eFXplus DATA

• FX traders have been buying USD/JPY since late NY, through Asia into London

• EBS flow data shows bouts of decent buying which has taken the market higher

• 108.43 Fibo, a 50% retrace of the 112.40 to 104.46 down-leg, is in focus

• Despite the bid bias, bulls should beware the "cloud twist"

• Spot has seen a 108.03-108.37 range on Tues, according to prices on the EBS

• EUR/JPY's correlation with USD/JPY high, 30/60-day logs are +0.78/+0.73

Any deeper EUR/USD declines might pick up pace and the pair become more volatile, but probably not until it breaks 1.0900, option markets suggest.
They also suggest that risk is still low, for now.
DTCC charts, which show existing option positions between now and the end of October, are well stocked with some 150 billion euros in the 1.0900-1.1200 zone, the most likely near-term range.
However, between 108.00-50 in the same period are 17 billion euros, and below 1.0800 just 8 billion.
If option dealers saw a risk of steeper, more rapid declines, they would be forced to cover short positions below 1.0900, but no such price action has materialised.
Also, the cost to cover these strikes would rise, but right now, at least on a one-month expiry horizon, neither EUR puts nor calls carry an implied vol premium, according to risk reversals.
If the perceived risk of lower levels grows, so will demand and prices for EUR put options.

Price action in USD/JPY options suggests the market thinks it's near the limit of its topside potential.
Option dealers will usually cover any short positions in the direction of travel, which can provide clues on how far they think it will go.
Demand has been seen for strikes in the 108.00-50 zone recently but not much above, even though the pair is testing 108.50.
A few 109.00-50 strikes are trading, but supply has matched demand here, and they trade at an implied vol discount, suggesting they are less likely to be reached.
Risk reversals which show the implied vol premium for JPY calls over puts (downside over upside strikes) on a 1-month expiry, have become softer but hold a substantial 1.5 vol premium for JPY calls, which shows the market is still more concerned about a spot setback.
Near-term focus is Wednesday's U.S. Federal Reserve rate decision, with elevated short-dated vol premiums pricing the risk of increased spot volatility and risk reversals showing downside risk premium here, too.

• Bulls are trapped after Fri's failure to secure a close above 1.1088 Fibo

• 1.1088 Fibonacci level is the major 50% retrace of the 1.0926 to 1.1249 rise

• That led to the third biggest one-day fall of 2019 on Monday

• The underlying outlook has weakened significantly

• Risk grows for a deeper drop through the 2019 1.0926 low in coming sessions

• EUR/USD's failure above a key Fibo making bulls think twice

Adds currency RICs

• EUR/USD creeping lower. Volatility suppressed following ECB whip

• Pair fell as low as 1.0993 yesterday. Opened 1.1010 before ECB

• EUR/USD closed 1.1002, well below 21-DMA @ 1.1048

• 21-DMA now represents resistance within current 1.09-1.12 parameters

• 1.1088 is midpoint of Aug-Sep range 1.1250-1.0926, so neutral ground

• Large expiries 1.8bln 1.1000-30 may dictate trade close 1.1000 today

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• AUD/USD opened -0.22% at 0.6865 after trading at 0.6870 it drifted lower

• It was around 0.6855 when the Sep RBA Minutes were released

• RBA showed concern over consumption and construction activity nRUAHKEF6Q

• RBA seemed to be disappointed by lack of spending pick-up after tax refunds

• AUD/USD drifted down to 0.6841 and was around there into the afternoon

• A close below the 10-day MA @ 0.6851 would likely increase downward pressure

• More support at the 21-day MA around 0.6800 where buying is tipped

• Resistance is found at the 100-day MA around 0.6900 where sellers are camped

TD Research discusses EUR/USD outlook and adopts a neutral bias on a medium-term basis.

"The central banks have a narrow mandate to protect inflation and any whiff of lost confidence in their toolbox would undermine their credibility. As a result, they will push ahead whether necessary or reasonable. The Fed comes on the heels of a multi-pronged easing package by the ECB. Draghi's swan song increases the scope for fiscal support, given the ECB will continue to cap increases in sovereign yields," TD notes. 

