FX Market Update 30-6

Market Briefs

• EUR/USD -0.31%, USD/JPY -0.02%, GBP/USD -0.17, EUR/GBP -0.11%
• DXY +0.12%, DAX +0.24%, FTSE +0.18%, Brent +0.67%, Gold -0.14%
• Euro zone core inflation ticks up in relief for ECB
• EZ Jun Inflation Flash y/y, +1.3% vs f’cast +1.2%, prev +1.4%
• EZ Jun Inflation Flash Ex-Food & Energy, +1.2% vs f’cast +1/0%, prev +1.0%
• UK consumers suffer longest decline in spending power since 1970s
• GB Q1 GDP q/q, +0.2% vs f’cast +0.2%, prev +0.2%
• GB Q1 GDp y/y, +2.0% vs f’cast +2.0%, prev +2.0%
• GB Q1 Business Invest q/q, +0.6%, prev +0.6%
• GB Q1 Business Invest y/y, +0.7%, prev +0.8%
• German retail sales rise more than expected in May
• DE May Retail Sales Real m/m, +0.5% vs f’cast +0.3%, prev -0.2% revsd -0.2%
• DE May Retail Sales Real y/y, +4.8% vs f’cast +2.5%, prev -0.9% revsd -0.4%
• DE Jun Unemployment Chg SA, 7k vs f’cast -10k, prev -9k revsd -7k
• DE Jun Unemployment Total NSA, 2.47 mln, prev 2.49 mln
• DE Jun Unemployment Total SA, 2.55 mln, prev 2.54 mln revsd 2.54 mln
• DE Jun Unemployment Rate SA, +5.7% vs f’cast +5.7%, prev +5.7%
• Trump administration reverses policy on fiancés as travel ban takes effect
• Gold heads for first monthly loss this year
• Crude oil prices firm, set for biggest weekly gain since mid-May
• China factory growth unexpectedly quickens, but debt risks pressure economy
• China “outraged” by $1.42 bln planned U.S. arms sales to Taiwan
• LNG price row between India, US crimps Trump’s export aims

Looking Ahead – Economic Data (GMT)

• N/A US Atlanta Fed GDPNow (Q2) (prev +2.9% q/q AR)
• 12:30 US Personal Income (May) (mkt +0.3% m/m, prev +0.4% m/m)
• 12:30 US Personal Consumption Expenditures (May) (mkt +0.1% m/m, prev +0.4% m/m)
• 12:30 US Core PCE Deflator (May) (mkt +0.1% m/m, +1.5% y/y; prev +0.2% m/m, +1.5% y/y)
• 12:30 CA GDP (Apr) (mkt +0.2% m/m, prev +0.5% m/m)
• 12:30 CA Producer Prices (May) (prev +6.3% y/y)
• 12:30 CA Producer Prices (May) ( mkt +0.3% m/m, prev +0.6% m/m)
• 12:30 CA Raw Materials Prices (May) (prev +17.7% y/y)
• 12:30 CA Raw Materials Prices (may) (mkt -1.0% m/m, prev +1.6% m/m)
• 13:00 US Dallas Fed Trimmed Mean PCE Index (May) (prev 1.9% y/y)
• 13:45 US Chicago PMI (Jun) (mkt 58.0, prev 59.4)
• 14:00 US U of Michigan Consumer Sentiment Index (final Jun) (mkt 94.5, prev 94.5)
• 14:00 US U of Michigan Current Conditions Index (final Jun) (mkt 109.5, prev 109.6)
• 14:00 US U of Michigan Expectations Index (final Jun) (mkt 84.7, prev 84.7)
• 15:15 US New York Fed Staff Nowcast for Real GDP (Q2) (prev +1.9% q/q AR)
• 15:15 US New York Fed Staff Nowcast for Real GDP (Q3) (prev +1.5% q/q AR)
• 17:00 US Baker-Hughes Rig Count (weekly) (prev 758, +11 w/w, +428 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 13:45 FedTrade Operation 30-Year Fannie Mae / Freddie Mac (max $1.8 bn)

Currency Summaries


• EUR/USD lower in Europe today as some take a profit
• Data has been supportive of further rise but selling dominates
• Big yy beat for German retail sales & EZ CPI just above f/c
• EUR/USD drifts down 1.1441 to 1.1392
• Support between Jun 28 high 1.1392 & June 29 low 1.1375
• Option interest at 1.1450. High today 1.1445
• 1.1455 76.4% 1.2570-1.0340 (Dec 14 peak to Jan 17 low/trend low)


