FX Market Update 11-5

Market Briefs

  • EUR/USD +0.05%, USD/JPY -0.1%, GBP/USD -0.15%, EUR/GBP +0.2%
  • DXY -0.1%, DAX flat, Silver +1.4%, Copper +1.8%, Brent +1.6%
  • Sterling dips after UK output data disappoints, trade gap widens – Rtrs
  • UK Mar Construction output -0.7% m/m, +2.4% y/y vs prev -1.3%/+0.9% rvsd. 0.3%/2.8% f/c
  • UK Mar Manuf output -0.6% m/m, +2.3% y/y vs prev -0.3%/+3.7% rvsd. 0%/+3.0% f/c
  • UK Mar Ind output -0.5% m/m, +1.4% y/y vs prev -0.8%/+2.5% rvsd. -0.3%/+2.1% f/c
  • UK Mar Global good trade balance -13.441bln vs prev -11.448 rvsd. -11.8bln f/c
  • DE Apr Wholesale price index 0.3% m/m, 4.7% y/y vs prev 0.0%/4.7%
  • CH Apr CPI 0.2% m/m, 0.4% y/y vs prev 0.2%/0.6%. 0.2%/0.5% f/c
  • EU raises euro zone growth forecasts, sees unemployment to drop – Rtrs
  • French exports to rebound in 2017 – central bank head – Rtrs
  • Kiwi slides as NZ c.bank retains inflation outlook, neutral rate bias – Rtrs
  • SNB Jordan: Neg int rates/interventions central to SNB since CHF still sig overvalued – Rtrs
  • Jordan: Monetary policy needs to remain expansive because infl is still very low
  • Norway’s finance minister says crown weakness boosts competitiveness – Rtrs
  • Swedish crown hits one-week high vs. euro after inflation beats forecasts – Rtrs
  • MoF April flow data – Japanese big net sellers of foreign bonds, Y4.2559 tln
  • MoF April flow data – Foreigners good buyers of Japan stocks, JGBs, bills
  • Japan Mar c/a surplus Y2.9077 trln, Y2.6432 eyed, Feb surplus Y2.8136 tln
  • Japan April bank loans continue to show steady rise, +3.0% y/y, March +3.0%

Looking Ahead – Economic Data (GMT)

  • 11:00  GB BOE May QE Corp, 10 bln f/c; last 10 bln
  • 11:00  GB BOE May Bank Rate, 0.25% f/c; last 0.25%
  • 11:00  GB BOE May QE Gilts (GBP), 435 bln f/c; last 435 bln
  • 13:30  Initial Jobless Claims (May 6 week) mkt 245k, prev 238k
  • 13:30  — Continued Claims (Apr 29 week) mkt 1.980 mn, prev 1.964 mn
  • 13:30  PPI-Final Demand (Apr) mkt +0.2% m/m, +2.2% y/y; prev -0.1% m/m, +2.3% y/y
  • 13:30  — PPI-Final Demand Core (Apr) mkt +0.2% m/m, prev +1.7% y/y; prev flat m/m, +1.6% y/y

Looking Ahead – Events, Other Releases (GMT)

  • 11:25  FRB New York’s Dudley on globalization; Mumbai, India

Currency Summaries
EUR/USD

  • Market indecision Wed/Thurs and EUR/USD struggles for direction
  • Plays to base of a 1.0893-1.0864 range into New York
  • May 24 low 1.0821. Unfilled gap 1.0788-1.0821 on the radar
  • Bullish momentum ebbs and long liquidation at play
  • Failure to regain even 100/200-HMAS, now 1.0921, to lean on price
  • US/German rate divergence has stalled but trend weighs EUR/USD bears
  • Chart: US vs Bund:
  • USD/JPY
  • USD/JPY likely has a mixture of offers and stops circa the 114.40 level
  • 114.38 was Wed peak. More offers in size up to 115.00
  • Range has been 114.07-114.37 so far
  • Speculative accounts, long of USD/JPY, aim to take the market higher
  • 1.27bln 114.00 strike set to expire at the NY cut pins near-term