"Our LFFV models anchor EURUSD in the low 1.20s and we still like it above forwards on a rolling 6m and 12m basis. However, a German led fiscal boost requires more pain to play, suggesting the EUR remains sidelined over the coming months," TD adds. 

• AUD/USD edged below 0.6850 in a muted reaction to the Sep RBA Minutes

• Minutes similar to Aug, but noted increasing downside risks to global growth

• Domestically RBA concerned over weak consumption & weak construction outlook

• On the positive side - rising home prices helping to support economy nRUAHKEF6Q

• Minutes confirm RBA's dovish bias and suggest the Oct meeting will be 'live'

• AUD/USD settling around 0.6850 little changed from before the Minutes

• Support @ 10-day MA @ 0.6851 and close below increases downward pressure

• EUR/USD settling around 1.1000 in a quiet start to the day

• Bids between 1.0980/90 eyed while option strikes noted around 1.1000

• Mix of stops and option strikes 1.0950/80 should keep price action sticky

• Resistance at the 10-day MA at 1.1034 and 21-day MA at 1.1047

• Strong support at double-bottom formed around 1.0825

• Range trading between 1.0950/1.1050 likely ahead of Fed meeting tomorrow

• Flat after closing off 0.6% - USD led, as EUR/GBP closed little changed

• Johnson talks up progress in Luxembourg Brexit talks nL5N26723A

• Luxembourg PM Bettel says Johnson offered no serious policy nL5N2674P0

• Boris is in election mode - sound bites for the voters, not negotiations

• Despite dip, momentum studies conflict, 5, 10 & 21 DMAs rise, positive setup

• Close below 1.2360 10 DMA, a base last week, would undermine topside bias

• NY 1.2399/1.2468 range is initial support/resistance - 1.2435 214M strikes

• AUD/USD opens only 0.22% lower despite a number of negative factors

• USD strength, 2.2% fall in copper & weak China data among the negatives

• AUD/USD underpinned by AUD/NZD demand and expected rise in LNG prices

• Support at 10-day MA at 0.6852 and break could increase downward pressure

• Resistance at 100-day MA at 0.6900 and break would reignite S/T trend higher

• RBA Minutes today shouldn't provide fresh insights, but will be a focus

Barclays Research discusses its expectations for this week's FOMC policy meeting on Wednesday.

"We expect the FOMC to deliver a 25bp cut to its policy rate in September, reducing the target range for the policy rate to 1.75-2.00%. We look for only minor changes relative to the July statement, with the committee reiterating that the baseline outlook still calls for sustained expansion and inflation near the symmetric 2% objective, but noting its decision to make another adjustment to its policy rate “in light of … global developments … and muted inflation pressures”.

We also expect similar forward guidance, retaining the committee’s pledge to “act as appropriate” as it contemplates future changes to the path of the funds rate. With measures of activity and inflation having played out broadly in line with expectations since June, and with fundamentals only slightly less supportive, on balance, we look for only minor changes to the median projections for inflation, unemployment and GDP in 2019 and 2020," Barclays projects. 

"We expect the dot plot to show no additional cuts to the policy rate through 2020 (on top of the two cuts we expect to be implemented through September), with four or five participants showing one additional cut this year or next, and policy rates returning to just below the median neutral rate (2.5) in 2021," Barclays adds. 

• Saudi oil facility attack keeps risk sentiment soured, US$ broadly bid

• Stocks, commodities, bond yields sink, safe haven yen gains, AUD/JPY falls

• AUD/USD falls in NY, nears 0.6840/50 support but slide stalls

• US$ bid fades, AUD/JPY bounces, AUD/USD nears 0.6865 late in the day

• Consolidation of recent gains persist, monthly doji suggests indecision

• Fed risk looms, AUD/USD longs need a dovish Fed for rally to resume

• US$ broadly bid, Saudi facility attack gives US$ some safe haven flows

• Trend line off June high limits the topside, second time in as many days

• EUR/USD slides below 10 & 21-DMA despite tighter DE-US yield spreads

• Monthly doji forming, monthly RSI rises, daily RSI falls,suggests indecision

• Investors unlikely to move pair aggressively before Wednesday's Fed meeting

• Fed cut expectations pared back FEDWATCH but 25bps cut very likely on Wed.