• USD/JPY range has been 111.73-112.16
• Supported by the daily cloud which spans 111.26-83
• Despite corrective moves, wider UST-JGB spreads underpins USD/JPY
• Further widening should see a recovery in USD/JPY towards 113.00
• 5 & 10yr UST-JGB spreads key for USD/JPY bulls
• Few investors are betting that safe-haven yen will rise even with LDP setback
• An LDP setback could be a forerunner for bigger election risks facing Abe
• Could mean the market is not taking adequate USD/JPY downside protection
• Mkts bet Abe “pulls stimulus from hat” if Tokyo election stings – Reuters


• Softer EUR/CHF in Europe after marginal new high in Asia. 1.0949-1.0927
• Cross has struggled near 1.10 since recovering from ’16 Brexit dive
• CHF firmer after KOF points to brighter outlook for Swiss econ
• Swiss KOF indicator rose 3.5pts to 105.5 in Jun fm rvsd 102.0
• O/B techs. 1.0883 30-DMA eyed after cross corrects inside 30-D bolli bands
• Cloud top at 1.0871 among support levels
• USD/CHF continues to track EUR/USD. 0.9564-0.9594 in Europe fm 0.9554 Asia low
• Rise likely providing better selling opportunities as trend remains lower


• Cable fell to 1.2977 (Thursday’s Asia top) after 0830GMT release of UK data
• UK household disposable income fell for third quarter in a row in Q1
• First time since the 1970s. UK household savings ratio 1.7%, all-time low
• UK Q1 C/A deficit GBP 16.895bln vs 17.25bln f/c, equivalent to 3.4% of GDP
• Cable scaled 5wk peak of 1.3030 in Asia. Stops expected above 1.3050
• 1.3048 was 8mth high in May. Option barriers tipped at 1.3100


• CAD continues to benefit from recent hawkish shift in BoC hike expectations
• 48% probability of 25bp hike to 0.75% July 12-BOCWATCH on Eikon
• 1.2970 = 5mth low for USD/CAD in Asia Friday (1.2969 = Jan 31 low)
• 1.3000 = European am high Friday (1.3000 = former support level)
• Canada Apr GDP data 1230GMT, +0.2% f/c. BoC biz outlook survey 1430GMT


• Profit-taking on AUD longs helped deflate AUD/USD to 0.7671 Europe am low
• 0.7712 was 3mth high in Asia on solid China PMIs (0.7687 = Thursday high)
• Large 0.7700 option expiry next Tuesday (July 4), AUD 1.28bln strike
• Strike rolls off after RBA monetary policy decision that day (0430GMT)


• NZD/USD is on the front-foot as quarter-end looms, close to 0.7344
• 0.7344 = Tuesday’s 20wk high. 0.7310-0.7332 = European am range
• AUD/NZD eased to 1.0473 Europe am low as AUD longs booked some profit
• Cross matched Thursday’s 1.0535 high early Asia. 1.0535 = 2wk peak


• EUR/USD spot, vol and EUR call gains peak after solid deman post Draghi
• Cable vols need break of 1.3050-1.31 barriers. 1mth GBP put bias erased
• Solid demand for AUD vols. 1mth risk reversals 8yr low for AUD puts
• 1mth USD/CAD vol peaks but setbacks will be limited pre BoC 12 July
• USD/JPY risk premiums rather tame in to Japan elections


Changing times may see SEK a winner

The Swedish kroner may be a surprise outperformer if central banks meet the current expectations of financial markets. Bond yields are rising as traders bet the days of super easy rates are behind us with the Fed and ECB leading and both seen paring stimulus in September. Unlike U.S. and eurozone markets, betting for the Swedish kroner is still bearish having been influenced by a surprisingly dovish central bank. The Riksbank bucked expectations to ease further in April sending the SEK its lowest in a year around 9.80 versus the euro. However, near 2 months of upside pressure for EUR/SEK have failed to trigger a break through long-term highs 9.90-10.00. This leaves traders short SEK and vulnerable to the influence of rising yields and a high probability ECB changes influence a less dovish view in Sweden. The Riksbank makes its next monetary policy decision on July 4. Some doves might grow talons and boost SEK.


EUR/GBP risks deeper fall below 21-DMA

Technicals are beginning to point to a deeper EUR/GBP decline which could extend to the 38.2% Fibo of the May to June 0.8383 to 0.8880 rally at 0.8690 and then onto 0.8631 and 0.8573. The latter levels are the respective 50% and 61.8% Fibos of that May-June move. Closer to market, the 21-DMA at 0.8774 was pierced on the earlier drop to 0.8764. The average has supported the market since the beginning of the rise on May 10 and a break/close below would signal further weakness for the cross. It is worth keeping an eye on the weekly charts into the week’s close. There is a potential Doji reversal signal in the making on the candlesticks. If confirmed, a move back inside the weekly cloud is likely and would increase downside risk. The weekly cloud top currently lies at 0.8694.


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