OPTIONS: Asia-Pac Currencies Sees Surge in Downside Hedging Interest
- Notable FX options volumes crossing so far today, with USD/CNY and USD/JPY markets seeing activity well ahead of average for this time of day. Implied vols are generally bid across G10, with front-end of the USD/JPY vol curve now erasing the late July drift to show back above 12 points.
- Asia-Pac currencies (particularly those regionally exposed to Pelosi’s potential visit to Taiwan) are seeing an uptick in downside interest, with short-end risk reversals across both USD/CNY and USD/TWD rallying in recent sessions. USD/TWD 1m risk reversals now clear 1.50 points, rising at the fastest rate since the Russian invasion of Ukraine in February.
- As a result, USD/CNY has seen a surge in call buying this morning, with $3.50 in calls trading for every $1 in puts so far via the DTCC. 6.85 and 7.00 calls see the majority of the interest, with over $1bln notional wagered at each strike today alone.
- In USD/JPY, 133.00 call strikes have been a particular focus, while trade Y130 put strikes may suggest vol-hedging is a dominant theme in trade so far today. Some of the larger structures crossing on the DTCC are consistent with a sizeable 133/136 strangle trading in early US hours, as well as 129.60 straddles and a 120.10/140.45 strangle that traded in late Asia hours – both of which expire on November 1st – the day before the November FOMC rate decision.
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JGB TECHS: (U2) Solid Bounce Into the Close
- RES 3: 151.13 - High Mar 3
- RES 2: 150.44 - High Mar 14
- RES 1: 150.14 - High Apr 1 and key resistance
- PRICE: 149.30 @ 16:43 BST Jul 1
- SUP 1: 147.15 - Low Jun 14
- SUP 2: 147.08 - 3.0% Lower Bollinger Band
- SUP 3: 146.82 - Low Jul 14 2015
JGBs extended the near-term corrective bounce into the Friday close, persisting with the recovery off last week’s lows. The broader outlook, however, remains negative after JGB futures showed below the 1.0% 10-dma envelope for the first time since the depths of the COVID-19 crisis, touching 147.15 on the pull lower. The next downside level crosses at 147.08, the 3.0% lower Bollinger Band ahead of 146.82 - the low from July 14th 2015.
USDCAD TECHS: Bullish Price Structure
- RES 4: 1.3192 1.00 proj of the Apr 5 - May 12 - Jun 8 price swing
- RES 3: 1.3113 High Nov 23 2020
- RES 2: 1.3079 High May 17 and a bull trigger
- RES 1: 1.3017 High Jun 23
- PRICE: 1.2918 @ 16:59 BST Jul 1
- SUP 1: 1.2819/2807 Low Jun 28 / 50-day EMA
- SUP 2: 1.2732 61.8% retracement of the Jun 8 - 17 rally
- SUP 3: 1.2681 Low Jun 10
- SUP 4: 1.2518 Low Jun 8 and key support
USDCAD outlook remains bullish and the pair is trading above this week’s low. The recent corrective cycle appears to have stalled at Tuesday’s low of 1.2819. Looking at Japanese candle patterns, Tuesday is a doji pattern and this points to a short-term bullish reversal. A stronger recovery would refocus attention on resistance at 1.3079 the Jun 17 and a bull trigger. Firm support lies at 1.2807, the 50-day EMA.
AUDUSD TECHS: Clears Key Support
- RES 4: 0.7202 High Jun 9
- RES 3: 0.7138 High Jun 10
- RES 2: 0.7069 High Jun 16 and a key short-term resistance
- RES 1: 0.6979 20-day EMA
- PRICE: 0.6794 @ 16:56 BST Jul 1
- SUP 1: 0.6764 Low Jul 1
- SUP 2: 0.6759, 50.0% retracement of the Mar ‘20 - Feb ‘ 21 bull cycle
- SUP 3: 0.6685 High Mar 9 2020
- SUP 4: 0.6647 0.764 proj of the Apr 5 - May 12 - Jun 3 price swing
AUDUSD is softer and the pair has traded below its key short-term support at 0.6829, the May 12 low. The break of this support confirms a resumption of the downtrend that started in February 2021 and maintains a broader bearish price sequence of lower lows and lower highs. The move lower signals scope for weakness towards 0.6759, the 50.0% retracement of the Mar ‘20 - Feb ‘ 21 bull cycle.
