HUNGARY: EUR/HUF Extends Bounce from Recent Cycle Low
The bounce in EUR/HUF off its recent cycle low has extended despite a continued uptick in global equities and softer greenback indicative of the broader improvement in market sentiment pre-Fed. The forint sits close to the bottom of the EM pile, with PLN/HUF a notable 1% higher on the day, putting the cross at its highest since May 24. Nevertheless, EUR/HUF trend conditions remain technically bearish, with resistance at 373.55, the 50-day EMA, unchallenged for now.
- Looking ahead, the FOMC rate decision today and ECB rate decision tomorrow are the key risk events while the NBH decision takes focus next week, with further easing of the Bank’s 17% effective rate expected. Despite the narrowing rate differentials, sell-side desks note that the rally in HUF may still have some room left to run as the HUF carry profile remains relatively attractive, for now. As such, the sell-side more broadly continue to view near-term HUF weakness as corrective in nature.
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CANADA: Modest Underperformance As Begin To Near June Extension
- GoCs are slightly off lows but still underperform Tsys shortly after the open, most pronounced in the 10Y with yields +4.7bps vs +2.4bps for Tsys.
- RBC on early June extension: “For this year, we estimate a combined duration extension of 0.108 on June 1/2, compared to a range of 0.121 to 0.163 over the previous four years (last year at 0.134). CA/US bond spreads typically tighten 2-5bp in the three weeks leading into the extension, with this most pronounced for 30’s. This means CA/US boxes flatten into the extension as well, though their already flat level may limit extension-related moves in the coming weeks.”
- Ahead: Housing starts for Apr land first today at 0815ET with a small bounce forecast after March’s -11%, continuing a recent run of volatility. We also see wholesale trade and existing home sales but greater domestic focus will be on CPI tomorrow.
OPTIONS: Larger FX Option Pipeline
- EUR/USD: May18 $1.0810(E1.1bln), $1.0935-45(E1.9bln)
- USD/JPY: May17 Y134.50($2.1bln); May18 Y133.40-60($1.4bln)
- AUD/USD: May16 $0.6700-10(A$1.2bln)
- USD/CAD: May17 C$1.3400($1.0bln), C$1.3450($1.2bln)
STIR: Goldman: ECB Front-End Broadly In The Right Place
Goldman Sachs note that “ECB commentary over the last week has been hawkish on balance, with some Governing Council members discussing the possibility of hikes beyond the July meeting. We think these comments are unlikely to catalyze a large repricing so far out from the September meeting (or beyond), especially given the implicit 25bp per meeting speed limit on policy tightening following the ECB’s forgoing of a 50bp hike in May. As a result, the rate path beyond the next meeting will hinge on incoming activity and price data, and the passage of time rather than soft policy guidance in our view. With the market still focused on U.S. banking issues, we think the combination of sticky European inflation and a hawkish ECB will see the European front-end continue to flatten, in particular 1y1y vs 1y rates.”
