FX Market Update 6-7

Market Briefs

• EUR/USD +0.08%, USD/JPY +0.12%, GBP/USD +0.23, EUR/GBP -0.14%
• DXY -0.16%, DAX -0.72%, FTSE -0.70%, Brent +1.40%, Gold -0.12%
• German industrial sector getting back on track as orders pick up
• DE May Industrial Orders m/m, +1.0% vs f’cast +2.0%, prev -2.1% revsd -2.2%
• ECB needs patience, steady hand to revive inflation: Praet
• French central bank chief raises French growth outlook to 1.6 pct
• No such thing as “frictionless” trade, Barnier warns UK
• UK financial watchdog says firms must be free to choose location after Brexit
• Leftist protesters vow to disrupt G20 summit in Hamburg
• Trump says U.S. will confront threat from North Korea very strongly
• China June data to show steady growth, debt crackdown dims outlook
• PBOC says will strengthen its ability to adjust interest rates
• Oil rises after U.S. inventory drop but outlook remains gloomy
• Gold slips after Fed minutes show split outlook, data eyed
• MoF flow data week-ended July – Japanese sell net Y772.8 bln foreign bonds
• Japanese investors re-setting for-bond exposures on higher yields abroad
• Foreign investors sell net Y1.0627 trln parked in Japanese bills, re-pat flow
• Japan-EU trade agreement likely from today, to cover wide spectrum of goods.
• Japan Inc’s vast pool of cash is growing stagnant – Nikkei

Looking Ahead – Economic Data (GMT)

• 11:30 US Challenger Job Cuts (Jun) (prev 51,692)
• 12:15 US ADP National Employment Report (Jun) (mkt +185k, prev +253k)
• 12:30 US Initial Jobless Claims (Jul 1 wk) (mkt +243k, prev 244k)
• 12:30 US Continued Claims (Jun 24 wk) (prev 1.948 mn)
• 12:30 US International Trade (May) (mkt -$46.2 bn, prev -$47.6 bn)
• 12:30 CA Trade Balance C$ (May) (mkt -0.53 bln, prev -0.37 bln)
• 13:45 US Markit Services PMI (Jun) (flash 53.0, prev 53.6)
• 14:00 US ISM Nonmanufacturing Index (Jun) (mkt 56.5, prev 56.9)
• 15:00 US EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

• 14:00 Fed Governor Powell (voter, centrist) on housing finance reform
• 15:45 FedTrade Operation 15-Year Fannie Mae / Freddie Mac (max $625 mn)
• 18:30 FedTrade Operation 30-Year Fannie Mae / Freddie Mac (max $1.625 bn)

Currency Summaries

EUR/USD

• EUR/USD inches up in lacklustre European session
• EUR/USD range 1.1331-67 in Europe after 1.1330-55 in Asia
• Week’s range 1.1313-1.1426 largely biased lower until today
• Large expiries 1.1290-1.1340 today may prove magnetic closer 14GMT cut
• ADP the big event at 12.15GMT f/c 185k
• Aside major ADP miss, tight ranges likely ahead NFPs Friday

USD/JPY

• USD/JPY outlook remains bullish, but 114.00 offers to cap for now
• Narrowing UST/JGB spreads relieve upside USD/JPY pressure
• Offers reinserted @113.50, market in state of flux ahead of Fri US NFP
• Heavy above 113.50 despite rise to 113.69 on Wed
• Range has been 112.88-113.47 so far

EUR/CHF

• EUR/CHF struggles ahead of post-Brexit hurdles by 1.10. 1.0965 Wed/Thurs peak
• 1.0987 was the high in May. Risk for pullback emerging on the charts
• 1.0899 = cloud top. Reversal signal on Wed candles but confirmation needed
• Swiss inflation eased more than expected in Jun. 0.2% y/y vs 0.3% f/c
• 0.5% rise in May. On monthly basis CPI felll 0.1% vs 0.0% f/c
• The rise has allowed SNB room to ease up on intervention action until now
• USD/CHF sideways in tight 0.9659-0.9645 range in Europe ahead of ADP today
• 0.9638 was the low in Asia from Wed’s 0.9687 peak

