Citi

European Open

A seemingly quiet day in markets, there were developments under the surface. USD was mixed against the G10. UST was flat during the Asian hours after a large sell-off in the NY session. Aussie rates saw a catch-up to the move, with 10yr yields up by as much as 11bps. KRW rates have jumped another 5-6bps across the long-end curve helped by the treasury yields as well. JPY was down -0.42%, with USDJPY hitting the highest levels since January 2017. CNH was little moved on Caixin manufacturing PMI data, although we note that PBoC has drained a significant amount of the year-end liquidity in OMO today.

Top of mind

USD was flat through the Asian morning and was mixed against the G10 complex. USTs were seen to be flat as well. Our trader Hideyuki Liu notes the following for the treasury markets:

–An active trading session to welcome the New Year for Tokyo that saw treasuries see a brief rally in the morning as the region initially looked to dip buy after a tremendous sell-off in the NY session yesterday. Once the initial market rally wore off however, desk saw better selling in 7y to 10y from RM accounts causing a quick retracement back near yesterday's NY lows. No real test lower was made however, with RM buying in long-end helped stabilize prices. Overall the session was an active one, with good two-way flow in the long-end, and leveraged names better biased to curve steepeners in opposition to RM that were biased to flattener trades.

CIBC

Key Headlines

  • USD advances against the Japanese YEN, I suspect there were stop buy orders beyond 115.50, when that broke, very quick price action to 115.62. A well-known tech guy pointed out the strong resistance near 115.50, selling there with tight stop above 115.85. I don’t agree with that, however, I am not a good tech guy.
  • There was a big move in CNH points this morning, 1-year DF fell from open 1390 to under 1350. No news whatsoever, obviously people pointed to higher US rates overnight. Points stayed around 1355, still way below the opening level.
  • Small $YEN bought over the Tokyo fix, two Japanese megabanks fixed the rate at 115.44, session’s high. Chatter is that offers are scattered above, some are linked to option gamma play linked to $1.85bn worth of 115.50 USD calls maturing this week. I believe it is just a matter of time before we deplete the supply. I read from one well-known tech guy who pointed out the $YEN resistance near 115.50, selling there with tight stop above 115.85.

FX Flows

For short-term, it is probably a good bet but I believe this is still a buy dips. Japanese importers for sure, had their options knocked-out, will be buying the dips. Also, Japanese retail day traders have been adding to short positions will also take profit on dips. $YEN rose above 115.60 in the late morning, think stops were taken out above 115.50.