FX Market Update 9-5

Market Briefs

  • EUR/USD -0.2%, USD/JPY +0.4%, GBP/USD -0.1%, EUR/CHF +0.1%
  • DXY +0.3%, DAX +0.5%, FTSE +0.6%, Brent +0.2%, Copper +0.6%
  • USD/JPY hits 8 week high at 113.63 in early London trade
  • EUR/CHF rises to fresh 7-month high at 1.0923
  • London copper edges up after losses on worries over China demand – Rtrs
  • GB Apr BRC Retail sales +5.6% y/y vs prev -1.0%
  • CH Apr Jobless rate unadj 3.3% vs prev 3.4%. 3.3% f/c
  • DE Mar Industrial output -0.4% m/m vs prev 1.8% rvsd. -0.6% f/c
  • German trade surplus narrows in March to 19.6bln fm prev 21.2bln rvsd. 20.9 f/c
  • BoJ Gov Kuroda reiterated intention to keep easy policy till CPI target met – Rtrs
  • Moody’s says BoJ becoming main source of affordable funding for government – Rtrs
  • Bank of England to set out plans to open up interbank payments in coming months – Rtrs

Looking Ahead – Economic Data (GMT)

  • 13:30  CA Building Permits (Mar) mkt 5.5%, prev -2.5%
  • 13:55  Redbook Weekly Same-Store Sales Index
  • 15:00  Job Openings and Labor Turnover Survey (Mar)
  • 15:00  Wholesale Inventories (Mar) mkt -0.1% m/m, prev -0.1% m/m
  • 15:00  — Wholesale Sales (Mar) mkt +0.2% m/m, prev +0.6% m/m

Looking Ahead – Events, Other Releases (GMT)

  • 14:00  FRB Minneapolis’s Kashkari at MN High Tech Spring Conference
  • 16:45  FedTrade Operation 30-year Ginnie Mae (max $1.0 bn)
  • 18:00  FRB Boston’s Rosengren, luncheon speech; NYC
  • 21:15  FRB Dallas’s Kaplan moderated Q&A

Currency Summaries
EUR/USD

  • EUR/USD 1.0892-1.0931 in Europe as more longs exit
  • Reports of real money demand below 1.0900. Stops below May 4 low @ 1.0875
  • Rising U.S. yields proving influential across FX
  • Bunds have lagged but tracked UST’s lessening that influence for EUR/USD
  • Downside gap 1.0788-1.0821 is back on the radar

USD/JPY

  • Japanese exporter offers ebb away, unlocking upside
  • USD/JPY continues to edge higher from 113.15 Asia low to reach 113.83
  • Market has broken above 113.77 – 76.4% Fibo 115.51-108.13
  • 113.90 pivot point is next for a test. Stops said to be above 114.00
  • Decent support has built up in the lower 113s
  • 30/60-day correlation with UST/JGB spreads across curve significant

USD/CHF

  • USD/CHF up on broad dollar gains. 0.9988 to 1.0024 3-wk high in Europe
  • 0.9980 Asia low. Rise breaks above cloud. Close above would bolster bulls
  • Key 100-day MA and 76.4% Fibo resistance in sight at 1.0045 and 1.0047
  • Cross hits 7-mth high of 1.0923 fm 1.0910 Mon close. Next res 1.0929 Oct 12 high

GBP/USD

  • GBP/USD fell to a European am low of 1.2914 as EUR/USD sagged to 1.0893
  • 1.2914 approximates to 10DMA. 1.2932-1.2960 was early Ldn range
  • EUR/GBP elicited support near 0.8422 after its early Europe break below 0.8432
  • 0.8422 was May 2 low. More bids expected near 0.8400 (0.8405 = Apr 28 low)

USD/CAD

  • USD/CAD retreated to 1.3671 after rising to 1.3708 in early European trade
  • Parameters well within Monday’s 1.3644-1.3733 range (low before high)

AUD/USD

  • AUD/USD plumbed fresh 4mth low of 0.7329 after Australia levy on banks
  • Levy unveiled in Australian Treasurer Morrison’s budget at 5.30am ET
  • 0.7335 was early Europe low amid talk of new taxes in Australian budget
  • Asia high was 0.7398, before weak Australian retail sales data

NZD/USD

  • NZD/USD revisited 0.6881 in early European trade as AUD/USD sagged
  • 0.6881 was knee-jerk low after US jobs report Friday
  • Asia high was 0.6926. RBNZ OCR verdict & MPS Wednesday 5pm ET

FX OPTIONS

  • Implied vols in most G10 pairings are at, or near long term lows
  • 1mth EUR related vols underpinned by June ECB since yesterday
  • Paring of French risk and lack of n/term events adding weight
  • USD/JPY vols see minor bounce as spot pushes higher/USD gains
  • EUR/USD in a long gamma zone whilst 1.0850/1.1050 holds

COMMENT
Euro likely to show pluck ahead of June ECB

The euro may remain well supported ahead of the ECB’s June 8 meeting. Traders have sat long Bunds for ages knowing they have the ECB’s support but things are changing with higher U.S. rates fuelling the idea that where the Fed leads others will follow. The ECB is more optimistic about growth, and while lagging U.S. yields, the 10-year Bund yield is heading towards its 2017 high. Bond markets may be set up for a wash-out of positions similar to that seen in U.S Treasuries after Trump’s November election win. With UST positioning adjusted months ago, a flush of Bund positions could give EUR/USD a major boost, yet markets need inflationary data. That said, with a June Fed hike virtually priced in, hawkish speculation regarding the ECB is likely to intensify. With a static BOJ, rate divergence should add to a bullish technical EUR/JPY picture. A break below 2016’s low of 42.3bps by the 10-year Bund/JGB yield spread would warrant attention

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