August 23, 2017
The Euro reversed much of yesterday’s declines following better than expected manufacturing data out of Germany and the Euro area. Meanwhile ECB President Draghi delivered a speech overnight which did not reference the currency in any way, providing Euro bullish traders with a reason to get excited. The common currency traded as high as 1.1808 and opens the NorAm session at 1.1804. In the options space, bullish bets in Euro continued to build with one month risk reversals trading comfortably above par. Option related offers are noted into 1.1850. Elsewhere the British Pound traded lower against the greenback, following below the 1.2800 handle for the first time in almost two months as news that the U.K. was softening its Brexit stance was interpreted as further weakening of May’s influence over the Tory party. The 1.2750 level is the initial downside target in Cable followed by 1.2635. Finally, the Dollar Spot Index opens lower on the day as Trump once again dominates headlines as he threatens to shut down the government over his Mexican border wall funding and suggests the US will likely terminate NAFTA. While nixing NAFTA would be decidedly negative for both Mexico and Canada, the Canadian Dollar took the headlines mostly in stride. The Mexican Peso however, led emerging market declines falling 0.83 percent to trade 17.83 against the Dollar on NAFTA headlines as well as data that showed the Mexican economy slowed in the second quarter.
While Canadian Dollar spot remains little changed at 1.2590 against the Greenback, Trump’s comment that he may elect to terminate NAFTA has kept USDCAD gamma bid in the options market. CAD volatility in general trades lower though one week gained ahead of the Jackson Hole Symposium. As always, keep an eye on oil markets today, especially ahead of EIA inventory data after API is said to report a 3.6m bbl drop in crude stocks. Topside resistance in the pair noted at 1.2610/15 while support doesn’t come in until 1.2525/50. No significant options expiries of note today and the North American data calendar remains US-centric with Manufacturing PMI at 9:45am and New Home Sales at 10am. The Fed’s Kaplan speaks in Texas at 1:05pm.