damage done after yesterday’s “risk-on” moves.
  • Sterling continues to display higher relative volatility (beta).  Aussie lagging its G7 peers over last 48hrs.
  • UK PM Boris Johnson tests positive for the coronavirus.  Spain reports deadliest day so far with 769 deaths.
  • BANK OF CANADA cuts 50bp, launches $5blnCAD/week in QE + Commercial Paper Purchase Program.
  • Bank of Canada governor Stephen Poloz to speak at 9:30amET.  USDCAD quickly back above 1.41000.


ANALYSIS

USDCAD

There’s lot of chatter this morning about what FX flows will look like going into today’s month-end London fix, and NY options cut, at 10amET.  Dealers are reporting the predictable demand for JPY ahead of the Japanese fiscal year-end on March 31.  They’re also reporting otherwise broad demand for USD from global fund manages that need to re-balance their portfolios for month end…portfolios that have likely been slammed by US asset under performance.  Liquidity is thin though, so we hear, and so these flows could lead to exacerbated volatility in NY trade today.  Over 1.7blnEUR in EURUSD options also expire this morning, between the 1.1000 and 1.1025 strikes, and so hedging flows around these will likely add some complexity to month-end as well.

Dollar/CAD has managed to find a bid against the 1.3990-1.4030 chart support zone amidst the broad USD buying flows we’re seeing in London, but we’re not so sure how long this lasts given yesterday’s technically destructive breakdown for the USD against all the major currencies.  The market failed to get back above the 1.4310s (Wednesday’s lows) and it gave up the 1.4170-90s (last Friday’s lows) in the process…which is not great and now signals an end to the market’s recent uptrend if we close NY trade here.  Last Friday’s intra-day head & shoulders pattern signaled the short term top and this Friday’s trade (if we close below the 1.4170-90s) will likely usher in a new, choppy, 1.3900-1.4200, trading range heading into April.

The widely followed 3-month EURUSD cross currency basis swaps remains steady around +19bp this morning, which indicates no trouble right now for broad dollar funding capacity.  The S&P futures are slipping 3% lower, which is fitting given yesterday’s non-sensical rally off the worst US jobless claims print in history.  Finally, May crude oil prices continue to dribble 0.6% lower as the fundamental outlook looks increasingly bearish.


USDCAD DAILY


USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

MAY CRUDE OIL DAILY

MAY CRUDE OIL DAILY



EURUSD

Euro/dollar put in an absolutely stellar performance yesterday.  It not only shattered its recent downtrend with an overnight move back above the 1.0820-80s, but it wasted no time and surged to a very positive NY close above the key 1.1000 level.  This led to even further buying in Asian trade today, and now we’re seeing broad month-end USD demand (and likely some EUR option hedging flows too) pull the market back to some large 10amET expiries around the 1.1000 strike.


EURUSD DAILY


EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

JUNE GOLD DAILY

JUNE GOLD DAILY



GBPUSD

Sterling bulls didn’t waste any time yesterday either.  It was up, up, and away as soon as soon chart resistance in the 1.1950-70s fell in early NY trade.  While we saw some mild buyer hesitation at 1.2020-50 heading into the London close, that level quickly gave way too after US stocks continued their “hey…the US jobless claims weren’t as bad as we feared” rally.  GBPUSD is now trading just shy of its next major chart resistance level in the 1.2290s and we’ve seen some selling come in on the back of news that the UK Prime Minister Boris Johnson tested positive for the conoravirus.


GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY



AUDUSD

The Australian dollar continues to lag its G7 peers over the last 48hrs; perhaps because of its poorer relative chart structure vis a vis the other USD majors and perhaps also because of the open-ended nature of the RBA’s new quantitative easing program.  We think this dynamic is all very new for Aussie traders and will lead its government bond yields to perhaps fall further than their US counterparts in the near term.  AUDUSD closed above the 0.6020s yesterday (which was positive technically) but it has since fallen too easily back off its next major resistance level in the 0.6110s (which is not good).


AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY



USDJPY

Dollar/yen continued its tumble overnight after the 109.40-60s support zone gave way.  We hear dealers blaming it on Japanese fiscal year end (repatriation) demand for JPY ahead of this morning’s London fix.  This all makes sense.  However, we’re also hearing about broad month-end demand for USD, which complicates things and perhaps explains USDJPY’s bounce off 108.20s support in early London trade.  These flows are highly very difficult to predict with any accuracy, but it makes month end FX price movement sort of unpredictable and exciting at the same time.  There are no major USDJPY option expiries near current levels heading into the 10amET NY cut.


USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

JUNE S&P 500 DAILY

JUNE S&P 500 DAILY

Charts: Reuters Eikon


About the Author

Erik Bregar

Erik Bregar - Director, Head of FX Strategy

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Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

Interested in creating a custom foreign exchange trading plan? Contact us or call CXI's trading desk directly at 1-833-572-8933.

About Currency Exchange International
Currency Exchange International, CXI, is the leading provider of comprehensive foreign exchange services, risk management solutions and integrated international payments processing technology in North America. CXI’s relationship-driven approach ensures clients receive tailored solutions and world-class customer service. Through innovative and trusted FX software platforms, CXI delivers versatile foreign exchange services to our clients, so that they can efficiently manage and streamline their foreign currency and global payment needs. CXI is a trusted partner among financial institutions, corporations and retail markets around the world. To learn more, visit: www.ceifx.com

 

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