Archives of “July 20, 2020” day

rss

What to look out for in the week ahead?

  
Analysis, Forex
#  #  #  #  #  #  #

As we turn to UK/EU trade moves in FX markets been a rather quiet affair despite the EU Summit having given us little to work with.

I have no firm intel on when we get full confirmation and the outcome but we’re now heading into the fourth day of the marathon talks, but at this point it appears we’re getting closer to a deal, with the level of grants the key sticking point and rumoured to be around E390b.

EUR implied volatility (vol) has been rising of late, as we can see this in the weekly implied volatility scan, with EURUSD 1-week vol pushing into the 32nd percentile of the 12-month range.

This puts EURUSD in an expected range this week of 1.1523 to 1.1303, with a 68% level of confidence. Once again last weeks implied move/range offered a solid guide for mean reversion traders, or those just looking to manage risk more effectively.

(Weekly vol matrix – snapshot from Friday’s close)

PS2
Traders were net buyers of the single currency on Friday into the EU Council meeting, with EURUSD testing 1.1447 – a level I’ve marked as core to markets – a weekly close through here could hold huge implications for global markets and take the USDX through 95.78.

EURGBP is also getting some good interest, with price having pushed into 0.9134 before finding good supply – I have this on this cross on the radar as the buyers are back in control here and we have Fridays high in our sights. A break of 0.134 would be clearly bullish.

Options traders extremely neutral on gold moves

Gold is on the radar too, with the USD firmly at the centre of the thought-process today.

Moves today should be sanguine, and if I look at the options markets I see 1-week implied volatility falling to a 7 vol discount to 1-year vol – the lowest since 2013 – showing a belief that near-term moves in gold will be incredibly subdued and a grind. I also see 1-week risk reversals at 0.56, and 1-month risk reversals at 1.015 – effectively, the options markets is about as neutral on the metal as I have seen in some time – a move through 1813, and into new cycle highs, possibly changes that dynamic and see traders looking for a more explosive move in price.

PS3

Still upbeat on equities but fiscal debates offer new challenges

On the index side, the weekly chart of US500 looks constructive, and despite earnings season ramping up this week, the feel the technical side is suggestive of further upside. The risk for the market this week is on the fiscal side and equities could be sensitive to the news flow and one suspects it will not be smooth sailing.

Staying in the vol space and we see equity vol headed lower, with the cash VIX -2.3 vols on Friday and into 25.68% – closing below its 200-day MA, which is something it failed to do throughout the various tests in June. Our VIX index tracks the VIX futures and is approaching the June lows – one to watch as lower equity vol is saying we’re moving into the US summer doldrums and is having an effect in FX markets. (more…)

EU hardliners reportedly ready to accept €390 billion in grants on recovery fund

  
  Analysis

Bloomberg reports with the headline, citing an official familiar with the matter

This ties to the latest proposal of a split between €390 billion in grants and €360 billion in loans as reported earlier here.
Again, for those catching up, negotiations are set to extend to a fourth straight day later at 1400 GMT. But as has always been the case, European leaders won’t push the limits of any meeting unless they are confident of reaching some form of compromise.
The continued push back by the “frugals” are largely seen as a grandstanding to appease their own domestic crowd so it looks like they are ready to move on now.

The headline is giving a mild nudge higher to the euro as we look towards the start of European morning trade later. EUR/USD moved up from 1.1430 to 1.1442 currently.

Japan trade balance for June Y -268.8bn (expected Y -11.9bn)

  
Analysis, Economy
#  #  #  #  #  #  #

Japanese data, exports worse than expected, imports fall lower than expected leading to a blow out on the deficit for the month

Japan trade balance for June Y -268.8bn

  • expected Y -11.9bn, prior Y -838.2bn

Trade balance adjusted Y -423.9bn

  • expected Y -331.1bn, prior Y -601.0bn

Exports -26.2% y/y

  • expected -24.7% y/y, prior -28.3%

Imports -14.4% y/y

  • expected -17.6% y/y, prior -26.2%
Japan is an export powerhouse, this miss on exports is suggestive of a global economy in even worse shape than may have been thought.

EU summit – one of the ‘frugals’ appear ready to accept a deal

  
  Analysis
#  #  #  #  #  #

Denmark reportedly ready to accept 400bn EUR in grants. Headline via Bloomberg.

Denmark is one of the frugal that were earlier holding out for 350bn EUR in grants. The full package is 750bn EUR, so that would leave 400bn in loans. Denmark is reportedly ready to accept 400bn in grants and 350bn in loans.
The frugals are:
  • Netherlands,
  • Austria,
  • Denmark
  • and Sweden
This is a positive input for EUR … deal edging closer. No word from the other 3 as yet though. And the deal would need agreement of all 27 EU leaders.

Oil to trade flat to lower through to the end of 2020

  
  Crude
#  #  #  #  #  #

View for the balance of H2 from Rabobank, this in brief (bolding mine):

enormous stockpile of drilled but uncompleted wells (DUCs) amassed in the Permian Basin over the last number of years …  the latest figures showing an impressive 3,488 DUCs waiting to be tapped. In fact, nowhere else in the world that we know of holds such a vast stockpile of drilled wells that have yet to be completed. This is a huge buffer for crude oil supplies that can be called upon to meet demand needs for months and even years to come and this is in addition to the record amount of crude stockpiles sitting in onshore tanks and offshore tankers.
  • oil market still struggling to clear the massive surge of Saudi exports that resulted from the short-lived price and market share war back in April
  • data … shows a massive spike in Saudi oil exports to the US that have come onshore over the past six to eight weeks. In fact, there is still a large amount of crude oil on the water that is waiting to be cleared.
  • We continue to see limited upside to both flat price and calendar spreads as a result of fundamental and quantitative market pressures. As such, it would not surprise us to see a washout of the out-sized speculative “longs” that have built up in crude oil futures in recent months and specifically in WTI as retail investors continue to flee the space in droves. 
  • On the flip side though, we still expect any major dips in crude to be bought as oil still looks attractive on a relative basis to other asset classes and especially given the amount of stimulus flushing through financial markets, a dynamic we expect to remain in place for the foreseeable future.
View for the balance of H2 from Rabobank, this in brief (bolding mine):
Go to top