FX Market Update 22-5

Market Briefs

• EUR/USD -0.18%, USD/JPY flat, GBP/USD -0.35%, EUR/GBP +0.17%
• DXY +0.15%, DAX -0.38%, FTSE +0.33, Gold flat
• Merkel says Euro is ‘too weak,’ makes German products cheaper
• In Israel, Trump says there is “rare opportunity” for peace
• Germany, France: low inflation, imbalances make euro zone vulnerable
• Japan Apr trade surplus (Yen) 481.7 bln vs f’cast 520.7 bln, last 614.7 bln
• Saudi energy minister due in Iraq to discuss extension to oil output cuts; Brent +0.75%
• China’s favored trade deal in focus at Asian meeting
• Germany, France: low inflation, imbalances make euro zone vulnerable
• Germany’s Schaeuble pushes back in Greece debt relief row

Looking Ahead – Economic Data (GMT)

12:30 Chicago Fed National Activity Index (Apr) (prev 0.08)

Looking Ahead – Events, Other Releases (GMT)

14:05 FRB Philadelphia’s Harker at Jefferson College commencement
14:30 FRB Minneapolis’s Kashkari welcome remarks at Opportunity and Inclusive Growth conf
15:45 FedTrade Operation 15-year Fannie Mae / Freddie Mac (max $525 mn)
23:30 Fed Gov Brainard at Opportunity and Inclusive Growth conf; Minneapolis, MN
• 25:10 FRB Chicago’s Evans text of remarks at OTC derivatives conf; Shanghai, China

Currency Summaries

• EUR/USD a little lower on the day but still looking bullish
• Techs and momentum favour buyers with 1.1300 targets popular
• EUR longs grew roughly EUR 2bln to EUR 5bln:
• Interest rate markets move a little against EUR/USD bulls
• US rates rebounding slightly:
• Initial support @ hourly cloud base/100-HMA 1.1156 & 200-HMA 1.1134


• USD/JPY geared up for fall after large strikes expire later
• 111.40-50 likely magnetic as 1bln worth of NY cut strikes set to expire here
• Japanese importers, others amongst buyers, pop to 111.61 post-Tokyo fix
• Recall 110.85 has been the lowest seen so far
• Decent supply remains clustered around 112.00
• Japan April trade surplus Y481.7 bln, Y520.7 bln eyed, surplus with US -4.2%
• Exports to US +2.6% y/y, China +14.8%, Asia +12.2%, all exports +7.5%
• All imports +15.1%, crude oil +10.8%, LNG +3.0% and thermal coal +8.7%


• EUR/CHF offered through Europe, plays 1.0915-1.0884
• EUR/CHF eyeing 1.0867 Thurs low & 61.8% Fibo of May rise once more
• 1.0929 capped the cross for 3 straight days last week (Wed-Fri)
• Swiss domestic sight deposits rise to 487.479bln w/e May 19 vs 484.541
• Total also up. Data suggests SNB fx activity
• CHF gained last wk after Trump concerns fueled demand for safe havens
• USD/CHF up near 0.2% but hovers close to Friday’s 0.9726 low
• Spot initially bid to 0.9765 but then lower to 0.9744
• Downside risk remains, Nov 9 election day low at 0.9550 is key support


• Brexit uncertainty & UK election event risk are helping weigh on GBP
• Davis said Britain’s EU ‘no deal’ threat is genuine in Sunday Times interview
• Latest Survation & YouGov poll said Tory lead over Labour down to 9%
• Ladbrokes quotes 8/1 for hung parliament after June 8 vs 16/1 recently
• Cable fell to threaten 1.2964 during European am, 50% of 1.2888-1.3040
• EUR/GBP scaled fractionally fresh Q2 high of 0.8625 during European am


• USD/CAD elicited fresh support pre-1.3500 during the European am
• 1.3508 = Asia low & European am low. 1.3509 was pre-weekend low
• CAD benefitting from higher oil prices: WTI at 1mth high near 51/barrel
• IMM net CAD short position 98,000 contracts in week to May 16
• USD/CAD threatened 1.38 earlier this month (May 5)
• Bank of Canada meets this week (Wednesday)


• AUD/USD met fresh headwind near 0.7470 during the European am
• 0.7470 was Friday’s 16-day high (0.7468 was May 18 high)
• More offers are tipped at 0.75. Dalian iron ore closed up 4.2% Monday


• NZD/USD extended north to 0.6958 (19-day high) in early European trade
• Kiwi benefitting from prospect of Fonterra & NZ budget event risks
• Prospect of higher milk price forecast from Fonterra Wednesday
• Joyce set to unveil a higher than expected NZ budget surplus on Thursday
• 0.70 among NZD/USD resistance levels beyond 0.6969 (May 3 high)


• OPEC Friday props gamma in related vols – CAD also gets BoC Wed
• 1 week expiry falls on US/UK holiday to add weight to vols there today
• Risk recovers since last week and vols under broader pressure – JPY leads
• EUR/USD vol setbacks minimal so far – fair value vs realised
• Next major focus after June NFP is ECB and FOMC


USD/JPY bulls may be in for another lurch lower

USD/JPY bulls should brace themselves for a potential squeeze lower, especially if there’s a fresh bout of risk aversion. Recall the market registered a close on Friday back below the 111.39 weekly cloud top, weakening the underlying position of USD/JPY bulls sitting on a vulnerable oversized position. Risk is growing for an extension of losses through last week’s 110.24 low to retest 110.00, below which a plethora of stops will be vulnerable. The large bet against yen has haunted bears since Tuesday, when IMM data showed a sharp increase in net yen shorts just before a decisive shift lower in USD/JPY Wednesday. Short IMM contracts rose from 36,307 to 60,008, the highest yen short position since the end of March which is the equivalent of long cash position in USD/JPY worth 6.5 yards of dollars. USD/JPY bulls (need to regain?) the daily cloud top at 111.82 for firmer foothold this week.


AUD/USD fall set to resume

Downside AUD/USD risk has returned and the rejection from close to the 30-DMA could see a fall to the lower 30-DMA Bollinger at 0.7336, not far from the May 9 0.7329 base. May’s recovery ran into trouble on Friday close to the daily Kijun at 0.7471 and the 30-DMA at 0.7473. The rejection is likely to trigger a retracement of May’s 0.7329 to 0.7470 rise. The 38.2%, 50% and 61.8% Fibos are at 0.7416, 0.74 and 0.7383, respectively. The high on Friday was 0.7470 and the slow stochastic has peaked at overbought levels which also suggests the next move is lower. Selling at current levels is favored for at least a return to the aforementioned 61.8% Fibo at 0.7383. A break there opens the path to a full retracement to May’s low

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