GBP/USD

• Cable met headwind pre-1.2950 after heading north late Asia/early Europe
• 1.2947 = late Asia/early Europe high (1.2948 was Wednesday’s high)
• More offers tipped pre-1.30. Above-figure resistance 1.3030 & 1.3050
• 1.3030 = recent 5wk peak. 1.3050 = option barrier level (1.3048 = May high)
• Bids noted around 1.2900 (1.2894 was Wednesday’s low)
• MPC hawk McCafferty due to speak on LBC radio today (Thursday)

USD/CAD

• USD/CAD tested 1.2936 after breaking below 1.2956 (Asia low)
• 1.2936 = 76.4% of 1.2912 (Tuesday’s 10mth low) to 1.3015
• 1.3015 was Wednesday’s high after CAD hurt by steep oil price fall
• WTI 45.77/barrel at 0955GMT after closing 2 bucks lower at 45.13 Wednesday
• Canada & US jobs data due Friday. BoC rate announcement next week

AUD/USD

• Decent size 0.7600 option expiry for NY cut is helping to anchor AUD/USD
• AUD 364mn strike. 0.7586-0.7614 = Thursday range-to-date
• 0.7570-0.7632 was Wednesday’s range (high before low)
• Another decent size 0.7600 option expiry Friday, AUD 375mn strike

NZD/USD

• NZD/USD respected its 0.7264-0.7293 Asia range thru the European am
• 0.7254-0.7297 was Wednesday range. 0.7263-0.7300 = Tuesday range
• Small 0.7300 option expiry for NY cut, NZD 116mn strike
• RBNZ is expected to keep OCR at 1.75% next month (Aug 10)

FX OPTIONS

• O/n (Friday expiry) vols roll over NFP, but premiums on the tame side
• 1wk expiry gets Humphry Hawkins. 1wk CAD gets BoC – jumps 8.0 to 11.0
• 2wk is ECB, with FED and UK MPC still within 1mth expiry to prop related
• JPY vols look to have peaked for now, JPY call strikes remain firm
• AUD/USD vols met demand after initial post RBA setbacks. AUD puts firmer

COMMENT

Fed minutes give USD/ZAR bulls better entry levels

Those who missed the chance to get long USD/ZAR Wednesday before the 2.6% rally may have a second chance following minutes to the Fed which showed a split FOMC. The committee appears divided on what the September meeting should deliver, a hike or reduction in the balance sheet, resulting in a benign USD reaction. For USD/ZAR, this has led to a reasonable 13.35 pullback from Wednesday’s 13.4975 high and an opportunity to position for further ZAR weakness. A much-touted negative S.African economic backdrop and underlying political uncertainty has further reduced the ZAR’s carry attractiveness. Favour a USD/ZAR long at market for a run to the 13.71 May 9 high with the bull view only negated below 10-DMA and daily cloud base support at 13.1050-13.0820.

 

CHART

Cloud twist could help Aussie bears

Technicals continue to argue the case for a lower AUD/USD and those playing the short side are hopeful of a sustained move below the 38.2% Fibo at 0.7582 to confirm a correction of June’s 0.7374 to 0.7712 rise. The 38.2% retrace is the minimum technical requirement for a correction and while Wednesday’s fall broke the Fibo to test 0.7570 it failed to close below. A close under the 38.2% Fibo could then bring the 50% and 61.8% Fibos at 0.7542 and 0.7502 into play. The daily cloud has dropped today and it twists by 0.7490 on July 19, which could also help attract the price lower. That said, there is a chance of some intraday rebounds towards the 10-DMA at 0.7621 and Tenkan resistance at 0.7636 first so fading recoveries for 0.7500-0.7490 looks to be the favored strategy

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