Most of the FX market action took place ahead of the N.Y. open on Friday, though there were still some wild swings in the aftermath of the Brexit vote. After posting a staggering 1.5017 to 1.3230 range overnight, cable traded inside a relatively narrow 1.3837 and 1.3563 range during N.Y. hours, which prior to Thursday, would have been a fairly frantic session. Short covering stepped in ahead of the weekend, which took the pound to its peak, though the sell-off is not likely done just yet. Next week is expected to result in more orderly trade, though with no idea of how the mechanisms of how Brexit will actually work, the 1.2500 level sounds like a good initial cable target. Elsewhere, EUR-USD largely followed sterling around, though inside a much narrower trading range, topping at 1.1180 after opening near 1.1035. USD-JPY was surprisingly static, finding support at 102.00, while topping under 102.80. USD-CAD cam out of the clouds, falling back to just under 1.2900, after peaking at 1.3099 overnight.
EUR-USD moved to session highs after opening near 1.1035, rallying to 1.1180 after basing at 1.0912 overnight. The euro appeared to be following cable’s lead, which has rallied better than 200 points from session lows of 1.3560. Short covering into the weekend was the main driver, when new U.K/EU developments as to timing and detail of how Brexit will actually unfold could come to light.
USD-JPY ranged between 102.05 and 102.77 through the N.Y. session, staying surprisingly flat, as Cable and EUR-USD flew around, and downright calm relative to its intra day range of 106.83 and 99.00 seen overnight. Intervention was suspected Thursday night to drive the yen lower, and once the pairing reclaimed 102 in early London, it remained above that level ever since. The current risk-off backdrop has kept pressure on the pairing, but the lack of downside follow through has some thinking “official” bidding interest could be lurking at 102.00.
Cable bids at 1.3650 were reportedly in place early in the session, with rumors circulating the buyer may be the BoE, in an attempt to smooth price action. Indeed the pairing tested the level on numerous occasions, only to bounce quickly over 1.3700. Late, Cable quickly and inexplicably fell 150 points to 1.3595 from 1.3750, bounced to 1.3650, and is now down testing N.Y. session lows again. Liquidity was brutally thin, and as a result, the pairing is likely to react sharply to one-off orders, which will likely be commonplace in the coming days, as global entities determine the fate of their U.K. holdings. Rumors of BoE “smoothing operations” continue, with perhaps the next support area coming at plus-or-minus 1.3600.
The SNB intervened in EUR-CHF, propping the cross initially over 1.0800 after earlier logging a 10-month low at 1.0623. The central bank stated that it has “intervened in the foreign exchange market to stabilise the situation and will remain active in that market.” Friday N.Y. trade saw the pairing retreat back to 1.0731 lows. The SNB said last week after its quarterly policy review that it has been monitoring the impact of the Brexit issue on the “significantly overvalued” franc.
USD-CAD was not a bystander on Thursday/Friday, ranging between 1.3099, a three-week high, and 1.2728. The better than $4/bbl slide in WTI crude seen when it became apparent that the Brexit leave camp would prevail, and the accompanying disappearance of risk taking took the pairing to its highs, though as oil prices recovered roughly half their losses, and as the weekend approached, position paring has taken USD-CAD back inside ranges seen earlier in the week.