USD / Gold / Alibaba / FX Options

Gold

1) We witnessed the break of the $1,200/oz psychological support for Gold last week as price action accelerated on the downwards momentum after the psychological break.

2)Gold looks poise to record yet another monthly loss, matching the milestone in 1996 when the yellow precious slumped for a record of 5 consecutive months as well, though degree of drop was different.

3)Gold investors has been struggling tremendously on the back of the rallying USD as status of safe haven currency/asset is being questioned during this period of heighten tension of geopolitical risk.

4) Non-commercial COT positioning also hit extreme bearishness, going into negative territory for the first time in 17 years [ see chart below]

(Bloomberg)

China Tech/ Alibaba

1)Last week we saw some of the China tech names exhibiting some form of rebound after dismal earnings from Tencent in mid-last week dragged Chitech space even lower initially. Stocks like Baidu and Alibaba traded to their important support level ($210 / $165)

2) Alibaba is one of the few Chinese tech stock yet to release its earnings. (23^rd August  Before Market Open.)Market is pricing a ~7% move as implied in the breakeven of the straddle.

3) Aspiring share owner of Baba could take the chance to sell a 5 days put (at least), with the ATM $172.5 strike put 5 days pricing in at least a $5.50 worth of premium, implying a breakeven at $167.50. A risk-reversal (sell put/buy call) could also looks attractive. In short, current level looks attractive for a favourable risk:reward setup.

4)Baba has  48 buys/1 hold with 12 months target of $241.32.
5) ) Chart below shows show both Baidu and Baba being supported at key level as mentioned in (1).

(Bloomberg)

Dollar Index

1) USD recorded its first weekly loss for the first time in 4 weeks. DXY remains largely in a 96.0-97.0 range with Wednesday inverted hammer in the USD seen on Wednesday and could signal a likely range behavior or short term bearishness.

2) However, note that the COT report ending 14 October exhibits funds continuing to add longs and extended positioning by a further 7% to 23.9 billion net long USD positioning.

Bearish inverted hammer seen in Dollar Index

(Source : SaxotraderGO)

FX Options

EUR.  Vol traded lower over the week as risk of Turkey contagion was contained, with 1Month EURUSD from 8.4 Monday to 7.3 Friday. ATM vol is still very negatively correlated to spot, so lower EUR means higher vols. At the beginning of the week there were very strong buyers for EUR puts looking for protection against spillover effect from a Turkey economic turmoil. Risk Reversals in EURUSD traded at its highest for EUR puts since French election 2017, with 1month 25d RR trading  1.3.

NOK. Vol supported by lower NOK spot and oil prices. 1Month EURNOK closed Friday 5.8 vs 5.4 the Friday before.

XAUUSD/XAGUSD. Rise in vol after spot dipped to new 2year lows. 1month XAUUSD 10.75 +1.5vol and 1Month XAGUSD 17.5 +2vol.

CNH: Usdcnh rose to new high this year 6,9600 on Wednesday not far from high end December 2016 at 6,9850. This together with PBOC comments/actions to stabilize the currency caused decent profit taking down to present level around 6,8550. Volatility still trading firm with 3 month +0,3 % on the week.

JPY: Usdjpy still range trading just above 110. We started the week around 110,50 and closing around same level. We still see demand for lower delta downside strikes in 2 month to 4 month area. Most spot activity/focus this week was in Audjpy and Eurjpy where we saw Audjpy trading just below 80 level for first time since early November 2016. Volatility ending higher higher with 3 month usdjpy +0,3 % and 3 month audjpy +0,6 %. Trade war still main driver for all moves.

AUD: Audusd testet new low around 0,7200 Wednesday but ending the week unchanged. At the end of the week we saw some interest to buy low delta audusd upside gamma. Volatility curve is ending the week pretty much unchanged but with slightly bid bias.

NZD: Nzdusd traded better bid and was ending the week just above 0,66. Saw good profit taking in audnzd after new highs the week before. Not a lot of new interest during the week for Nzdusd and as we don’t  expect much interest next week as well.

CAD: Usdcad traded slightly lower during the week down from 1,3160 to 1,3090. Nafta talks progressing and some result is expected soon. This is keeping Usdcad in recent range as everyone is waiting for result. Volatility traded lower during the week with 3 month -0,2 %