FX Market Update 26-1

Market Briefs 

  • USD/JPY +0.9%, GBP/USD -0.3%, EUR/USD -0.3%
  • GBP/USD hits 6-week high at 1.2674 before GDP beat
  • DXY +0.3%, DAX +0.5%, Brent +0.5%, Gold -0.6%
  • GB CBI Retail Sales balanace -8 in Jan vs +35 in dec. +22 exp. Lowest since Sept
  • GB Q4 GDP prelim +0.6% q/q, +2.2% y/y vs prev 0.6%/2.2%. 0.5%/2.1% exp
  • GB Dec BBA Mortgage Approvals 43.228k vs prev 41.003k rvsd
  • CH Dec Trade 2716mln vs prev 3500mln rvsd
  • China FX regulator issues guidelines on improving checks for FX management
  • U.S J&J to acquire Swiss biotech company Actelion in $30 bln all-cash deal
  • Japanese inflation gives BoJ buyer’s remorse – Rtrs

Looking Ahead – Economic Data (GMT)

  • 13:30  Initial Jobless Claims (Jan 20 week) mkt 247k, prev 234k
  • 13:30  — Continued Claims (Jan 13 week) mkt 2.040 mn, prev 2.046 mn
  • 13:30  Advance Goods Trade Balance (Nov) prev -$65.3 bn
  • 13:30  Advance Wholesale Inventories (Nov) prev +1.0% m/m
  • 13:30  Advance Retail Inventories (Nov) prev +0.5% m/m
  • 13:30  Chicago Fed National Activity Index (Dec) prev -0.27
  • 14:45  Markit Services PMI (Jan) mkt 54.4, prev 53.9
  • 14:45  Markit Composite PMI (Jan) prev 54.1
  • 15:00  New Home Sales (Dec) mkt 588k SAAR, -0.7% m/m; prev 592k SAAR, +5.2% m/m
  • 15:00  Leading Indicators (Dec) mkt +0.5% m/m, prev 0.0% m/m
  • 16:00  KC Fed Manufacturing Index prev 24
  • 16:00  — KC Fed Composite Index prev 11

Looking Ahead – Events, Other Releases (GMT)

  • 14:00  EZ FinMin meeting in Brussels, ECB Coeure to attend
  • 16:45  FedTrade operation 30-year Ginnie Mae (max $1.425 bn)

Currency Summaries

EUR/USD

  • EUR/USD trades slightly softer in lacklustre European session
  • Europe 1.0713-57 after 1.0730-66 in Asia
  • Bonds see a great deal more action as yields rise strongly
  • UST 10 year now 2.54%. 10 yr bund yield hits 0.50% high
  • Support @ 200-HMA 1.0694. Resistance @ 1.0800 & 100-DMA 1.0818

USD/JPY

  • USD/JPY jumped above 114.00, but so far curtailed by 114.40 pivot
  • Range in USD/JPY has been 113.05-114.39 so far
  • 55-DMA comes in at 114.45, 114.45 is also Mon’s high
  • Risk of a correction as 2.1bln worth of 114.00 strikes set to expire at NY cut
  • Nikkei futures & USD/JPY intra-day correlation remains high
  • 48H/72H log correlation between Nikkei futures & USD/JPY is +0.77/+0.80
  • EUR/JPY range has been 121.69-122.59 so far

USD/CHF

  • USD/CHF onsolidates through Europe below 1.00
  • 1.0003 is the 100-HMA and downticking avg weighs on action
  • The cross has been sold lower and 1.07 is in focus once again
  • Some stalling just below the fig. 1.0697 was the low
  • 1.07 is the SNB perceived base. CB likely bids there and below
  • M&A Swiss Actelion news could be impacting flows

GBP/USD

  • GBP/USD rose half-a-cent to 1.2674 before UK Q4 GDP data beat at 4.30am ET
  • 1.2674 = new 6wk high. 1.2593 = cable low after GBP selling of the data fact
  • EUR/GBP fell to 3wk lows circa 0.8475 around the UK GDP data release
  • 0.8475 = 1.18 GBP/EUR. 0.8506 = high since then. 0.8517 was Asia high

USD/CAD

  • USD/CAD rose to 1.3116 during the European am amid greenback demand
  • 1.3054 was 8-day low in Asia. 1.3063 was Wednesday’s low
  • M&A news: AltaGas to buy US-based WGL for CAD 8.4bln

AUD/USD

  • AUD/USD fell to a European am low of 0.7338 on USD demand
  • 0.7585 was Asia high. 0.7515-0.7597 was Wednesday’s range
  • AUD/NZD helped to 1.0405 by profit-taking on short positions
  • Cross threatened 1.0357 in Asia on higher than expected NZ Q4 CPI data
  • 1.0357 was Jan 3 low. 1.0383 = Wednesday low after sub-f/c Oz Q4 CPI

NZD/USD

  • NZD/USD retreated to a European am low of 0.7251 on USD demand
  • 0.7314 was 2.5mth high in Asia on higher than expected NZ Q4 CPI data

FX OPTIONS

  • 1 week expiry rolls over  FOMC and BoE MPC to prop related vols
  • Broader vol base remains heavy as ranges hold in to China NY holiday
  • EUR/USD 1mth vol lowest since 1 Nov and well below realised
  • Cable vols finally meet demand after recent heavy losses
  • AUD curve by 2yr lows. JPY vol losses more limited. 2.1bln 114 expiry

COMMENT

UK Q4 GDP…business as usual…for now

The UK will release Q4 GDP at 09.30GMT and some are still searching for the elusive Brexit impact. It’s hard to see an impact when we remain uncertain as to what sort of a divorce will be delivered and how the UK will transition toward this divorce. It was only last week that PM May delivered another important speech in terms of the ‘plans’ and now we have the prospect of a White Paper. Neither provide us with much in the way of clarity beyond highlighting the risk that red lines on immigration/ECJ could potentially prevent a smooth and orderly Brexit.

The Q4 GDP data today is likely to show a 0.5% print which is not too different to the growth seen in prior quarters during 2016. The real impact of Brexit will come once A50 is triggered and firms put into action their contingency plans that will likely involve lower investment. The BoE’s Agents survey that followed the referendum highlighted that firms will maintain a “business as usual” attitude, although this is an evolving stance and one that will involve considerable lags as “future trading relations became clearer

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