Good morning. Overnight trading had its share of excitement specifically in the Nikkei which had one of its most volatile sessions of the year opening close to fresh multi-year highs before falling over 3%. The move put a nice bid into the JPY which rallied vs. the USD as well as most other global currencies. European equities were also lower for the fourth day in a row which added to a nice bid to other safe-havens like the CHF as well as gold. The EUR, which was mostly unchanged during Asian hours, took off to the upside after the ECB’s Economic Bulletin came out highlighting the strength of European growth as well as the prospects for a move in the positive direction for inflation. The news, although not necessarily new, helped take the EUR back above the 1.1600 level up to 1.1640 where it sits as we start our day. Our guess is that the move in the JPY has more room to go but the EUR is at a good area for a fade. Volatility levels also picked up a bit overnight thanks to the relatively decent price action as well as the fact that we are at some extremely low levels in Vol. As discussed yesterday, we like being long some gamma in the EUR and GBP via 1 mo straddles which we feel are at attractive levels. In respect to our day, there really is not a lot on tap with only Jobless Claims out of the US and HPI out of Canada. We do get the Banxico meeting later this afternoon which could be interesting for all of you who position in the Peso.
Entry Target Stop
Short EURUSD 1.1800 1.1450 1.1900
Short EURCHF 1.1640 1.1450 1.1710
Buy a 1mo EURUSD Straddle 150pips 250pips N/A 1.1600 straddle 12/8
Buy a 1mo GBPUSD Straddle 200pips 400pips N/A 1.3100 straddle 12/8
*noteworthy flows we heard from our counterparties
Chart of the Day:
Nikkei Futures Daily
As you can see from the chart below overnight price action produces a bearish reversal
bar in the Nikkei at a relatively overbought level based on the RSI’s.