FX Market Update 24-1

Market Briefs  

  • UK Gov loses Brexit Article 50 case as supreme court dismisses its appeal – Rtrs
  • UK Supreme Court: PM May must get parliament approval to trigger Brexit – Rtrs
  • Spksman for May: Supreme court ruling does not change plan to trigger Article 50 by end of Mar
  • USD/JPY +0.6%, GBP/USD -0.6%, EUR/USD -0.3%
  • DXY +0.2%, DAX -0.3%, Brent +0.6%, Gold -0.4%
  • DE Jan Flash Mfg PMI 56.5 vs 55.6 prev, 55.4 exp
  • DE Jan Flash Service PMI 53.9 vs 54.3 prev, 54.5 exp
  • EZ Jan Mfg Flash Mfg PMI 55.1 vs 54.9 prev, 54.8 exp
  • EZ Jan Flash Service PMI 53.6 vs 53.7 prev, 53.9 exp
  • UK Dec PSNB GBP 6.421bln vs 10.830 bln rvsd prev,  7.0 bln exp
  • UK Dec PSNCR GBP 36.294bln vs 20.013 bln rvsd
  • Australia & NZ pledge to salvage TPP after US exit – Rtrs
  • JP FinMin Aso: Seeking understanding with US on trade – Rtrs
  • China outbound property investment to drop as capital curbs bite – Rtrs
  • UK PM Theresa May plans China visit to bolster trade – FT

Looking Ahead – Economic Data (GMT)

  • 13:55  Redbook Same-Store Sales Index (weekly) prev +0.3% y/y
  • 14:45  Markit Manuf PMI (flash Jan) mkt 54.5, prev 54.2 flash, 54.3 final
  • 15:00  Existing Home Sales (Dec) mkt 5.52 mn SAAR, prev 5.61 mn SAAR
  • 15:00  Richmond Fed Manufacturing Index (Jan) prev 8
  • 15:00  Richmond Fed Services Index (Jan) prev 4

Looking Ahead – Events, Other Releases (GMT)

  • 14:45  FedTrade operation 30-yr Ginnie Mae (max $1.425 bn)
  • 16:45  FedTrade operation 15-yr Fannie Mae/Freddie Mac (max $775 mn)

Currency Summaries


  • EUR/USD 1.0734-1.0774 range, entirely over prior resistance 1.0710-20
  • Last 4 days have seen rising daily range:
  • UST/Bunds tighten in support of correction:
  • Move still a correction with rates favouring l-term downtrend
  • 38.2% 2016-2017 fall @ 1.0827 may be seen before lower
  • Next major focus is US GDP, PCE and Michigan sentiment data Jan 27


  • USD/JPY fell to 112.52 in Asia on concerns over Trump protectionism
  • Buying partly by option players ahead of 112.50 barriers. Stops build below
  • Looser ties to Japan and more widely Asia also hurt USD/JPY
  • Rebound has reached 113.46, techs might limited further gains
  • Japan investors, importers and semi-official pension funds have been buying


  • USD/CHF extends back above 1.00. 1.0015 high thus far
  • Spot hit fresh 2 month low at 0.9960 in Asia (0.9962 Mon low)
  • Asia base was hit after USD hurt by Mnuchin comments
  • Techs favor return to 0.9947 (cloud base/50% fibo of Nov/Jan rise)
  • Downticking tenkan-sen and 10-DMA weigh at 1.0054/1.0060
  • EUR/CHF continues sideways theme but firmer on day. 1.0745 top
  • 1.0700 SNB perceived base. CB likely bidder by and below fig


  • GBP/USD fell nearly a cent to 1.2437 on selling of the A50 case ruling fact
  • The UK govt lost its appeal to Supreme Court, which was as expected
  • MPs and peers must vote before UK govt files for Brexit divorce
  • 1.2534 was knee-jerk high on govt defeat news. 1.2546 = 6wk high in Asia
  • EUR/GBP rose to 0.8633 from a knee-jerk low of 0.8562 after A50 case ruling
  • 0.8582-0.8616 was early Europe range, before Supremes 8-3 ruling


  • USD/CAD rallied to a European am high of 1.3293, from 1.3213 (Asia low)
  • Ascent fuelled by across-the-board demand for USD


  • AUD/USD retreated to threaten 0.7550 during the European am
  • Slide fuelled by across-the-board demand for USD. 0.7609 = Asia 2mth high


  • NZD/USDhas retreated to 0.7210 after scaling a 2mth peak of 0.7265 in Asia
  • NZ Q4 inflation data due this week, f/c _0.3% q/q, +1.2% y/y


  • Vols mostly heavy/offered, light event risk until BoJ/FOMC
  • Short dated Cable vols lose ground as Article 50 premium priced out
  • AUD/USD vols approaching late 2016 and 2yr lows
  • EUR/USD vols 2017 lows and suggested value vs realised vols
  • USD/JPY vols met demand after 112.50 barrier tested, lower since
  • EUR/CHF 1mth vol nearing its post floor removal lows at 3.8


Brexit – Process now a political matter, no longer legal

The vote of 8-3 was slightly higher than the 7-4 that had been rumoured recently, but the verdict that the UK parliament needs a vote before Brexit trigger should not be a big surprise. The impact of the was decision further diluted by PM May’s comment last week that a final Brexit deal will be put to a vote in front of both houses of Parliament. But what is also important is that devolved assemblies (Scotland, Northern Ireland and Wales) do not need to be consulted and do not need to vote before Article 50 is triggered. There is also no opinion regarding the 1972 Act. The process is, in the words of the Attorney General for the government speaking after the decision, now “a political matter and not a legal matter”. Following the ruling GBP has come off from around 1.2530 but only slightly and currently trades around 1.2485 recovering from a low of 1.2435. The price action suggests the market is once again searching for direction and a market cognisant that short GBP and long USD positions are still at risk of being unwound. We remain bearish on GBP but are cognisant that the unit has already priced in a lot of negatives leaving spec shorts


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