FX Market News 23-1

Market Briefs  

  • USD/JPY -1.06%, GBP/USD +0.7%, EUR/USD +0.35%
  • Sterling hits 5 week high at 1.2472
  • DXY -0.4%, DAX -0.5%, Brent -1.0%, Gold +0.3%
  • German Schaeuble tells Britain to look to Switzerland for Brexit ideas – NZZ on Sunday
  • SNB domestic deposits rise to CHF 464.281bln fm prev 464.147 w/e Jan 20
  • UK banks optimism hits crisis-era low on Brexit uncertainty – Rtrs
  • UK seeks interventionist approach to drive post-Brexit industrial revival – Rtrs
  • JP PM Abe: Wants Trump to recognize Japan firms contribution to US economy – Rtrs
  • ChiefCabSec Suga: Will monitor impact of US policies on Japan firms – Rtrs

Looking Ahead – Economic Data (GMT)

  • 13:30 CA Wholesale trade (Nov) 0.5% exp vs prev 1.1%
  • 15:00 EZ Consumer Confid. flash (Jan) -4.80 exp vs prev -5.10
  • No U.S data releases scheduled

Looking Ahead – Events, Other Releases (GMT)

  • 13:15 ECB ChiefEcon Praet speaks at EC Commission conference in Brussels.
  • 13:50 France E3.1-3.5/1.4-1.8/1.2-1.6 bln 3/6/12-month BTF auctions.
  • 14:10 Norges Bank DepGov Matsen speaks at Copenhagen economic seminar
  • 16:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $2.125 bn)

Currency Summaries

EUR/USD 

  • EUR/USD trades 1.0755, highest since ECB day spike to 1.0875 on Dec 8
  • Quiet after with some profit-taking & corp sales weighing to 1.0723
  • Jan 17/18/20 highs were 1.0719/15/20 now support
  • 100-HMA 1.0679 or 200-HMA 1.0645 likely pivots for stops of dip buyers
  • Dec 5-6 highs 1.0797/85. Possible even barrier interest @ 1.0800
  • Significant resistance 1.0820-40. 100-DMA 1.0833:

USD/JPY

  • Tokyo sold USD/JPY due to lack of detail about President Trump’s policies
  • Japanese also concerned over US protectionism
  • USD/JPY has slumped into thick daily cloud, a bearish sign
  • Daily cloud spans the wide 109.93-114.24 region
  • USD/JPY was sold from 114.15 to 113.17, before stabilising
  • Decent support noted ahead of 113.00, Japanese importer interest close by
  • Spot 48/72H correlations with Nikkei futures & UST/JGB 10-yr spread high
  • EUR/JPY range has been 121.68-122.46

USD/CHF

  • USD/CHF hits 2 mth 0.9974 low as $ weakens broadly on Trump worries
  • Corrective action limited with 1.0007 putting lid on recovery
  • Dticking 10 DMA at 1.0079 weighs. Close inside cloud Fri helps bears
  • EUR/CHF continues sideways theme, tight 1.0717/39 range on day
  • Sight deposits rise, 1.07 SNB perceived base holds
  • GBP/USD
  • GBP/USD met headwind at 1.2472 after the greenback took an early Europe hit
  • 1.2472 = 61.8% of 1.2775 (Dec high) to 1.1983 (Jan 16 low)
  • Retreat from 1.2374 based at 1.2425 (pre-weekend high was 1.2381)
  • EUR/GBP eased to threaten 0.8611 (Jan 9 low) during the European am
  • 0.8662 was Asia high. 0.8609 was 21DMA

USD/CAD

  • USD/CAD plumbed an intra-day low of 1.3268 on early Europe USD selling
  • 1.3306 was pre-weekend low vs 16-day high of 1.3388 Friday
  • 1.3333 = early Asia high. 1.3300 option expiry for NY cut, $275mn strike

AUD/USD

  • AUD/USD based just shy of 0.7550 after retreating from 0.7578
  • 0.7578 = early Europe high. 0.7552-0.7579 was Asia range

NZD/USD

  • NZD/USD scaled an intra-day peak of 0.7219 on early Europe USD selling
  • 0.7180 = subsequent low-water mark (0.7179 = pre-weekend high)

FX OPTIONS

  • Vols heavy to start the new week – better levels to re-establish longs
  • Short date GBP vols propped pre article 50 ruling and PM May/Trump meeting
  • EUR/USD vols offer relative value at 2017 lows – 1mth 8.7 from 11.0 in Jan
  • USD/JPY gamma looking attractive now after setbacks from last week’s highs
  • Overnight USD/TRY break evens around 2.25% or 850 pips in to CBRT

COMMENT

Markets in no mood for ‘alternative fact’

With the inauguration out of the way attention turns to what the Trump administration will deliver in the first 100 days. What is clear is that any optimism that President Trump will be different in tone and character to President elect Trump or candidate Trump have been dashed following a resumption of tweeting, alternative facts from his press secretary Spicer, and a continuation of the media war.
The market price action today of broad based dollar weakness, lower stocks and stronger bonds highlight that the market pendulum is shifting toward worrying about protectionism, a divided country, military policy, and relations with the rest of the world. This is a laundry list of worries that is enough to impact a market that has optimistically priced for the Trump Trade, Trumponomics, or reflation.
The shift in the pendulum has thus far been miniscule when compared to the price action since November election. The risks would seem to be asymmetric in that the optimism is already in the price while the potential menu of concerns is larger. It is likely that the current bout of risk off sentiment will prove to be minor as we really do not know what a Trump administration will deliver.
Unlike the discussion with crowd numbers the market will not be any mood for ‘alternative facts’ when it comes to Trump policies.

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