The MXN peso short dates are again showing up as the most expensive based on IV/AV spreads followed by the JPY and the major JPY crosses. With the CAD moving back to the 80Cent pivot point the market wants to sell the short dates back down but this may, as we have seen before a bit premature. Even with EURCAD breaking down through important chart point resistance at 1.4600 the market does not want to bid up EURCAD vol while at the same time EURCAD skew remains bid for EUR Calls over. Our inference is that EURAD is moving into a zone where the dealers are getting longer EURCAD gamma and vega so they are naturally long. One and two-week EURGBP look potentially interesting as long gamma plays.

AUD actuals remain elevated despite the modest appreciation of the spot at the end of the week. Higher actuals often are a good indication that the downtrend in AUD is not over yet. As we mentioned below AUD has lost ground vs. CAD and this trend may well continue for the next few weeks at least.

CADJPY dispersion rises as the spot regains its upside momentum. CADJPY is very likely going to test the previous 91 cycle highs. We would not look to short this unless we see clear signs of momentum divergence.

Hourly momentum high combined with spot. Both strongly suggest further upside.

USDCAD takes out the hourly trend line and at the same time dispersion, both short and long term are rising. The rally in the CAD is not over. Regular readers know that we rarely comment on the fundamentals, but Friday's weak US NFP, combined with the robust CDN job numbers were enough to move short term yield differentials further in favour of the C$. While at the same time broad measures of commodity prices rose to new highs - in particular the DJ 60. While CAD gained on the crosses everywhere - vs JPY, GBP, EUR and AUD. The rally vs the AUD makes sense if you believe that China's credit problems are far from over. But what is less clear is why we should see such a sharp rise in the commodity complex unless it is due to short-term supply bottlenecks. The market is ignoring any possibility of a more generalized credit event in China that has larger economic implications. Clearly, a China deceleration will be AUD bearish, and EUR bearish at the same time, and negative for CAD if it leads to a commodity price implosion. It looks very much the case that CAD is set to test support at 1.2200 in the near term but like the previous downtrend, it remains doubtful that it can be sustained. In order to buy into the notion of a secular bull market in C$, we would have to be convinced that we are in a long term commodity price upturn.

While three-month EUR looks very attractive close to the 5% level the spread between the premiums in the options market (the implied vol) remains too high relative to the actuals. In fact, they are showing up as expensive. Short-dated EUR with the two weeks implied vols close to 4.6% in our view represents better value.

EURCAD price action has been trending rather than choppy and while the two-week actuals are higher, they are only marginally better bid on the week.

A sharp rise in EURCAD dispersion with more to come on the back of the short term bullish CAD momentum kicks in. The trend is likely not done yet.

Some sort of pause at least in the hourly downtrend in EURCAD momentum seems likely given the extent of the move.

EURCHF daily momentum showing signs of turning however the spot has not taken out the daily trend line. A lower EURCHF with a stronger dollar generally will mean that USDCHF will likely lag the dollar move.

Rising EUR dispersion suggests further dollar strength.

EURGBP dispersion looks to be rising from extreme lows. This is another reason we think the short dates may now represent better than even value. We will price them out on Monday.

The common refrain in the FX market is the account for JPY weakness on the back of rising US bond yields. US bond yields are certainly up but have not yet taken out the important 1.75 level in the 10 year. So we don't entirely buy-into that explanation. Having said that our technical models are now suggesting that this period of Yen weakness has further legs.

Above is our LT momentum indicator. Here we can see a break from the symmetrical triangle formation, and the early indication of a turn up in our longer term momentum indicator.

Even though MXN peso actual vols are up on the week they remain pricey compared to the implied vols. MXN calendars as regular readers know are one of our favoured ways of taking advantage.

The chart above of two-week EURGBP actuals vs implied shows clearly the discount between the premium levels and the actuals. Both the one week and the two-week periods look attractive and we will assess both of them on the open on Monday.

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