FX Market Update 17-5

Market Briefs

• EUR/USD +0.01%, USD/JPY -0.66%, GBP/USD +0.22%, EUR/GBP -0.15%
• DXY -0.08%, DAX -0.4%, FTSE flat, Copper -0.12%
• S.Korea’s Moon says “high possibility” of conflict with North as missile crisis builds
• Merkel’s conservatives extend lead over Social Democrats -poll
• GB Mar Avg wk earnings 3m yy +2.4% vs prev 2.3%, first pay squeeze since 2014
• GB Apr Claimant count unemp chng +19.4k vs revsd +33.5k prev 25.5k
• GB Mar ILO Unemployment rate 4.6% vs prev 4.7%
• BOJ’s Kuroda says told Abe will continue with ultra-easy policy
• JP Mar core machinery orders +1.4 % m/m vs prev 1.5%
• Oil dips on U.S. inventory build, defies OPEC-led cut efforts, Brent -0.06%
• Gold rises to two-week high amid Trump concerns, +0.75%
• EZ Apr Inflation final yy 1.9% vs prev 1.9%

Looking Ahead – Economic Data (GMT)

11:00 MBA Weekly Mortgage Application Indices
14:30 EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)
13:45 FedTrade Operation 30-year Ginnie Mae (max $975 mn)
15:45 FedTrade Operation 15-year Fannie Mae / Freddie Mac (max $600 mn)

Currency Summaries
EUR/USD

• Good start for EUR/USD bulls as pair trades up to 1.1122
• Then swift pullback to 1.1080
• 1.1092-1.1122 rise took 13 hours, 1.1122-1.1080 nearer an hour
• Risk-off feel to broader trade centred on Trump supports dip buys
• EUR/USD buyers line up orders ahead 1.1000
• US rates ease in light of latest Trump shenanigans:
• Break 1.1129 61.8% 1.1616-1.0340 drop needed to inspire bulls

USD/JPY
• Trump political woes sees flows back into yen, concern over tax agenda rises
• USD/JPY has fallen from 113.13 to 112.26, before stabilising
• On the way down stops circa 112.70/112.80 were triggered
• Daily cloud, which spans 111.41-112.24, provides relief for USD/JPY bulls
• Expect a decent build up of bids around 112.00
• UST-JGB spread narrows, USD/JPY 30/60-day correlation high across curve
• Japan Mar core machinery orders +1.4% m/m, -0.7% y/y, +2.1% and +0.6% eyed

EUR/CHF
• CHF gained to 7-wk 0.9820 high vs USD amid Trump concerns
• U.S political uncertainty keeps USD under pressure, safe haven flows into CHF
• The rise in the franc broke below key USD/CHF Fibo support at 0.9853
• 0.9853 is the 61.8% Fibo of the Trump 0.9550-1.0343 rise
• A close below risks a full retracement to the Nov 9 0.9550 low
• EUR/CHF post French election rally to 1.0987 may have peaked
• Cross above 1.09 for now but retracement of 1.0793-1.0987 underway
• 38.2% Fibo pierced today. 50%/61.8% Fibos at 1.0890/1.0867

GBP/USD
• Something and nothing day for GBP traders
• GBP/USD near opening 1.2930 level within 1.2907-53 range
• Test of 1.3000 barriers proving elusive again
• EUR/GBP snaps back after trading to 0.8616 so over 200-DMA/daily cloud
• Real money selling turned the tables on those long, cross to 0.8563
• GBP/JPY down slightly today in line Trump concerns and soft stocks
• UK jobless up but U/R rate down, average earnings small downside miss

USD/CAD
• USD/CAD fell 1.3720-1.3601 Mon as oil rallied, based 1.3575 y/day
• Light crude now consolidiates middle of Mon’s 47.75-49.66 range
• Broader USD weakness keeps a lid on USD/CAD, 1.3580-1.3635 today
• 1.3575 is 38.2% of 1.3224-1.3793 and wkly cloud top, bears need close below
• Tues high 1.3659, 10DMA 1.3672 and Mon’s 1.3720 peak resistance levels

AUD/USD
• AUD/USD lower amid combination of AUD/JPY sales and EUR/AUD demand
• NYT report Trump/Comey/Flynn investigation fuelling risk aversion
• 0.7440-0.7391 so far today, stopped by alleged corp bids at 0.7390
• Mons 0.7386 low support before Fri 0.7369 low. 10dma is at 0.7394
• Dalian Iron ore gains and S&P reaffirmation of Aus AAA rating underpinned
• Mon’s 0.7446 recovery peak caps before 21dma 0.7453. Offers in 0.7440’s
• Expiries at both ends of range today – 0.7400 (462M), 0.7440 (502M)
• Implied vols AUD puts by recent/2.5yr lows – highlight lack of d/side fears

NZD/USD
• NZD/USD 0.6884-0.6928 in Asia but drops back to 0.6881 in London
• Sales of NZD/JPY adding weight in London – 77.81-34 so far
• Initial NZD/USD support Tues 0.6862 low, then Mon/Fri/Thur 0.6853/27/18
• AUD/NZD 1.0788-25 Asia/early London but recovers 1.0750 since

FX OPTIONS

• US political woes hurt USD and help fuel risk aversion/JPY gains, Vols up
• EUR/USD short topside covering boosts vols and EUR calls along the curve
• Low absolute levels fuelling demand as pair tests/breaches 1.11 barriers
• USD/JPY vols ramped up. AUD vols/puts still lack demand at 2.5yr lows
• GBP/USD 1mth 1.0 above Fri’s long term low. 1.30 barriers cap GBP


COMMENT

Sterling bulls running out of fuel

We continue to advocate picking a top ahead of 1.3000/1.3032 in GBP/USD as sterling bulls are running out of fuel. GBP/USD failed to tackle 1.3000 barriers on Tuesday on higher UK CPI, only reaching 1.2958 which is instructive of the sheer scale of supply above including 1.2990 which was the 2017 high posted on May 8. Trump woes which hit the dollar in Asia [nL2N1II0BO] again failed to lift GBP/USD close to the 1.3000 level. The March-May rise from 1.2110 to 1.2990 was fuelled, in part, by a squeeze on sterling shorts. As of last Tuesday, IMM speculative net short contracts fell to 46,798 from 81,364 the preceding week, meaning a further pursuit of shorts maybe less successful. If the market breaks 1.3000, it still has to regain the important 1.3032 Fibonacci level – 76.4% retrace of the 1.0520 to 2.1162 (1985 to 2007) rise – in order to exert further upward pressure

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