InTouch FX – New York Open: False Hope

  • Clarity over the new Italian coalition government programme has only provided a brief view of better times.
  • Optimism over an Argentina-IMF deal can only stretch so far, and the undercurrent of USD demand in the global monetary system continues to be ignored by the Trump-haters.
  • Despite no inclusion in the agreement document of ECB debt forgiveness, or EUR-leaving mechanisms, scepticism remains – not least around the longevity of the EZ project.
  • The 10y Bund-BTP spread remains above 155, and it is well known that Italian governments don’t normally last that long.
  • Overnight, reports that China had offered Trump a USD200bn trade surplus reduction got people excited that the impending trade war would be sorted before it really started.
  • This was later denied by the Chinese Foreign Ministry. Whether anything has been, or will be offered is another matter.
  • The USD paused for breath this morning vs the majors, apart from some minor excitement in USDJPY. USD-EM fell, but has since done a nasty “about-face.” 10y USTs remain around 3.10%.
  • USDJPY chewed its way up to 111.00, with a large local bank the main buyer through 110.85. Offers at 111.00 were filled but immediately restacked by the sellers. Suspicious minds point to potential Takeda flows hitting the market.
  • Despite all the dissection of Italian politics, EURUSD doesn’t want to play. We have EUR1.85bn of strikes rolling off at the 1.1800 today.
  • EURGBP is a bit higher on the usual Brexit splattering. The latest is that Brexiteers are “dusting off their no-deal” plans. GBP goes up-tiddly-up-up, then goes down-tiddly-down-down.
  • AUDNZD has slipped lower on weak stops and position reversals, mostly from ST players who sold Kiwi post-budget.
  • USDCAD had a mini-spike in Asia to 1.2847 on negative NAFTA2.0 headlines from US Trade Rep Robert Lighthizer. He said that “NAFTA countries (are) nowhere near close to a deal.” Since then it’s drifted. It should attract more attention when Canadian CPI is released at 13:30 UK time.
  • A strong print might increase expectations of a hike from the BoC when it meets on May 30. Currently, a hike of 25bps is priced at 39%.
  • Scandies are quiet, with local holidays affecting dealing interest.
  • USDTRY had a steady start, but now looks terrible again. Spot reached, yet held the first ST resistance at 4.4870. 10y FI yields were marked up at 15%.
  • Presidential advisor Ertem was on TV again, saying the CBRT is one of the most independent institutions in the world. No one really believes him. The fact that he keeps saying it says all you need to know.
  • USDZAR looks very dangerous. Heavily offered in the morning, it now looks like it might challenge the key 12.72-7350 level. R186s are above 8.50% now, at 8.55%.
  • USDARS traded in a tight range yesterday, and the BCRA continued to emphasise their offer at 25 for USD5bn. Today, there should be an “informal” IMF meeting.
  • IMF spokesperson Gerry Rice talked up Argentina’s efforts, with the fund strongly welcoming Macri’s comments yesterday. Rice noted that contagion has been limited (so far), and that the Peso’s value should be determined by the market.
  • USDCOP was spanked yesterday, standing out as the worst EM performer. JJ Echavaria tried to talk the peso up, by saying that the nation had reduced ST vulnerability, whilst FinMin Cardenas said additional rate cuts are not on the table. Spot is right near the 200d MA, which is at 2914.50.
  • The Lighthizer headlines were initially ignored in favour of the China200bn news, but since then USDMXN has been paid up in tune with wider USD-EM. It’s also worth noting that Paul Ryan tacitly extended the May 17 Congress “deadline” by a week or two. The next NAFTA2.0 meeting is in Washington on Monday.
  • BRL got an initial boost from the BCB’s surprise decision to leave rates unchanged at 6.5%, but that didn’t last long. USDBRL opened lower by 0.60% but that was about it. USDBRL traded up just above 3.71 before settling just south of 3.70.
  • USDCNY was fixed at 6.3763, quite a bit higher than NY projections of 6.3680. MOFCOM announced that it will end its anti-dumping inquiry into US sorghum, and that it does not want a souring of ties with America. USDCNH remains calm around 6.3600-50.
  • Yesterday’s rate hike in Indonesia did little to help the FX rate. It reached a fresh high this morning at 14,150. BI stated that it would take “strong measures” to keep the IDR stable, but the market needs action, not words.
  • Indonesian FI yields went on a bit of a tear up too, with 10y climbing 8bps. The recent high was 7.40%ish. MinFin official Siahaan said that the nation would adjust future bond issuance given the situation.
  • India FI rallied on a Cogencis report, suggesting that the finance ministry wants more state-run banks to participate in govt bond auctions. The Rupee remains stressed by Oil and wider import demand.
  • That’s it for now. There’s a bit of data out, plus a raft of central bankers – see our calendar for details. Updates will be posted in our usual channels.

FX Snap (11:00 UK time)

Option Expires

  • EURUSD:  1.1745 (307mn), 1.1800 (1.62bn), 1.1855 (206mn), 1.1875 (472mn), 1.1900 (866mn), 1.1905 (201mn), 1.1925 (221mn), 1.1950 (872mn)
  • GBPUSD: 1.3600 (237mn)
  • USDJPY:  109.95 (280mn), 110.00 (1.36bn), 110.10 (231mn)
  • USDCAD: 1.2700 (1.37bn), 1.2750 (397mn), 1.2800 (384mn)
  • AUDUSD: 0.7450 (348mn), 0.7550 (228mn)
  • NZDUSD: 0.6905 (272mn)