FX Market Update 31-1

Market Briefs 

  • USD/JPY +0.05%, GBP/USD -0.5%, EUR/USD +0.1%
  • DXY +0.03%, DAX +0.1%, Brent -0.03%, Gold +0.3%
  • Trump dooms dollar to worst January since 2008 – Rtrs
  • UK Dec Mortgage approvals 67.898k vs prev 67.461k rvsd. 69k f/c
  • UK Dec Mortgage lending 3.798bln vs prev 3.141bln rvsd. 3.3bln exp
  • UK Dec BOE Consumer credit 1.039bln vs prev 1.929bln rvsd. 1.7bln f/c
  • Uk Dec M4 Money supply growth -0.5% m/m vs prev 0.4%
  • Foreign investors sold net GBP 2.97 bln gilts in Dec
  • DE Dec Retail sales -1.1% y/y vs rvsd +3.5% prev
  • EZ Jan Inflation, flash 1.8% y/y vs prev 1.1%
  • ECB’s Villeroy says concerns about rising inflation are “exaggerated” – Rtrs
  • EZ Q4 GDP flash prelim 0.5% q/q, 1.8% y/y vs prev 0.4%/1.8% rvsd. 0.5%/1.7% f/c
  • EZ Dec Unemployment rate 9.6% vs prev 9.7% rvsd. 9.8% f/c

Looking Ahead – Economic Data (GMT)

  • 13:30  Employment Cost Index (Q4) mkt +0.6% q/q AR, prev +0.6% q/q AR
  • 13:30  — Wages and Salaries (Q4) prev +0.5% q/q AR
  • 13:30  — Benefits (Q4) prev +0.7% q/q A)
  • 13:55  Redbook Same-Store Sales Index (weekly) prev +0.3% y/y
  • 14:00  S&P/ Case-Shiller / CoreLogic House Price Index (Nov) mkt +5.1% y/y, prev +5.1% y/y
  • 14:45  Chicago PMI (Jan) mkt 55.0, prev 54.6
  • 15:00  Consumer Confidence Index (Jan) mkt 113.0, prev 113.7
  • 15:00  Housing Vacancies and Homeownership (Q4)
  • 15:30  Dallas Fed Texas Service Sector Outlook Survey (Jan) prev 19.4
  • 15:30  Dallas Fed Texas Services Revenues Index (Jan) prev 20.6

Events US Events Calendar  

  • Looking Ahead – Events, Other Releases (GMT)
  • 11:45  FedTrade operation 30-year year Fannie Mae / Freddie Mac (max $1.625 bn)
  • 13:00  FOMC begins two-day meeting (see Fed Outlook )

Currency Summaries

EUR/USD

  • EUR/USD sees a little flurry of activity around data releases
  • Sharp rises for Spanish & French inflation due energy
  • EZ reflects same. Headline 1.8% yy in Jan, core unch @ 0.9%
  • ECB’s Villeroy says inflation concerns are exaggerated
  • Month-end EUR/GBP buying buoys EUR/USD for a time
  • Europe 1.0685-10725. 1.0685-1.712 Asia. Month-end buying tipped

USD/JPY

  • USD/JPY risk for a test 112.50 barriers, Jan 112.52 low an also an hourly pivot
  • BOJ left policy unchanged as expected, but lifted growth forecasts
  • Lifting of growth forecasts pushed spot to 113.24. Talk buyers ahead of 113.00
  • Recovery has reached 113.96
  • EUR/JPY range has been 121.31-122.02
  • GBP/JPY long black candlestick line on Monday weighs

USD/CHF

  • USD/CHF loss consolidation theme. 0.9966 the European AM high
  • 0.9938 was an early Asian low, just ahead of yday’s base
  • Risk remains for deeper retreat. Mon 0.9934 lowest low since Nov 14
  • EUR/CHF lifted away from 1.0637 low, recovery limited to 1.0663
  • Bias stays with the bears. June 24 1.0623 Brext low next historical support

GBP/USD

  • GBP/USD tripped stops sub-1.2478 en route to Ldn am low 2 pips shy of 1.2410
  • 1.2410 = 38.2% of 1.1983-1.2674. 1.2478-1.2516 was early Ldn range
  • 1.2478 break influenced by news foreign investors were net sellers of gilts in Dec
  • First monthly net sale of gilts by foreign investors since July
  • Month-end buying flagged as factor in EUR/GBP rise from 0.8559-0.8635 during Ldn am
  • 0.8635 = 1wk high. 0.8578 was Monday’s high, after prior month-end demand talk

USD/CAD

  • USD/CAD met fresh headwind at 1.3124 after firming from 1.3091 (Asia low)
  • 1.3124 was also rally high from Monday’s 1.3076 low
  • Canada Nov GDP data due 8.30am ET, +0.3% f/c vs -0.3% in Oct
  • 1.3100/05 option expiries for NY cut, $587mn strikes
  • Poloz speaks in Edmonton at 5.20pm ET, press conference 6.40pm+ ET

AUD/USD

  • AUD/USD is relatively calm as month-end looms: 0.7543-0.7572 = Tuesday range-to-date
  • Buyers are tipped ahead of 0.7500, with offers touted pre-0.76
  • AUD/NZD revisited 1.0365 (Monday’s low) in Asia. 1.0382 = interim high
  • Quarter-yard 1.0400 option expiry for NY cut

NZD/USD

  • NZD/USD eased to a European am low of 0.7272 after threatening 0.73 in Asia
  • Above-figure resistance 0.7314 (last week’s 2mth high)
  • NZ Q4 jobs data due 4.45pm ET. RBNZ seen on hold next week

FX OPTIONS

  • Event risk keeps a bid under gamma along with mild risk aversion
  • EUR/USD vols ease from Mon’s highs as spot recovers 1.0700
  • Several large EUR flows noted. French election risk up again this week
  • USD/JPY risk reversals better bid JPY calls – 1mth .65 vs .25 last week
  • 112.50 barriers intact, but some have expired, remainder likely covered
  • GBP gamma performs after latest GBP slide.  AUD vols languish with spot

COMMENT
Maybe a 2% print on headline EZ inflation next month

Headline inflation for the Eurozone came in at a higher than expected 1.8% for January. It is likely that February will see a print of 2.0% as energy prices are higher and not falling to the same extent as last year. The energy price component was +8.1% in the Jan 2017 release today compared to energy prices that were -5.4% in Jan 2016. With February 2016 seeing energy prices -8.1% we should see a print close 2% next month. Unprocessed food prices were 3.3% higher compared to 1.4% in Jan 2016. In terms of the impact of the data to ECB policy outlook with the core rate staying stuck at 0.9% you should expect the ECB to maintain that current policy accommodation is still appropriate.

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