• Mike Paterson

Yen supply notable amid variable risk tones

Friday 28 May 2021

I often warn not to get complacent in Forex markets and yesterday was a perfect example of a decent shake-up as firmer risk sentiment combined with adjudged hawkish BOE tones and renewed JPY supply to send GBPJPY sharply higher putting a firm bid under core pairs too as USDJPY broke up through 109.30-50.The shadow of another wobble in Bitcoin though adds to the general market uncertainty.

The danger of tight-range trading is the tendency to lose discipline and think that prices will just drift back into previous ranges and then realise that they're not... Those who have 1-2-1 sessions with me know how keen I am to stress the importance of maintaining discipline and therefore appropriate stop-loss plays in these scenarios.

Citi's latest estimate of May’s month-end FX hedge rebalancing needs points to "roughly balanced flows in USD crosses".Their initial estimate predicted marginal USD buying based on under-performance of US assets, particularly equities and we witnessed some of that on Wednesday as we traded the EOM Spot date but since then US equities and bonds have gained and weakened the signal.

Jury on the Greenback still out so ignore the noise and, as always in these fickle times, be careful with your trading. Pick your preferred entry/exit levels and don't be greedy or over-analyze. Patience and discipline are key too of course,as highglighted perfectly by those post-FOMC moves yesterday.

GBPUSD: Those decent bids/support at 1.4080-85 duly provided a good base and once we were back above 1.4150 the pair needed little excuse to test 1.4200-20 again amid the GBPJPY demand and EURGBP supply.I remain a rally seller but respecting the dip demand.Large option interest at 1.4200 today.EURGBP: I warned again yesterday that sellers were poised still and the Vlieghe comments saw a sharp test of 0.8600 but once again 0.8580-85 holding so far.GBPJPY: The prime mover yesterday per my opening comments above and tweets yesterday. Can the move be sustained? Looks underpinned now. Large options interest on both core pairs in play too.

I remain a GBP rally seller across the pairs but still not getting over greedy with expectation on the retreats. Comments from BOE Vlieghe yesterday were deemed hawkish but I'm not so sure, and he's not around on the MPC from August anyhow as he himself pointed out.

EURUSD: A good hold of 1.2170 this time helped by the general EUR dip demand, EURJPY buying and large option Put interest today in play. USDJPY: Finally broke up through 109.20-30 and then triggering stops through 109.50 to test 110.00 as the JPY supply accelerated with stops triggered on that pair too. Large option interest at 110.00 today

EURJPY: 132.80-00 duly proved a decent base and sellers at 133.30-50 knocked out as the pair rallied to test 134.00 amid the core pair dip demand and general JPY supply.USDCHF: Holding 0.8960 as EURUSD caps again and with SNB ever vigilant/helpful but equally sellers above 0.9000 as EURUSD finds dip demand too. I prefer to buy dips but good two-way business still.EURCHF: Capped into 1.0960 now but some general EUR dip demand and SNB shadow keeping it underpinned now at 109.30.

AUDUSD: Tightly bound with some USD buy interest keeping it capped but equally underpinned at 0.7700-20 by AUDJPY demand in the latest retreat from 0.7760. A few options in play at 0.7750.USDCAD: Holding 1.2060 still and now testing 1.2100 but rallies being tempered by CADJPY demand.Some decent option interest in play again today.

Let's continue to be careful out there in all things. Staying safe must be our main priority still. Have a good weekend everyone.

Interbank rates: 08.48 BST

GBPUSD 1.4190

EURUSD 1.2195

EURGBP 0.8595

GBPEUR 1.1639

GBPAUD 1.8362

GBPCAD 1.7147

GBPJPY 155.88

GBPZAR 19.6085

GBPHKD 11.0015

USDJPY 109.82

USDZAR 13.8277

EURJPY 133.92

EURCHF 1.0950

EURHKD 9.4515

AUDUSD 0.7731

USDCAD 1.2078

USDCHF 0.8977

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