Date: 29 May 2018

Political developments in Italy continue to exercise a broader influence on markets. In the currency space EURUSD traded heavy in a holiday-thinned Monday market but didn’t then breach barrier options at 1.1600. Traders might reasonably wonder if a test of last November’s 1.1553 low is in the offing with the 1.1600 having been broken in Europe this morning. But traders may also be mindful of the existence of substantive 1.1650 expiries on Tuesday (1500h UK time) which could yet exercise a degree of magnetic attraction. IFR have estimated there are 2.1 billion euros of expiries at that level today.  Elsewhere, the sell off in Italian government bonds on Monday might, at the margin, help explain the move lower in benchmark US yields with US Treasuries perhaps attracting something of a safe haven bid. In turn that drift lower in the 10-year US Treasury to sub-2.9 per cent perhaps lent itself to a stronger yen with USDJPY edging down to the 109.00 area in the Tokyo session today.

In that vein traders will also have noted that with today’s spot value being month-end there might have been expected to be some net JPY demand in Asia as Japanese exporters completed their hedging requirements for May. Either way the combined price action of EURUSD and USDJPY has weighed on EURJPY, reinforcing to some degree the notion of the yen as an additional safe haven against euro woes. But again traders may wish to be mindful of the fact that IFR have identified almost 1.7 billion US dollars of expiries today in USDJPY at 108.80-109.05.

Written by Neal Kimberley, External Currency Analyst.