• If Fed takes a dovish stance US$ should sink & EUR/USD likely rallies

NAB Research discusses AUD/NZD technical outlook and maintains a bullish bias on a multi-weeks basis.

"Bullish weekly RSI breakout confirms last week’s close above 1.0720/40 as a material bullish MT uptrend confirmation...Weekly RSI has broken above its two-year downtrend, confirming an impulsive uptrend backed by the most positive MT momentum bias in two years," NAB notes. 

"While weekly closes remain above 1.0720/40 we anticipate price establishing a new (approximate) 1.08/1.10 range. The top of that range should be challenged in the coming weeks to months," NAB adds. 

The forward-looking nature of the options market can offer some useful insight into impending events, as it did before last week' European Central Bank decision .
Option dealers are primed for a pick-up in spot volatility from the Federal Reserve, as they were for the ECB, although it's expected to be a more subdued reaction by comparison.
There's less demand for shorter-dated expiry implied vols, and the risk premium being added to the contracts is a lot less than those seen pre-ECB, albeit still higher than the usual levels.
Implied vols along the rest of the curve have been marked down toward long term lows since the ECB, reinforcing the view that easier Fed policy is already priced in and unlikely to force any rapid directional moves in spot.
Risk reversals reinforce that - there is no implied vol premium for either EUR puts or calls (downside over upside strikes).
Some dealers erred toward further gains after the ECB , but those trades have petered out since.

UOB Research discusses USD/JPY technical outlook and adopts a tactical neutral bias in the near-term.

"USD/JPY eked out a fresh 1-1/2 month high of 108.26 last Friday (13 Sep) before ending the day little changed at 108.07 (-0.01%). However, USD gapped lower upon opening this morning on the back of news of drone attack on Saudi oil facilities," UOB notes. 

"While our 107.20 strong support is still intact, the price action has dented the upward momentum and the prospect for the rebound that started on 06 Sep (spot at 107.00) to extend to 108.50 has diminished. In order to revive the flagging momentum, USD has to move and stay above 108.25 within these few days or a break of 107.20 would not be surprising," UOB adds. 

MUFG Research discusses GBP outlook in light of the latest Brexit developments.

"The pound remains close to recent highs after cable hit an intra-day high of 1.2523 overnight and EUR/GBP fell to an intra-day low of 0.8856. The pound has now run into stronger technical resistance levels between 1.2500 to 1.2600 for cable where the July highs are located, and support at just below 0.8550 for EUR/GBP from the 200-day moving average. It should make further near-term gains more challenging for the pound after its recent sharp rebound," MUFG notes. 

"The pound continues to derive support from building optimism over the prospect of a last minute Brexit deal stemming from reports that the UK government is working on a type of Northern Ireland-only backstop to ease concerns over a hard border in Ireland ...However, we still believe there are major hurdles to a last minute deal...Evidence of progress on both fronts will be required for the pound to build on recent gains. If it proves elusive, the pound could quickly start to reverse course," MUFG adds. 

• Oil-exporter currencies, safe havens rally after Saudi attacks nL5N2671HS

• U.S. blames Iran for oil attack, Trump says 'locked and loaded'

• Dropped to 107.44 in Asia, then recovered to 107.93 in Ldn, according to EBS

• Bulls have scope to fill NY close/Asia open 108.10/107.60 gap

• But a break and daily close below cloud base, now at 107.19, will weaken

• EUR/JPY's correlation with USD/JPY high, 30/60-day logs are +0.77/+0.75

• Cable tests 1.2428 after extending south from 1.2515 (8-week high in Asia)

• 1.2428 was the pullback low from Friday's Ldn am high of 1.2475

• Drop from 1.2515 precedes Johnson/Juncker meeting re: Brexit nL5N2660WA

• Farage says Brexit will be delayed again when Johnson's deal falls

• See: nL5N2671BS. EUR/GBP up to 0.8902 vs 0.8851 low in Asia

• 0.8851 = lowest level since June 7 (0.8850 = GBP/EUR 1.13)