EURIBOR: Schnabel Reaction Provides Better Entry For Dovish M5 Structures
ERM5 options volumes have picked up today, after more subdued activity the prior three sessions. Volumes tilt heavily in favour of calls (~170k at typing versus 73k of puts), with dovish structures particularly prevalent this afternoon. This is potentially in response to the pullback in underlying futures prices (-4.0 ticks today at 97.790) following ECB Executive Board member Schnabel’s hawkish interview with the FT earlier. However, M5 options activity this month has still been notably more moderate than in January.
- Options flow in January saw markets position for a more aggressive ECB easing cycle in Q2, with growth-related tariff concerns in focus following US President Trump’s inauguration. OTM call flys and condors in M5 were particularly popular.
- Between 16-31 Jan, over 400k calls were traded on average per day. In February, average daily call volumes have fallen to 165k. As such, open interest in popular call strikes has visibly flattened out since the start of February (data as of yesterday).
- The M5 call/put ratio has averaged 5x in favour of calls year-to-date. That’s excluding Jan 27, where 143k calls traded against just 1k of puts. Including this session, the ratio increases to 9x.
- Friday’s Eurozone February flash PMIs presents the next key event risk for the EUR short-end.
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EURIBOR OPTIONS: Call Condor trades in large size
Large Condor in Euribor is still trading, multiple clips:
- ERM5 98.125/98.25/98.375/98.50c condor, bought for half in ~53k total now.
US TSYS: TY Extends Climb Closer To Resistance On WSJ Confirmation
- TYH5 has seen session highs of 108-24+ (3-4 ticks higher on the move) after Reuters reported a Trump official confirming the earlier WSJ report that he’ll stop short of imposing tariffs on day one of his second term.
- A Bloomberg report had also landed in the interim suggesting at least no intention to unveil China-specific tariffs on day one whilst looking to negotiate with China.
- Resistance is seen at Friday’s high of 108-27+ before 109-06 (Dec 31 high) but gains are deemed corrective from a technical perspective, against a medium-term bear trend with support at 108-00 (Jan 16 low). It earlier today saw 108-08+.
- Cumulative volumes still lag heavily with the US out for MLK Day, currently only 370k for ~40% of recent averages.
- Fed Funds futures meanwhile have seen cut expectations build to 40bp for 2025 vs 38bp as what would be the US crossover and 32bp prior to last week’s CPI report.
USDCAD TECHS: Breaches Support
- RES 4: 1.4671 2.0% 10-dma envelope
- RES 3: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4508 3.236 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4486 Intraday high
- PRICE: 1.4280 @ 14:42 GMT Jan 20
- SUP 1: 1.4262 Intraday low
- SUP 2: 1.4226 50-day EMA
- SUP 3: 1.4120 Low Dec 11
- SUP 4: 1.4011 Low Dec 5
A sharp sell-off in USDCAD today has resulted in a print below support at 1.4280, the 20-day EMA. Pice has also traded through the 20-day EMA, at 1.4364. The reversal has exposed the next key support at 1.4226, the 50-day EMA. A clear breach of the 50-day EMA would undermine the recent bullish theme and signal scope for a deeper retracement. Key resistance and the bull trigger has been defined at 1.4486, today’s intraday high.
