Another week in FX has seen EUR/USD – the primary focus – taking another leg lower as central bank policy divergence points only one way for the lead pairing. Soon after the last ECB meeting, the market was already talking on parity, but along with the speed of losses seen, the emergence of exotic out-strikes at 1.0600 and 1.0500 (much larger) have contained the rot for now. 1.0617 is the latest multi-month low recorded on Thursday, but many expect an eventual push through the 1.0456 low seen in March.
Looking ahead though, US Thanksgiving gives the market an opportunity to ease off the USD accelerator. This has already been ‘exercised’ against the AUD and NZD, with the former seeing a reversal through .7225-30 as we failed to generate any momentum for 0.7000. Extending through to .6430, the NZD/USD squeeze saw it tipping .6600 in the not-too-long aftermath, but only after the NZ dairy auctions resulting in another 7%+ drop in the index.
It was also interesting to see the options market selling topside USD/JPY beyond the 1m date. Plenty of exotic exposure from 124.00 sees the short date selling all down to decay covering, but with so many in the market now ‘expecting’ to see 125.00, are we now facing a potential race for the exit door? Fundamentally, no one can argue against a stronger USD - medium term - but closer in, exporter selling may be starting to outweigh any fresh spec buying/flow.
GBP continues to look a touch undervalued, though perhaps not enough to validate a strong turnaround from current levels. Against the EUR we have broken the key .7000 mark, but corporate hedging will stagger the downside from here. Cable still looks fair value at 1.5500, and dominant exotic range plays using 1.5000-1.6000 limits back this up.
Data highlights next week see the second GDP readings in both the US and the UK, and the former is widely expected to be revised up 0.5% to 2.0% from the initial reading. Minor adjustments at best to EU wide flash PMIs, with the German IFO survey headlining on Tuesday. EU money supply (often ignored) is also due. Norwegian employment stats and oil investment survey also stand out given the (modest) NOK revival.