FX Market Update 5-7

Market Briefs

• EUR/USD -0.21%, USD/JPY +0.34%, GBP/USD -0.05, EUR/GBP -0.18%
• DXY +0.31%, DAX +0.08%, FTSE -0.08%, Brent -1.39%, Gold -0.47%
• Global use of euro declines further on political risk: ECB
• Recent euro, bond volatility not significant: Coeure
• British PM May finds it lonely at the top, but battles on – for now
• Euro zone businesses lost some momentum in June but still strong -PMI
• EZ Jul Markit Comp Final PMI, 56.3 vs f’cast 55.7, prev 55.7
• EZ Jul Markit Serv Final PMI, 55.4 vs f’cast 54.7, prev 54.7
• EZ May Retail Sales y/y, +2.6% vs f’cast +2.3%, prev +2.5%, rvsd +2.6%
• Weaker services slow down German private-sector growth in June – PMI
• DE Jul Markit Comp Final PMI, 56.4 vs f’cast 56.1, prev 56.1
• DE Jul Markit Serv PMI, 54.0 vs f’cast 53.7, prev 53.7
• Optimism ebbs among UK services firms as growth slows in June-PMI
• GB Jun Markit/CIPS Serv PMI, 53.4 vs f’cast 53.5, prev 53.8
• Take Two for Trump in talks with unnerved European allies
• Arab states to deliver verdict on Qatar as compromise elusive
• N.Korea says its ICBM can carry nuclear warhead; U.S. calls for global action
• BOJ to cut inflation forecasts, hold off on easing – sources
• Japan June services PMI 53.3, highest since Aug ’15, May 53.0
• Japan June composite PMI off to 52.9, May 53.4
• Oil slips after eight-session bull run on rising OPEC exports, strong dollar
• Stronger dollar pushes gold lower ahead of Fed minutes

Looking Ahead – Economic Data (GMT)

• 12:55 US Redbook Same-Store Sales Index (prev +2.2% y/y)
• 13:45 US ISM-New York Business Conditions Index (Jun) (prev 46.7)
• 14:00 US Factory Orders (May) (mkt -0.4% m/m, prev -0.2% m/m)
• 14:00 US Factory Orders ex-Trans (May) (prev +0.1% m/m)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade Operation 30-Year Ginnie Mae (max $1.05 bn)
• 18:00 FOMC Minutes (meeting of June 13-14)

Currency Summaries

EUR/USD

• EUR/USD softer in Europe as more longs head for the exit ahead NFPs
• Stops below 200-HMA @1.1328 inject more momentum into down move
• ECB’s Coeure holds his usual dovish line
• Higher US yields in focus but are more than matched by higher Bund yields
• EZ composite PMI 56.3 from 55.7. Spain/Germany stronger & France/Italy weak
• EUR/USD range 1.1313-68 in Europe, support @ Jun 28 low 1.1290

USD/JPY

• USD/JPY has made its way through 113.50
• Bulls need to manage a weekly close above 113.40 Fibo
• 113.40 – 50% retrace of the 118.66 to 108.13 fall
• Market found support @112.83 Wed
• Talk of supportive bids from 112.74 down to 112.50
• UST-JGB spreads should persist in boosting USD/JPY

EUR/CHF

• EUR/CHF upside focus remains & post-Brexit hurdles by 1.10 are in sight
• Cross lifted to new high for the move at 1.0965 vs Mon/Tues 1.0958 in Europe
• Softer into NY after EUR/USD spiked to 1.1318 after Coeure
• USD/CHF rise extended through the 50% Fibo of Jun’s fall at 0.9662 to 0.9676
• 61.8% of that 0.9770-0.9554 decline at 0.9687. Break could fully recoup drop
• 30-DMA close to last Fibo at 0.9685 increasing the significance of any break

GBP/USD

• Cable fell from 1.2937 to a 1wk low of 1.2894 during the European am
• Cable offers are tipped near 1.2950 (1.2948 = Asia high) & 1.30
• Stops are tipped above 1.3050 (option barrier level). 1.3048 = May high
• EUR/GBP rose to an intra-week high of 0.8809 in early European trade
• 0.8777 = subsequent low water-mark (0.8778 was Asia low)

USD/CAD

• USD/CAD eyeing 1.2947 after pushing recovery envelope from 1.2912
• 1.2912 was Tuesday’s 10mth low after stops below 1.2947 were tripped
• 1.2947 = last Friday’s low. 1.2966 (Monday’s low) & 1.30 resistance beyond
• 65% probability of 25bp BoC rate hike next week-BOCWATCH on Eikon

AUD/USD

• AUD/USD is eyeing 0.7591 after sliding from an early Europe high of 0.7632
• Drop influenced by copper price fall: down 0.85% vs +0.15% early Europe
• 0.7591 was Tuesday’s low after AUD hit hard by neutral RBA
• 0.7600 option expiries WednesdayFriday, AUD 771mn strikes (total)

NZD/USD

• NZD/USD has dropped to threaten 0.7254 amid broad greenback gains
• 0.7254 was last week’s low (June 28). 0.7250 was June 23 low
• 0.7293 = early Europe high. 0.7297 = Asia high. 0.7300 = Tuesday high

FX OPTIONS

• FOMC mins tonight and US NFP Friday to underpin related gamma
• 1mth expiries propped by a host of CB risk – BoC, ECB, FOMC, BoE
• USD/JPY risk reversals well bid JPY calls despite higher spot
• EUR/USD vol setbacks stall – mild demand today. Cable vols steady
• AUD post RBA vol setbacks stall. CAD 1mth vol remains very well bid pre BoC

COMMENT

Don’t write Zloty off yet as Polish CPI may surprise

The Polish c.bank is unlikely to change its policy stance later Wednesday, weighing on the zloty, but the domestic backdrop argues for a less dovish position. If inflation moves higher in coming months, the expected first policy tightening could be brought back to Q2 2018 from the current Q4 2018 call. The NBP has indicated it’s in no rush to raise the base rate from its current 1.5% and this brought about the recent shift in hike date forecasts. EUR/PLN reflected this change in sentiment with a steady climb to June 22’s 4.2624 high from May 16‘s 4.1619 low. With the NBP’s position well factored and EUR/PLN looking stretched, any uptick in domestic prices could trigger a swift reversal. Technically, the cross looks a sell at current levels for a return to 4.2250 daily cloud top and possibly the cloud base at 4.1970. Natural stop levels are June highs and April 21‘s 4.2840 high.

CHART

EUR/JPY’s long-term positive bias intact

EUR/JPY cycle from the 118.65 March low remains intact as bulls initially focus on 129.55 which is 50% retrace of the 149.79 to 109.30 (2014 to 2016) fall, after managing a monthly close above 124.77 – 38.2% of 149.79 to 109.30. A break and close above the 129.55 Fibonacci level at the end of July will pave the way to 134.32, 61.8% retrace of the same 149.79 to 109.30 drop. Fourteen-month momentum registered a positive reading in June, the first positive monthly reading since December 2014, reinforcing the underlying bullish market. Immediate support comes in at this week’s 127.89 low, which will strengthen if it holds out until next Monday. Conversely a break below 127.89 will signal to bulls that the bid structure is weakening, at least in the near-term, risking further losses in coming weeks.

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