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IMM currencies down as mood turns bearish

CHICAGO: Most IMM currency futures closed sharply lower on Tuesday with sentiment for currencies turning bearish after several rounds of surprise concerted central bank intervention this morning.

Minutes before the IMM opened, the Bundesbank said it was buying US dollars in the open maket. Shortly after, the Federal Reserve, Bank of Japan (BoJ) and Swiss National Bank joined the dollar buying spree in the cash market.

That move came on the heels of an already rising US dollar. The BoJ intervened overnight in the cash market and Japan posted a surprisingly big drop in its July trade surplus.

The central bank action immediately spun currency futures into fast market plunges at the open and kept them there for at least the first hour and a half, traders said. Funds were the largest sellers, adding to already short positions, traders said.

September yen broke a five-year trendline in heavy volume to reach the lowest level since Feb 6, technicians said. That breakout convinced many traders that the yen's near-term outlook was definitely down.

The sharp fall in September yen dragged other units lower, traders said. September marks fell to the lowest since Feb 16.

But September marks managed to hold a chart gap left from the Feb 16 low of $0.6733 and the Feb 15 high of $0.6650.

Sell-stops were triggered in September marks once the unit broke support at $0.6916, or about 1.45 marks, traders said.

September Swiss franc losses spiralled when the Swiss National Bank bought US dollars for Swiss francs in the cash market, traders said. September hit the lowest since Feb 24.

September pounds dropped to the lowest level since about late December, but losses in pounds lagged other units.

September Canadian dollars rose in tandem with the US dollar, triggering buy-stops near $0.7375, traders said.

A 500-lot September Canadian dollar buy-stop from a medium-sized US firm was unveiled at $0.7375 to help push the unit up to match the Aug 8 high of $0.7380.

But once there, traders said no followthrough buying emerged until the afternoon when a large, US investment firm bought 250 at 7150, traders said. The lack of followthrough buying allowed the unit to drift off its highs.

Based on Elliot Waves, September should fall to $0.7300 before rallying up to about $0.7450 or $0.7500, traders said.

Fundamentally, as long as the US dollar stays strong, Canadian and Australian dollars would eventually follow.

Options activity was heavy as implied volatilities jumped. A medium-sized US firm was active for a fund in October mark puts, setting up for lower currencies, traders said. They also saw volatility and gamma buying and rolling into new, lower strikes. September mark volatility ended at 15 pct, Swiss francs at 17 pct, yen at 16.2 pct, pounds at 9.3 pct, Canadian dollars at 6.3 pct and French francs at 12 pct.

September marks ended down $0.0240 at $0.6775, Swiss francs down $0.0257 at $0.8144, pounds down $0.0186 at $1.5508, yen down $0.000375 at $0.010375 at $0.010364, Canadian dollars up $0.0010 at $0.7349 and Australian dlrs down $0.0048 at $0.7360.-Reuter