FX Market Update 12-5

Market Briefs

  • EUR/USD +0.1%, USD/JPY -0.2%, GBP/USD -0.2%, EUR/GBP +0.3%
  • DXY flat, DAX +0.1%, FTSE +0.2%, Gold +0.3%, Brent -0.2%
  • Dollar heads for strongest week this year on Fed hike bets – Rtrs
  • EZ Mar Ind production -0.1% m/m, 1.9% y/y vs prev -0.1%/+1.4% rvsd. 0.3%/2.3% f/c
  • DE AprCPI final 0.0% m/m, 2.0% y/y vs prev 0.0%/2.0%. 0.0%/2.0% f/c
  • DE Q1 GDP flash SA 0.6% q/q vs prev 0.4%. 0.6% f/c
  • Germany says will tell U.S. at G7 that the world needs its leadership – Rtrs
  • IMF, euro zone say need more time to reach Greek debt relief deal – Lagarde – Rtrs
  • NTERVIEW-Risks to euro zone economy still not balanced -ECB’s Lane – Rtrs
  • Austrian Foreign Minister Kurz calls for snap election – Rtrs
  • BOJ’s Kuroda: protectionism is no solution for fixing global inequality – Rtrs
  • BOJ board member Harada: QQE producing “excellent results” – Rtrs
  • Riksbank’s Jansson-still worried about fast and big strengthening in SEK

Looking Ahead – Economic Data (GMT)

  • 13:30  CPI (Apr) mkt +0.2% m/m, +2.3% y/y; prev -0.3% m/m, +2.4% y/y
  • 13:30  — CPI Core (Apr) mkt +0.2% m/m, +2.0% y/y; prev -0.1% m/m, +2.0% y/y
  • 13:30  Retail Sales (Apr) mkt +0.6% m/m, prev -0.2% m/m
  • 13:30  — Retail Sales ex-Autos (Apr) mkt +0.5% m/m, prev flat m/m
  • 13:30  — Retail Sales Control (Apr) mkt +0.4% m/m, prev +0.5% m/m
  • 15:00  Business Inventories (Mar) mkt +0.1% m/m, prev +0.3% m/m
  • 15:00  Michigan Sentiment (prelim May) mkt 97.0, prev 97.0
  • 18:00  Baker-Hughes Rig Count (weekly)


Looking Ahead – Events, Other Releases (GMT)

  • 14:00  FRB Chicago’s Evans on the economy; Dublin, Ireland
  • 16:45  FedTrade operation 30-year Fannie Mae/Freddie Mac (max $1.625 bn)
  • 17:30  FRB Philadelphia’s Harker on the economic outlook

Currency Summaries
EUR/USD

  • EUR 1.1024-1.0839 this week but only 1.0898-39 last 3 days
  • One-month EUR/USD vol close to 2017 low:
  • VIX bounces but close long-term lows:
  • Stocks at record highs are around the globe:
  • Unwind EUR shorts over & EUR/USD at upper-end 2017 range 1.1020-1.0340
  • EUR is a prudent choice for anyone looking to fund a carry trade

USD/JPY

  • USD/JPY range has been 113.55-113.95
  • Offers are in place above 114.00, some are option-related
  • Option mkt seeing buyers of very short dated USD/JPY d-side
  • Found support @113.45 when market dropped on Thu on long liquidation
  • Market was bid in early Asia on Tokyo fix demand, i-day outlook now mixed
  • There are a decent amount of bids said to be circa 113.50

EUR/CHF

  • EUR/CHF contained in hourly cloud, 1.0941/58. 100-HMA at 1.0933
  • 1.0954-44 range. Pullbk to 1.0931 Thurs on haven flows but limited
  • Key downside sppt – 1.0906 is 38.2% Fibo of May’s 1.0793/1.0977 rise
  • Cross struggled by post Brexit hurdles by 1.10. 1.1010 Brexit wk high
  • USD/CHF off its best, 1.0100 peak Thurs. Tight 1.0085-1.0077 Europe

GBP/USD

  • Cable elicited fresh support circa 1.2850 after falling from 1.2889
  • 1.2889 = early Ldn high. Bids around 1.2850 based Thursday losses
  • Asia high was 1.2900, former support level (1.2903 = Tuesday low)
  • Cable slid thru 1.29 Thursday after only one MPC vote for rate hike
  • EUR/GBP up to 0.8458 during European am after +0.6% German Q1 GDP
  • Double UK Q1 GDP: NIESR estimates UK GDP +0.2% 3mths to end-Apr

USD/CAD

  • Mooted bids at 1.3680 lending support to USD/CAD: 1.3686 = early Ldn low
  • 1.3680 was Thursday’s Ldn am low, revisited during North American session
  • More bids tipped at 1.3650 (1.3648 was Wednesday’s low)
  • 1.3700 option expiry for NY cut (closest-to-market), USD 405mn strike
  • USD/CAD has respected 1.3643-1.3793 May 5 range thru week-to-date

AUD/USD   

  • 0.7400 option expiry for NY cut exerting magnetism over AUD/USD
  • AUD 363mn strike. 0.7405 = 4-day high after 0.7372 early Europe low
  • 0.7425 resistance (Monday’s high). US CPI/retail sales data 1230GMT

NZD/USD

  • NZD/USD eyeing 0.6860 after vaulting 0.6848 (Asian session high)
  • 0.6860 was Thursday’s NY session high. 0.6864 = Ldn am high Thursday
  • Bids tipped at 0.6820 (0.6818 = Thurs low) & 0.6800, stops mooted sub-0.68

FX OPTIONS

  • Little to inspire G10 vol longs yet – many curve near long term lows
  • Even 1mth EUR/USD of 0.75 this week, despite June ECB capture
  • Cable 1mth vol targets 2015 lows at 6.3. EUR/GBP vols lows since 2014
  • USD/JPY price action suggests market short downside gamma
  • AUD/USD vols and AUD put risk rev bias back near recent/2.5 year lows

COMMENT
Set trade parameters wide for USD/ZAR longs

The broad EM FX rally is providing short-term relief for the rand as underlying negatives remain. Playing USD/ZAR from the long side is the favoured trade while the potential for further political uncertainty hangs over the rand. Though some way off, the ruling ANC chooses a successor to beleagured President Zuma in December and a smooth transition is unlikely given rifts within the party over Zuma’s sacking of popular finmin Gordhan. The rand is also ultra-sensitive to fragile commodity markets which are being held to ransom by Chinese data. Growth concerns are a further weight on the rand and associated rating agency scrutiny adds to the negative backdrop. USD/ZAR is currently supported by the 100-DMA at 13.3265 and capped by the 200-DMA at 13.6215. Favour a long play at market 13.4250, for a run through the May 5 13.7125 high targeting 14.00. Stop placement below the 55-DMA, currently 13.2290.

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