There are a couple of key expiry levels to take note of on the day, as highlighted in bold below.
The first ones are for EUR/USD with the expiries layered at the 1.1195 to 1.1200 region. The strikes are holding within 30 pips of the spot price and together, they are quite chunky in size. As such, the combined €4.3 billion in expiries could exert some pull towards the 1.1200 region heading into the cut. Or if anything else, they might also help reinforce the area as an intraday focal point.
Having said that, broader euro and dollar sentiment will still take precedence alongside what else is happening with the bond market of course.
The euro has its own set of problems with the France-Germany 10-year yield spread hitting 1.52% yesterday, its highest since 2012. That hasn’t reverberated all too strongly yet but will continue to be a key risk factor for the single currency this week.
Meanwhile, dollar sentiment is still very much tied to what is happening in the bond market. And for now, Treasury yields are not up to much so that is affording broader markets a bit more of breather in the first half of the week at least.
Besides the expiries for EUR/USD, there is also one for USD/JPY at the 158.00 level – less than 10 pips away from the spot price. The expiry level here could keep price action more contained in acting as a bit of a magnet ahead of the cut. That is especially the case as USD/JPY price action shows that the pair has been weaving in and around the 158.00 level for more than two weeks already.
Any upside momentum in the pair remains more limited closer to the 200-day moving average at 158.57, so that will also be a key technical consideration for now.
But as a reminder, options-related flows can influence short-term price action rather than necessarily dictate direction. And that is especially the case when there are broader fundamental drivers are in play, such as what we’re seeing in the current market landscape. Dollar sentiment, the overall risk mood, and the bond market are all key drivers that should likely have a bigger say on price action at the moment.
For more information on how to use this data, you may refer to this post here and/or refer to the Q&A below.
This article was written by Justin Low at investinglive.com.