Jan 23. FX adjustments continue; look for DXY 95.86

–The big move yesterday related to the ECB meeting was, of course, in the currency, where the euro fell from 116 to a low of 113.16 vs USD, and this morning at 112.40, while EURJPY was down 240 to 134.56, just barely holding the spike low from Oct 16 at 134.14…and this morning well through at 133.  Canada also continued its decline vs USD, late at 123.92 and above 124 this morning, as the market continues to adjust to Canada’s rate cut.

–The dollar index made another new high yesterday, at 94.50…last July it was 80 and has traded higher ever since, a rally of 18% in six months.  US goods are becoming more expensive on world markets, which makes it tough on US exporters.  Conversely of course, the US benefits from cheaper imports, which adds to deflation fears.  The strength of the USD causes huge foreign demand for longer dated US assets, whether stocks or bonds…an 18% move in the currency is a comforting cushion against possible price losses in underlying assets.  At this point, the boat might be close to tipping, the risk of the “crowded trade”, but I would think the dollar index will at least test 95.86, the 50% retracement of DXY from the high of 121.00 in 2001 to the low of 70.70 in 2008.

–In US interest rates, tens gained 4.4 bps yesterday to 189.5, and the curve was slightly steeper, for example red/gold eurodollar pack spread was up 2.25bps to 119.5.  Implied vol was hit throughout the day, with TYH straddle starting the session at 1’58 and closing at 1’50.  February treasury options expire today, and this expiration is more exciting than most, with the TY Feb 129 straddle having closed at 26/64’s vs 129-04s, and futures last trading 129-23, or 46/64’s intrinsic.  It hasn’t been a particularly fun ride for the guys that are consistent premium sellers, as one market after another is roiled by huge discontinuous moves.

–Today’s news includes PMI expected 54.0, Existing Home Sales 5.05m and Leading Indicators at +0.4.


Dollar index

Posted on January 23, 2015 at 5:26 am by alexmanzara · Permalink
In: Eurodollar Options

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