FX Market Update 1-2

Market Briefs 

  • USD/JPY +0.5%, GBP/USD +0.4%, EUR/USD +0.1%
  • DXY +0.1%, DAX +0.9%, Brent +0.25%, Gold -0.01%
  • DXY +0.1% but holds below 100.00, close to Tues 99.430 low
  • Oil edges further above $55 on Russia, OPEC cuts – Rtrs
  • EZ Jan Markit Manuf final PMI 55.2 vs prev 55.1. 55.1 f/c
  • GB Jan Markit/CIPS Manuf PMI 55.9 vs prev 56.1. 55.9 f/c
  • CH Jan Manuf PMI 54.6 vs prev 56.2 rvsd. 55.8 f/c
  • GB Yr-end infl exp rise to 2.6% in Jan vs 2.4% in Dec, highest since Dec 2013 – Citi/YouGov
  • GB Jan Nationwide house price +0.2% m/m, +4.3% y/y vs prev 0.8%/4.5%. 0.0%/4.4% f/c
  • JP Aso, Abe reject currency restrictions on trade pacts – Rtrs
  • JP Suga: no change to willingness to respond to FX moves – Rtrs
  • Macron seen most likely to win French presidency, Fillon not making 2nd round-poll – Rtrs


Looking Ahead – Economic Data (GMT)

  • 12:00  MBA Weekly Mortgage Application Indices
  • 13:15  ADP National Employment (Jan) mkt +165k, prev +153k
  • 14:45  Markit Manufacturing PMI (Jan) flash 55.1
  • 15:00  ISM Manufacturing PMI (Jan) mkt 55.0, prev 54.7
  • 15:00  Construction Spending (Dec) mkt +0.3% m/m, prev +0.9% m/m
  • 15:30  EIA Weekly Petroleum Status Report
  • n/a   Total Vehicle Sales (Jan) mkt 17.90 mn SAAR, prev 18.43 mn SAAR
  • n/a   — Domestic Car Sales (Jan) mkt 5.15 mn SAAR, prev 5.30 mn SAAR
  • n/a   — Domestic Light Truck Sales (Jan) mkt 8.85 mn SAAR, prev 9.25 mn SAAR

Looking Ahead – Events, Other Releases (GMT)

  • 14:00  FOMC two-day meeting resumes (see Fed Outlook )
  • 19:00  FOMC policy statement

Currency Summaries

EUR/USD

  • EUR/USD little moved in Europe with range 1.0775-1.0800
  • EZ final Jan PMI 55.2 from 55.1
  • EUR 2bln of vanilla option expiries at 1.0750
  • US ADP @13.15FMT eyed 165k in Jan. 153k in Dec
  • Bulls require a close over 100-DMA 1.0798 & cloud top 1.0826
  • Below 21-DMA @ 1.0668 would neutralize:

USD/JPY

  • Recovery continues from Tue’s 112.08 low. Barriers tipped @112.00
  • Japanese importer demand, buy backs from specs has pushed market higher
  • Range today has been 112.65-113.63.
  • Tech bias on downside, but 111.99 Fibo needs to be broken
  • Pivot supply comes in @113.81, cloud cap intra-day
  • Various Japanese officials respond to Trump overnight
  • Expect volatile trading due to US FX talk & run up to Feb 10 Abe/Trump meeting

USD/CHF

  • USD/CHF off Tues low but stays weak in subdued trade ahead of Fed
  • Plays 0.9916 to 0.9891. 0.9862 low retest on cards after recovery fail
  • 0.9880 30-DMA bolli base and 0.9873 200-DMA key supports
  • Bears require close under 200-DMA
  • Similar story in cross. Tight 1.0690 to 1.0680. 100-HMA sppt @ 1.0675

GBP/USD

  • GBP/USD rose from 1.2545 to a high of 1.2629 during the European am
  • 1.2629 = intra-week peak. Air may get thinner near 1.2674 (recent high)
  • EUR/GBP fell from 0.8592 to a low of 0.8545 during the European am
  • Four of 8 members of Times Shadow MPC “favour a rate increase now”
  • David Smith in Times says “strong case” for reversing August’s 25bp cut

USD/CAD

  • USD/CAD met headwind pre-1.31 in Asia after extending north from 1.2969
  • 1.2969 = Tuesday’s 4mth low after USD fell on Navarro/Trump currency views
  • Poloz said firmer CAD is headwind for Canadian export sector

AUD/USD

  • AUD/USD threatened 0.76 during European am after rising from 0.7553 (Asia low)
  • Offers just above 0.76 capped gains into month-end Ldn fix Tuesday
  • 0.7609 = recent 11wk high (Jan 24). 0.7630 (Nov 11 high) resistance beyond

NZD/USD

  • NZD/USD fell to 0.7259 in Asia on weak NZ Q4 jobs data (0.7253 = 10DMA)
  • 0.7347 = early Asia high (pre-NZ jobs data). 0.7291 = European am high
  • AUD/NZD extended north to a 1wk high of 1.0431 during the European am

FX OPTIONS

  • USD pares some of y/day’s losses, while risk sentiment has improved marginally
  • Vols off highs – USD/JPY 1mth 12.25 vs 12.65 and 1mth RR 0.6 vs 0.8 JPY calls
  • EUR/USD 1mth 8.2 vs 8.6 Mon-sellers of USD calls weigh. 1mth RR 0.5 vs 0.8 EUR puts
  • Gamma performs best in JPY and GBP to  keep a bid tone under short dates
  • N/term focus FED, BoE MPC and Fri’s NFP – also gamma supportive

 

COMMENT
G20 FX consensus in for a shakeup

Under the G20 agreement, there used to be a shared view that 1) the group would consult closely on FX 2) resist all forms of protectionism and 3) calibrate and communicate policy actions to reduce uncertainty. The G20 consensus on cooperation, coordination, trade and FX are in for a big shakeout under the Trump administration’s focus on ‘America first’. The G20 consensus has helped to limit FX volatility by providing a forum for countries to cooperate and coordinate without having a destabilising public dialogue. Trump’s comments that “other countries are taking advantage by devaluation” may be a negotiating tactic but it’s a dangerous strategy. The dollar has been stronger but it isn’t fundamentally over-valued. There is little appetite from either the G7 or G20 to accept currency revaluation even if protectionist winds pick up speed. FX markets will just have to accept higher volatility as the G20 becomes less cohesive on trade and FX policy.

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