USD/CHF

  • Unwinding of CHF strength broad theme, uptick in risk appetite weighs
  • EUR/CHF holds close to post Brexit hurdles by 1.10. 1.1010 Brexit week high
  • 1.0977 (Tues) was the highest for the cross since Sept 14 1.0985
  • Little lower but pullbacks limited. Plays 1.0974-1.0955 in Europe
  • USD/CHF off to 1.0073 but recovery to 1.0084 ahead of NY. Dble day hi @ 1.0095
  • Market talk of stops above 1.0100. 1.0108 Apr’s high. 1.0170 March

GBP/USD

  • GBP/USD dropped to threaten 1.2900 after weak UK data at 4.30am ET
  • 1.2949 was early Ldn high. Stops tipped below 1.29 (1.2902/03 = recent lows)
  • BoE event risk 7am ET: MPC rate vote initial focus, 7-1 expected
  • Topside stops above 1.30 at risk if Saunders joins Forbes in voting for rate hike
  • 4 recent fails pre-1.30 (option barrier level): Friday, Monday x2 & Wednesday
  • EUR/GBP rose to 0.8428 after the weak UK economic data at 4.30am ET

USD/CAD

  • USD/CAD to 1.3680 during European am as WTI rose to $48.15 (8-day high)
  • 1.3743 was early Europe low as continent digested Moody’s news
  • Moody’s downgraded 6 Canadian banks. 1.3744 = Asia high on Moody’s news
  • Key support 1.3643, May 5 low after 1.38 option barrier threatened same day
  • USD/CAD elicited support pre-1.3643 Monday & Wednesday

AUD/USD

  • AUD/USD is eliciting support from near 2% rise for Ldn copper (+0.67% 2am ET)
  • 0.7379 = European am high. Offers expected near 0.74 (0.7395 = Weds high)
  • Large 0.7400 option expiry for NY cut, AUD 1bln strike
  • Short-covering lifted AUD/NZD to 1.0777 in Asia after RBNZ hurt NZD
  • 1.0610 was Wednesday’s 3mth low, pre-RBNZ event risk

NZD/USD

  • NZD/USD met headwind circa 0.6863 after pushing recovery envelope from 0.6818
  • 0.6818 was 11mth low in Asia after RBNZ-induced purge of NZD longs
  • 0.6863 = May 5 low. Bids tipped at 0.6800-20 (0.6802 = 3 June 2016 low)

FX OPTIONS

  • O/n GBP vol 15.0/80 pips, EUR/GBP 13.0/45 pips in to MPC, Inflation, Carney
  • 1mth GBP vols only marginally higher from 2yr lows since election capture
  • EUR/USD vol slide stalls for now at 2.5yr lows. 1mth propped by June ECB
  • USD/JPY vol recovery stalls as spot falters above 114.00. JPY call bias off lows
  • AUD/USD vols and risk rev not far from 2yr lows, limited downside fears

COMMENT

Specs to favour dollars over yen through May
USD/JPY bias remains firmly on the upside targeting 115.00/116.18 initially, supported by the technical outlook and interest rate differentials. This is fuelling optimism that the recovery cycle from 2017’s 108.13 low will persist throughout May. Current market talk, backed by last week’s increase in IMM yen shorts, is that speculative accounts are strongly favouring USD/JPY longs. This is the first weekly increase in IMM yen shorts since the middle of March. The technical outlook is bullish for a test of 116.18 – 61.8% retrace of the 118.66 to 108.13 (December to April) fall – as long as bulls manage to register a weekly close above 113.40 Fibonacci. UST-JGB yield spreads are likely to widen throughout May as June’s FOMC nears which should put upward pressure on USD/JPY. USD/JPY’s 30/60-day log correlation is significant across the UST-JGB yield curve

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