FX Market Update 2-5

Market Briefs

  • EUR/USD +0.2%, USD/JPY +0.3%, GBP/USD +0.2%, EUR/JPY +0.5%
  • DXY flat, DAX +0.2%, FTSE +0.5%, Brent +0.7%, Copper +0.6%
  • USD/JPY rises to 6 week high at 112.25
  • Sterling, UK yields gain after strong UK manufacturing data
  • Copper continues rise with help of Asia stock gains – Rtrs
  • UK PM May says EU united in getting deal that “works for them” – Rtrs
  • May Mon insisted neg rpts about her talks with EC Pres Juncker are just “Brussels gossip”
  • GB Apr Markit/CIPS Mfg PMI 57.3 vs prev 54.2. 54.0 f/c
  • EZ Apr Markit Mfg final PMI 56.7 vs prev 56.8. 56.8 f/c
  • EZ Mar Unemployment rate 9.5% vs prev 9.5%. 9.4% f/c
  • CH Apr Manufacturing PMI 57.4 vs prev 58.6. 58.3 f/c
  • Swiss domestic sight deposits fall to 479.458bln fm 480.587 w/e Apr 28
  • Germany: Greek deal is important step but work continues – Rtrs
  • ECB’s Nouy wants Basel deal on bank rules as quickly as possible – Rtrs
  • Australia central bank holds rates at 1.5%
  • RBA unch policy consistent with sustainable growth/achieving infl target over time
  • Saudi finance minister says likely to tap foreign, local bond markets again this yr – Rtrs

Looking Ahead – Economic Data (GMT)

  • 13:55  Redbook Weekly Same-Store Sales Index prev +1.7% y/y
  • n/a    Light Vehicle Sales (Apr) mkt 17.05 mn SAAR, prev 16.62 mn SAAR
  • n/a    — Domestic Car Sales (Apr) prev 4.59 mn SAAR
  • n/a    — Domestic Light Truck Sales (Apr) prev 8.65 mn SAAR


Looking Ahead – Events, Other Releases (GMT)

  • 18:00  FOMC begins 2-day policy meeting
  • 19:30  FedTrade Operation 30-year Ginnie Mae (max $1.0 bn)

Currency Summaries
EUR/USD

  • EUR/USD 1.0905-26 in Europe after 1.0900-26 in Asia
  • EUR 3bln vanilla expiries today 1.0850-1.1000 limiting movement
  • Euro zone April manufacturing PMI a notch below the 56.8 forecast at 5.7
  • EUR/JPY well bid, likely risk averse bets to hedge Korea risk
  • Cross serving to underpin EUR/USD and maintain threat on 1.1000 options
  • Recent longs looking to 200-DMA @ 1.0835 as pivotal for their positions

USD/JPY

  • USD/JPY continues to edge higher, underpinned  by wider yield spreads
  • Has broken above 112.15 – 38.2% retrace of 118.66 to 108.13 fall
  • USD/JPY has seen a range of 111.79-112.25, stops clustered above 112.30
  • 30/60-day UST/JGB & USD/JPY correlation significant across the board
  • Outlook adds to the bull structure as above 111.39 weekly cloud top
  • Large NY Cut Expiries @ 111.65 (705M), 111.80 (1.1B) could draw

EUR/CHF

  • A little lower in Europe after notching up a new 4-month high in Asia
  • Plays 1.0873-1.0848. Tech focus remains on 1.0860 61.8% Fibo
  • No close above yet despite 4 breaks since last wk’s rally to 1.0869
  • SNB continue to support EUR/CHF, possible new soft floor at 1.08
  • USD/CHF holds familiar levels, back below the 200-day MA at 0.9954
  • 0.9957-0.9938 Europe. 0.9962 Asia peak

GBP/USD

  • GBP/USD dropped to test 1.2865 early Europe on Brexit concerns
  • Concerns derive from FAS account about recent Juncker/May meeting
  • 1.2865 was Apr 27 low. 1.2915 = high after big UK mfg PMI beat at 4.30am ET
  • 1.2915 = 50% retracement of 1.2965 (last Friday’s 7mth high) to 1.2865
  • EUR/GBP rose to 0.8484 in early European trade on Brexit concerns
  • 0.8450 was low after big UK mfg PMI beat (0.8405 = pre-weekend low)

USD/CAD

  • USD/CAD tested both sides of its 1.3654-1.3683 Asia range during the European am
  • High before low, with retreat influenced by 60 cent WTI rise from $48.54/barrel low
  • Option barrier tipped at 1.3700 (1.3697 was last Friday’s 14mth high)

AUD/USD

  • AUD/USD threatened 0.7522 (early Asia low) after retreating from 0.7556
  • 0.7556 was Asia high, after unchanged RBA.
  • Dalian iron ore closed up 4.7% Tuesday, source of support for AUD

NZD/USD

  • NZD/USD elicited early Europe support pre-0.6900 after retreating from 0.6937
  • 0.6937 = six-day high in Asia as NZD benefitted from rise in risk appetite
  • Dairy auction result expected circa 10am ET

FX OPTIONS

  • Vols find a floor at last week’s post round 1 French vote sell off lows
  • 1 week vols supported now on round 2 capture, also FOMC and NFP
  • Premiums well below pre round 1 highs as Macron win looks set
  • Cable vols lowest since late 2015, appear decent value to reinstate longs
  • CAD vols biggest gainers from 2yr lows since spot broke 12mth peak 1.36


COMMENT
Guarded Norges Bank policy stance likely

The Norges Bank’s policy meeting this week may well pass off with little market impact. A policy report is not scheduled and the Reuters poll consensus is for rates to be held at 0.50%. The current rate path has scope for a further cut but unlike the Riksbank, a more dovish stance is unlikely. Since the last Norges Bank meeting in March, data and events have supported a steady hand and to a degree have argued the case for policy tightening. A 6.2% weakening of the NOK versus EUR from March to May will go some way in shaping a more hawkish stance at the c.bank but rhetoric is likely to be guarded and hawkish views kept to a minimum to ward off a NOK rally. The June policy meeting will provide a clearer NB position in respect of its rate path but for now the c.bank is on hold for rates and views

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