Optionality the key to FX as we await the FED

Australian unemployment data overnight was better than median expectation, however it still saw the overall rate crawl ever so slightly up, edging into the 5.8% mark. While the Little Battler took a spike on the print, it was met by strong sellers fading the growth. The RBNZ remained on hold and while being displeased with the level of the local currency and its strength, they did little to convince the market that a rate hike wasn’t imminent in the new year. This was enough to see a significant disparity in perception between the two southern neighbours and thus saw the AUDNZD plumb fresh lows and take its toll on the AUDUSD also.

Further afield Asian bourses traded heavy, as did the overall global equity complex. News late in the US afternoon about former bank of Israel chairman Stanley Fischer being the likely candidate for the second in command role at the FED did the rounds and while not having a direct market impact, was enough to ruffle more than a few feathers. Politically and economically speaking Yellen and Fischer seem to the naked eye to be aligned in their views. However, I think Yellen is far more the political animal than most would give her credit for and as such I think if Fischer were to get the nod, there would likely be a greater chance of infighting at the FED than perhaps if it were someone else in the role. Early days yet, but keep an eye on this space.

On the day we’ve got US weekly claims this afternoon as well as retail sales. Neither is likely to have a massive impact on a rather lethargic market, save only for the fact that if either number were to print wildly outside market consensus.

In terms of where we go today, I think it simply continues to be a case of steady as she goes Captain, and staying the USD sales course will likely be the prudent thing to do. Having said that though, do not expect fireworks.

In the EURUSD, I think the market is slowly starting to turn on sentiment and as always pointed out in my pieces its more about positioning than anything else. As such, it looks like the market while not happy about it, is slowly starting to get long of the EURUSD. With last minute long additions comes the ever present chance of a last minute downside cleanout, just so that perhaps the bigger boys can reload at better levels. As such stops are heard to be sat into the 1.3750 area, with a quick slip through there seeing strong buyers having their bids filled into 1.3730/35. On the topside the 1.3800 level proves marginally key once again, but the real interest is at the 1.3830 level. Sellers ahead of it, but stops galore just above. A large one touch 1.3850 option with a $7mio payout rolls off today which could prove somewhat hypnotic to the owner and drag the currency. However getting there will be of limited success unless we’re trading around the 1.3815/20 close into expiry.

The Cable is playing the two step, and it looks like the market simply doesn’t want to believe the story of strength in the underlying economy , very eagerly looking to sell it on spikes higher. Could be a rather fatal mistake. On the downside 1.6350 and 1.6280 are the levels to keep an eye on, while topside there are some last minute stops to mind above 1.6425/30. Asian sovereign names were noted sellers above 1.6400 first thing this morning.

The AUDUSD has the capacity to squeeze shorts today, but only so far as the 0.9080/0.9100 area, where sellers will get the hands dirty once again. A break of 0.9000 will see model funds pile in once again looking for a push into 0.8900 and lower.

The USDJPY remains locked into option land with interest on strikes noted once again between the 102.50 and 103.50 levels. Sellers and buyers ahead of those levels in the spot market are present and happy to play the option gamma.

And finally, EURGBP. I think we continue to grind higher in the cross and while the pace of the moves will be anything but lightening fast, the directional bias seems intact for now. Having topped out at 0.8430 overnight, but only coming back marginally those overnight highs and beyond (0.8450/80) are in line with consolidation of the GPBUSD and overall demand for the EURUSD.

As always helmets on and good luck out there.

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