FX Market Update 16-2

Market Briefs 

  • EUR/USD +0.3%, USD/JPY -0.5%, GBP/USD +0.4%, DXY -0.4%,
  • DAX -0.2%, Brent +0.1%, Gold +0.3%, Copper -0.1%
  • Dollar on the retreat after 11 straight days of gains
  • Russian RUB steady having hit strongest lvls since mid-2015
  • Gold improves as the USD backs away from 11-day bull run
  • BoJ Gov Kuroda: Low rates may sow seeds of new financial crisis – Rtrs
  • EU’s Dombrovskis: Swift deal on Greece needed to avert fresh uncertainty – Rtrs
  • Swedish unemployment 7.3 pct in Jan, in line with f/c – Rtrs
  • Australia jobless rate dips, masks slump in full-time work – Rtrs
  • Swiss takeover commission-J&J offer for Actelion meets legal requirements – Rtrs

Looking Ahead – Economic Data (GMT)

  • 13:30  Initial Jobless Claims (Feb 11 week) mkt 245k, prev 234k
  • 13:30  — Continued Claims (Feb 4 week) mkt 2.051 mn, prev 2.078 mn
  • 13:30  Housing Starts (Jan) mkt 1.222 mn SAAR, prev 1.228 mn SAAR
  • 13:30  — Building Permits (Jan) mkt 1.230 mn SAAR, prev 1.226 mn SAAR
  • 13:30  Philly Fed Manufacturing Index (Feb) mkt 18.0, prev 23.6
  • 16:00  New York Fed’s Household Debt and Credit Report (Q4’16)

Looking Ahead – Events, Other Releases (GMT)

  • 12:30  ECB meeting minutes
  • 16:45  FedTrade operation 15-year Fannie Mae / Freddie Mac (max $600 mn)

 

Currency Summaries

EUR/USD

  • EUR/USD 1.0594-1.0624 in Asia then higher to 1.0642 in Europe
  • 100-HMA underpins, 200-HMA caps:
  • Rate divergence in opposition to EUR/USD rally:
  • Daily cloud base @ 1.0560 (close) key below:
  • Closing break likely leads to new trend lows
  • 21-DMA 1.0697 looks key above, conditions likely neutral on close over

USD/JPY

  • Japanese Post 120 view initially boosts USD/JPY
  • Thereafter slides slowly to 113.55 basing ahead 21-DMA 113.45
  • UST/JGB spreads provide support:
  • Spec JPY shorts clearly influencing current pullback
  • 55-DMA looks key above @ 115.02:
  • Philly Fed, initial claims & housing data to garner focus in NA

USD/CHF

  • USD/CHF -0.3%. 1.0058-1.0009 (Asia high-Ldn low). 1.0015/16 into NY
  • Broadly lower USD helps spot off Wed 1.0119 peak. Tech signals add weight
  • Close below the Kijun. Kijun/Tenkan crossover and a shooting star signal
  • EUR/CHF offered, plays 1.0663-1.0943. Close to historical 1.0623 Brexit low
  • Ok for J&J/Actelion deal is CHF supportive

GBP/USD

  • GBP/USD short-covering aided rise from 1.2459 to 1.2523 during European am
  • Prior short-covering assisted climb from 1.2384 to 1.2481 high Wednesday
  • EUR/GBP pivoted 0.8500 during the European am, as the USD lost value
  • 0.8458 (200DMA) is key support level. Resistance 0.8530 (Tuesday’s high)

USD/CAD

  • USD/CAD elicited support near 1.3025 after extending south during the European am
  • 1.3025 was Tuesday’s low. 1.3055 was Asia low. 1.3120 = Wednesday’s high
  • More bids expected near 1.3000 (1.3008 was last week’s low, Feb 6)

AUD/USD

  • AUD/USD eased to a European am low of 0.7684 as more AUD longs were closed out
  • 0.7732 was 3mth high shortly after Australian jobs data release at 7.30pm ET
  • Jobless rate unexpectedly fell to 5.7%, but full-time jobs down 44,800 in Jan

NZD/USD

  • NZD/USD met headwind pre-0.7250 in Asia after extending north from 0.7147
  • 0.7147 was Wednesday’s low after higher than expected US CPI/retail sales
  • AUD/NZD threatened 1.0638 during European am after profit-taking on longs
  • 1.0638 was Tuesday’s low. 1.0694 = Asia high, shortly before Australian jobs data
  • Cross scaled 16wk peak of 1.0708 Wednesday (1.0440 = Feb 8 low, pre-RBNZ)

FX OPTIONS

  • EUR/USD: 1.0500 (2BLN), 1.0585 (321M), 1.0600 (1.4BLN), 1.0625 (398M), 1.0685 (1.3BLN)
  • GBP/USD: 1.2390-1.2400 (535M), 1.2670 (380M)
  • EUR/GBP: 0.8475 (400M). AUD/USD:0.7540 (1.3BLN), 0.7600 (513M), 0.7700 (260M)
  • AUD/NZD: 1.0800 (1.3BLN). USD/CAD: 1.3065-70 (582M)
  • USD/JPY:  113.45-60 (1.6BLN), 114.00 (2BLN), 115.00 (4BLN)

 

COMMENT

AUD/USD may be close to topping out

Surging commodity prices have been at the core of bullish AUD strategies this year but AUD/USD is now likely close to a top. After a massive 7.7% rise in just 39 days, the pair has reached levels worth shorting. AUD/USD was capped multiple times on 0.77 last year and once on 0.78. There will be a huge amount of corp and option hedging interest to weigh on AUD/USD around 0.7750/0.7850. Specs are undoubtedly now long and the carry earned versus USD is insignificant, requiring faster-paced FX moves to lure buyers and not the likely grind required through major resistances at these much higher levels. Two-year Oz/U.S. yield spreads have run counter to the AUD/USD rise, narrowing around 10bps since December. Futures imply a 30bps narrowing between official Oz/U.S. rates in the next 12 months. The main barrier to even more US tightening is a protectionist U.S. administration. If that is the case, pro-risk FX like AUD and EM currencies will suffer.

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