FX Market Update 10-5

Market Briefs

  • EUR/USD -0.1%, USD/JPY -0.1%, GBP/USD +0.1%, EUR/GBP -0.2%
  • DXY -0.1%, FTSE +0.2%, DAX flat, Gold +0.1%, Copper -0.3%
  • EUR/USD hits 2-week low of 1.0858
  • Dollar slips initially after Comey firing news then recovers
  • Gold edges off 8-week low as Comey firing weighs on risk appetite – Rtrs
  • Copper vulnerable, signs of weak China demand weigh – Rtrs
  • FR Mar Trade balance -5.353bln vs prev -6.432bln rvsd. -6.00bln f/c
  • Norway’s economy “has turned the corner” -central bank’s Nicolaisen – Rtrs
  • Dovish Swedish cbank says too early to change policy direction-minutes – Rtrs
  • France’s Hollande to hand presidential powers to Macron on Sunday – Rtrs
  • BoJ Gov Kuroda: Not thinking now of changes to policy mix, YCC main focus – Rtrs
  • Kuroda: Too early to talk on specific exit strategies – Rtrs
  • Kuroda: Monitoring FX impact on economy – Rtrs

Looking Ahead – Economic Data (GMT)

  • 12:00  MBA Weekly Mortgage Application Indices
  • 13:30  Import Prices (Apr) mkt +0.2% m/m, prev -0.2% m/m
  • 13:30  — Import Prices ex-Fuels (Apr) prev +0.2% m/m
  • 13:30  Export Prices (Apr) mkt +0.1% m/m, prev +0.2% m/m
  • 15:30  EIA Weekly Petroleum Status Report
  • 19:00  Treasury Budget (Apr) mkt -$175.8 bn, prev -$106.5 bn

Looking Ahead – Events, Other Releases (GMT)

  • 16:45  FedTrade Operation 30-yr Fannie Mae/Freddie Mac (max $1.6 bn)]
  • 17:00  FRB Boston’s Rosengren luncheon speech; NYC
  • 20:00  New York Fed releases agency MBS operation schedule

Currency Summaries
EUR/USD

  • Asia bought a little EUR/USD 1.0871-98, Europe sells some 1.0859-98
  • The major influence has been EUR/USD’s surprise failure over 1.10
  • Long liquidation has been evident since and proving most influential
  • Gap after 1st round French vote 1.0788-1.0821:
  • High probability gap is filled. Low option vols back trendless markets
  • Vols suggest 1.05-1.10 range reasserted or perhaps small rise 1.06-1.11

USD/JPY

  • USD/JPY range has been 113.63-114.13
  • Stops likely to be clustered above Tue’s 114.32 peak
  • Japanese exporter offers return in size to put brakes on spot rise
  • Bids from 113.60-70 but not large till pre-113.00
  • Demand at the Gotobi Tokyo fix was not that strong
  • North Korea missile test threats have weighed on USD/JPY
  • 30/60-day log correlation with significant across UST-JGB curve

USD/CHF

  • CHF gained vs the dollar early Europe after Trump fired FBI director
  • USD/CHF lower initially to 1.0048 vs Tues’ 1.0091 peak. 1.0075 Asia high
  • 1.0043 is 100-day MA sppt. Rebound to Europe’s high at 1.0070 ahead of NY
  • EUR/CHF offered, -0.1% to 1.0943 from 1.0966 Europe/1.0969 Asia
  • Support by 30-day upper Bollinger threatened, techs roll over

GBP/USD

  • GBP/USD met fresh headwind pre-1.30 after catching bid from Ldn open
  • 1.30 = option barrier level. 1.2988 = European am high, 1.2938 = ensuing low
  • Three recent  cable failures pre-1.30 (one last Friday & two Monday)
  • EUR/GBP plumbed 19-day low of 0.8383 after tripping stops sub-0.84 early Europe
  • Cross had traded on 0.84 handle since Macron’s first round election win

USD/CAD

  • USD/CAD based at 1.3687 after falling from an early Europe high of 1.3732
  • Parameters within Tuesday’s 1.3671-1.3753 range (low before high)
  • Key support 1.3643 (last Friday’s low after failure pre-1.38 option barrier level)

AUD/USD

  • AUD/USD is trading within strike of a quarter-yard 0.7375 expiry for NY cut
  • Offers expected near 0.74: AUD 1bln 0.7400 expiry Thursday
  • 0.7398 was Tuesday’s high, before weak Aussie retail sales data hurt AUD
  • Dalian iron ore closed up 2.6% Wednesday, source of support for AUD

NZD/USD

  • NZD/USD has risen to a high of 0.6935 ahead of RBNZ event risk at 5pm ET
  • 0.6890-0.6911 = Asia range. RBNZ is expected to keep OCR at 1.75%, MPS in focus
  • RBNZ may bring forward expectations of hike to 2018 from 2019
  • 1.0633 = 10wk low for AUD/NZD during European am. 1.0641 was Asia low


FX OPTIONS

  • EUR related vols stay heavy at long term lows as broader ranges hold
  • 1mth EUR expiry captured June ECB from Monday to limit losses
  • Cable and EUR/GBP 1mth vols at 2 year lows. O/n vols propped in to MPC
  • Thurs Cable 12.0/65 pips, EUR/GBP 11.0/40 pips. Thur NZD 17.0/50 pips over RBNZ
  • USD/JPY vol gains have peaked with spot, JPY call setback stalls

COMMENT
Norges Bank data miss but not yet a concern

Softer than expected Norway inflation in April but prices likely to come back on track in May. An unchanged 1.7% core rate was 0.4% below the Norges Bank call but with an Easter skew the April data needs to be taken in that context (Full Story). Food prices fell more than expected, 0.7%, while air fares added 0.5%. Leaving April aside the inflation outlook favours a rebound and a tighter margin to the Norges Bank estimate of 1.9% for May. Central Bank policy remains loose but a shift to a more dovish stance will require a significant undershoot in the May core prices. A weaker NOK and improving domestic economic backdrop should help underpin inflation in coming months. Inflation data supportive of EUR/NOK but range trading at slightly softer levels expected through May.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s