Trader thoughts - EUR finding few friends and breaking key levels

That puts GBP and USD traders on notice, but the flow today has centred on gold and EUR, with some interest in GBP and NAS100 too.

Tesla is dragging US equity indices lower, with its third consecutive day of falls and is pulling below last week’s low of $987 – personally think the 50-day MA comes into play, just shy of $900, where it wouldn’t surprise to see better support kick in. As mentioned before, Tesla is a momentum vehicle and needs strength to keep the bullish options flow going, where dealers hedge by buying the underlying. I’d argue the opposite is true now, in fact, the most active option today by volume on the day are the 19 Nov 900 strike puts.

In a news light session, with perhaps some focus falling on the meeting between Xi and Biden, it's really been Nat Gas (+5%) and the EUR that has jumped out. The EUR captures my full attention though. I can bang the fundamental drum once again on central bank divergence and we’ve seen yield differentials working in favour of the USD – but the crux of what we’re seeing is simple price action and flow, taking EURUSD to new cycle lows.

Intra-day, we broke Friday’s low of 1.1433 and it was all down from there, with reports of stops triggered into and below the 1.14 figure.

Clients are net-long EURUSD here and sensing the move is perhaps due a bout of short-covering, or even reversion to some sort of mean – looking at leveraged funds (in the weekly TFF report) we see shorts have covered a touch recently but are still running a reasonably short EUR futures position of -41k contracts. I wouldn’t say that is extreme though.

EURAUD has perhaps seen the biggest percentage move in the major FX space, breaking 1.55, with AUDUSD pushing back to the 50-day MA – Shorts in AUDUSD look interesting here with stops above 0.7390. I think we re-test the lows of 0.7276.

EURCAD daily

(Source: TradingView - Past performance is not indicative of future performance.)

EURCAD is also one to focus on as that has fallen 0.8% and has broken below its consolidation range of 1.4450 to 1.4300 – that could be the chart to watch for a retest to confirm the pair is to establish a new range lower. I don’t mind the CAD from a tactical perspective and I’d definitely be watching tomorrow’s Canadian CPI print (00:30 AEDT), where headline inflation is expected to increase to 4.7% YoY. The market looks for hikes from the Bank of Canada in March, but hot numbers here and January could become the base case (they have no meeting in February).

EURCHF and weekly change in Swiss sight deposits

(Source: TradingView - Past performance is not indicative of future performance.)

EURCHF is another that has broken the recent consolidation low of 1.0526 and eyes the 2020 low of 1.0505. We saw the weekly Swiss sight deposit data out yesterday and that was little changed, showing minimal intervention from the SNB in the FX markets to sell the CHF. Naturally, the SNB doesn’t want to fall foul of the US Treasury currency manipulation report and we’ve also seen signs of a more cyclical switch in the CHF – with relatively higher levels of inflation in Switzerland – but as we’ve seen, sight deposits have not yet increased significantly, and this is our best proxy of whether the SNB is intervening and selling CHF.

Now, this is not Jan 2015 (when the SNB removed the 1.2000 floor) and the volatility markets are low are telling us they don’t expect an explosive move in the CHF. However, it does feel like the stage is raised for the SNB to start intervening. The next read in Swiss sight deposits will be Monday (20:00 AEDT) and while we’ll presumably see support in the price action itself, we’re at levels now both in EURCHF and the CHF NEER (nominal effective exchange rate) that suggest the tolerance for a stronger CHF is at a tipping point.

It certainly feels highly likely that should it get there we’ll see some real interest to support 1.0500.