25 Jun 2014
G10 ranges are tight - BMO Capital Markets
FXStreet (Guatemala) - Stephen Gallo, European Head of Currency Strategy at BMO Capital explained recent ranges in the G10’s.
Key Quotes
"G10 ranges were tight, while European equities and US yields were generally soft reflecting the ‘risk-off’ tone related to Iraq and Ukraine. Although they have since retraced some of their losses, the JPY crosses were generally soft throughout most of the London morning."
"‘Risk-off’ is no longer a pure USD positive force because USD divergence trades need to be unwound first as US yields fall back. This leads to conflicting flows across the G10/EM spaces."
"‘Carry’ unwinds and weakness in the ADXY prevented lower movement in USD/CAD for most of the London morning, but WTI crude has been unable to manage a sustained break back below $106/bbl, probably on Iraq, and EURCAD was unable to test or break 1.4650. USD/CAD has since moved back 1.0740 as a result."
"USD/CAD is being squeezed from both sides at the moment. The gap between USD/CAD and its key drivers argues that the pair’s valuation is too cheap, but we also can’t see the rationale for leveraged money accounts to be initiating new USD/CAD longs yet either – given the recent data."
"The ‘risk-off’ softness in US yields so far today means the 0830 US data have a bigger hurdle to cross in order to force rates, and USDCAD, sustainably higher. Core capital goods orders and shipments will probably have to rise in excess of 0.2% above consensus estimates to force a clean, sustained break of 1.0750 based on the aforementioned factors."
"Moreover, FX investors should not overlook a worse-than-anticipated revision of Q1 GDP either, given how the FOMC ratcheted down its estimates for long-run potential growth in June. Q1 was not just about bad weather."
"PBoC fixed the mid-point up 10 pips overnight to 6.1555, roughly flat vs. Tuesday’s fix. A general bid tone was apparent in USDCNH for most of the session though, much like yesterday."
"The ADXY, which CNY accounts for about 40% of, was lower. We blame much of the weakness in CNH today on ‘risk-off’ related to declines in Asian equities and Iraq/Ukraine."
"Onshore swap points did widen out though, possibly reflecting ‘risk-off’ liquidity squeezes and tightness around month-end/half-year end. We expect PBoC to continue ‘leaning into’ some of these squeezes in order to prevent CNH upside."
Key Quotes
"G10 ranges were tight, while European equities and US yields were generally soft reflecting the ‘risk-off’ tone related to Iraq and Ukraine. Although they have since retraced some of their losses, the JPY crosses were generally soft throughout most of the London morning."
"‘Risk-off’ is no longer a pure USD positive force because USD divergence trades need to be unwound first as US yields fall back. This leads to conflicting flows across the G10/EM spaces."
"‘Carry’ unwinds and weakness in the ADXY prevented lower movement in USD/CAD for most of the London morning, but WTI crude has been unable to manage a sustained break back below $106/bbl, probably on Iraq, and EURCAD was unable to test or break 1.4650. USD/CAD has since moved back 1.0740 as a result."
"USD/CAD is being squeezed from both sides at the moment. The gap between USD/CAD and its key drivers argues that the pair’s valuation is too cheap, but we also can’t see the rationale for leveraged money accounts to be initiating new USD/CAD longs yet either – given the recent data."
"The ‘risk-off’ softness in US yields so far today means the 0830 US data have a bigger hurdle to cross in order to force rates, and USDCAD, sustainably higher. Core capital goods orders and shipments will probably have to rise in excess of 0.2% above consensus estimates to force a clean, sustained break of 1.0750 based on the aforementioned factors."
"Moreover, FX investors should not overlook a worse-than-anticipated revision of Q1 GDP either, given how the FOMC ratcheted down its estimates for long-run potential growth in June. Q1 was not just about bad weather."
"PBoC fixed the mid-point up 10 pips overnight to 6.1555, roughly flat vs. Tuesday’s fix. A general bid tone was apparent in USDCNH for most of the session though, much like yesterday."
"The ADXY, which CNY accounts for about 40% of, was lower. We blame much of the weakness in CNH today on ‘risk-off’ related to declines in Asian equities and Iraq/Ukraine."
"Onshore swap points did widen out though, possibly reflecting ‘risk-off’ liquidity squeezes and tightness around month-end/half-year end. We expect PBoC to continue ‘leaning into’ some of these squeezes in order to prevent CNH upside."