The FX world awaits with a twitch rather than a glimmer

A quiet session overnight once again in Asia, where perhaps the biggest news was in the form of much better terms of trade out of Australia, where the deficit came in significantly smaller than market consensus had it pegged as going into the print. Otherwise the Nikkei ticked up again, albeit modestly and in a case of tail wagging the dog, the JPY was also smalls weaker once again.

This morning sees final European constituent and composite PMI prints and as I type they’ve all come in marginally better. Following on from there we’ve got UK Industrial and Manufacturing production, and while the data out of the UK was subdued briefly in recent weeks (i.e. came in line with consensus as opposed to massively surprising to the good) after yesterday we seem to have had a return to much better prints. The cable is already moving higher in anticipation, however, the EURGBP is also on the move and to be honest more likely the culprit for recent Sterling strength. Model funds who sold the break of 0.8430 yesterday look for 0.8330 as their final target and they’re doing all they can to get us there.

Later in the afternoon we have almost insignificant data from North America in the form of Challenger job cuts and CAD building permits, neither is going to be a market mover.

Overall book squaring remains the name of the game and no one wants to put too much skin on the line heading into tomorrow and Friday. Interestingly option vol’s (volatility) is massively bid going into the end of the week which isn’t a huge surprise I suppose given the impending risk events, however they do look utterly nonsensical as compared to the 1 month tenors. For instance 2/3 day vol in EURUSD is trading around 17.5/18.0 while the 1 month is closer into 8/9…

For the record, I think Draghi will be less dovish and hence in this new normal world of ours be perceived as being hawkish, which will ruin many a bears party come tomorrow. Levels seen in EURUSD at the beginning of last week could very likely get another look in by close of play tomorrow. The Cable while better bid, will for the most part be driven by EURGBP in the very near term and of course the BoE tomorrow, which will have no choice but to appear a little more hawkish should they choose to release a statement.
I still like the idea of USDJPY lower, but for now its range bound and will wait to see what the NFP on Friday looks like before it makes its mind up.

Helmets on and good luck out there folks.