Forex Flash: All eyes on EU PMIs as Euribor stables – BBH
Brown Brothers Harriman analysts note that the main economic report of the week for Europe comes out tomorrow in the form of flash PMIs.
They write, "After yesterday's stronger than expected ZEW survey, the market may be sensitive to confirmation in the German PMI, which we do not expect to be there. Look for the euro to be mostly confined to a $1.3280-$1.3350 trading range. These narrow ranges has seen implied volatility ease for the third day. Near 7.86%, 3-month vol is currently indicated more than a percentage point off the high seen at the end of last week."
Further, they feel that one stabilising factor for the Euro appears to have been the steadying of Euribor. They recall ideas that banks repaying LTRO funds early would reduce liquidity in the euro zone banking system helped drive the March Euribor futures contract from an implied rate near 15 bp as recently as January 10 to 32 bp last week, before an ECB official tried to calm the market. They add, "European banks that borrowed LTRO funds must give notice about their intentions on repayments today and starting January 30, the ECB report weekly the amount of repayment and the number of counter parties returning funds."
They write, "After yesterday's stronger than expected ZEW survey, the market may be sensitive to confirmation in the German PMI, which we do not expect to be there. Look for the euro to be mostly confined to a $1.3280-$1.3350 trading range. These narrow ranges has seen implied volatility ease for the third day. Near 7.86%, 3-month vol is currently indicated more than a percentage point off the high seen at the end of last week."
Further, they feel that one stabilising factor for the Euro appears to have been the steadying of Euribor. They recall ideas that banks repaying LTRO funds early would reduce liquidity in the euro zone banking system helped drive the March Euribor futures contract from an implied rate near 15 bp as recently as January 10 to 32 bp last week, before an ECB official tried to calm the market. They add, "European banks that borrowed LTRO funds must give notice about their intentions on repayments today and starting January 30, the ECB report weekly the amount of repayment and the number of counter parties returning funds."
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