Date: 22 May 2018

Perhaps Monday’s concentration of expiries in EURUSD at 1.1760 did exert a magnetic attraction but, either way, the capacity of the euro to ignore higher yields on Italian government bonds was noteworthy. That tenacity has spilled over into the European session on Tuesday but it’s hard to judge whether the move above 1.18 has been primarily a function of euro strength or USD weakness. Certainly there’s an argument that overnight comments from Fed Governors Bostic and Harker (the first an FOMC voter this year, the second a non-voter) lend themselves to a narrative that sees the Fed continuing to tighten gradually but to do so while tolerating a degree of inflation overshoot on the topside in the same way as forebearance toward prior undershoots was also evident in recent years.

Yet USDJPY still hovers around 111.00, leaving EURJPY up around 131.00. Traders might conclude that the cross’ price action suggests EURUSD is currently being driven more by euro demand than USD weakness. On EURJPY chartists, as are analysts at IFR, may be keeping one eye on the present 55-day moving average at 131.26. IFR has also flagged up a number of significant expiries today in EURUSD. Whether traders are euro bulls or bears, they may find it useful to know that IFR have identified, for today’s London cut at 1500h UK time, some 400 million euros of strikes at 1.1800, with 1.1 billion at 1.1850, almost 700 million at 1.1870-75 and almost 1.7 yards at 1.1895-00. On the downside there’s talk of some 850 million euros of xxx at 1.1785 and some 750 million at 1.1750-60.

Written by Neal Kimberley, External Currency Analyst.