FX Market Update 7-7

Market Briefs

• EUR/USD -0.09%, USD/JPY +0.42%, GBP/USD -0.48%, EUR/GBP 0.42%
• DXY 0.17%, DAX -0.18%, FTSE 0.03%, Brent -2.31%, Gold -0.31%
• UK economic data weakens, casting doubt on BoE rate hike talk
• GB May Construction O/P Vol y/y, -0.3% vs f’cast +1.1%, prev -0.6% rvsd -0.1%
• GB May Industrial Output y/y, -0.2% vs f’cast +0.2%, prev -0.8%
• GB May Mfg Output y/y, +0.4% vs +1.0%, prev 0.0%
• UK house prices rise at slowest pace in more than 4 years – Halifax
• GB Jun Halifax House price 3M/YY, 2.6% vs f’cast 3.1%, prev 3.3%
• U.S. job growth seen accelerating; unemployment rate steady
• World leaders braced for tough talks with Trump on climate, trade
• Trudeau: G20 will tell Trump he should take lead on climate change
• Strong rise in German industrial output signals solid Q2 growth
• DE May Industrial Output m/m, 1.2%, vs f’cast 0.3%, prev 0.8%, rvsd 0.7%
• ECB should adjust policy carefully, flexibly: Coeure
• ECB taper fears leave euro zone bonds battered and bruised
• BOJ should steadily proceed with ‘implicit’ tapering – ex-BOJ Shirai
• Bank of Japan offers to buy unlimited amount of bonds to calm markets
• Japan May machinery orders seen bouncing, Trump poses risk longer term
• Oil prices fall 2 percent on signs market still oversupplied
• Gold edges down, set for biggest weekly drop in 2 mths
• Japan May regular pay +0.9% y/y, best gain since ’00, total cash earnings +0.7%
• Japan end-June foreign reserves $1.2498 trln, end-May $1.2518tn

Looking Ahead – Economic Data (GMT)

• 12:30 US Nonfarm Payrolls (Jun) (mkt +177k, prev +138k)
• 12:30 US Unemployment Rate (Jun) (mkt 4.3%, prev 4.3%)
• 12:30 US Average Hourly Earnings (Jun) (mkt +0.3% m/m, prev +0.2% m/m)
• 12:30 CA Jun Employment change, (mkt +10.0k, prev +54.4k)
• 12:30 CA Jun Unemployment rate (mkt +6.6%, prev 6.6%)
• 12:30 CA Participation rate (prev +65.80%)
• 14:00 CA Jun Ivey PMI (prev +62.6)
• 14:00 CA Jun Ivey PMI SA (prev 53.8)
• 15:15 New York Fed Staff Nowcast for Real GDP (Q2)
• 15:15 New York Fed Staff Nowcast for Real GDP (Q3)
• 17:00 Baker-Hughes Rig Count (weekly)
• 19:00 US Treasury STRIPS (May)

Looking Ahead – Events, Other Releases (GMT)

• 15:00 FRB publishes the July 2017 Monetary Policy Report to the Congress
• 15:45 FedTrade Operation 30-Year Ginnie Mae (max $1.05 bn)

Currency Summaries

EUR/USD

• EUR/USD becalmed ahead today’s U.S. jobs report
• European range just 1.1407-27 extending yesterday’s high by 2 pips
• Potential anchor EUR 1.8bln vanilla option expiries 1.1400-10 today
• Bar the obvious NFP hit/miss, average earnings the one to watch f/c 0.3%
• NFP f/c 179k after softer ADP result but impressive ISM results
• Resistance @ 1.1450 & 1.1500 barriers. Support @ 200/1001-HMAs 1.1374/69

USD/JPY

• BoJ action earlier spurs spot towards 114.00
• USD/JPY has a session 113.11-113.84 range
• Bulls have chewed thru 113.50 offers to zero in on option strikes above
• Stops above 113.70 were triggered on the way up
• 1.1 yards worth of 113.90/114.00 strikes set to expire at NY cut
• Widen UST-JGB yield gap has led to gains in USD/JPY
• 30/60-day 10yr UST-JGB log correlations with USD/JPY are significant

EUR/CHF

• EUR/CHF almost matched Thurs 1.0991 peak but not quite. 1.0968-1.0990
• Very close to the post-Brexit & Sep ’16 peak at 1.1000
• May see 1st daily & weekly closes above 61.8% of 2016’s range at 1.0980
• Swiss forex reserves down in June. Fell to 693.482bln vs 694.244 in May
• April revised from an originally reported 693.727
• Data suggests SNB activity to tame CHF continues to ease
• USD/CHF 0.9601-0.9672 today’s range ahead of U.S jobs data
• CH unemploy fell to lowest in nearly 2 yrs despite strong CHF

GBP/USD

• Cable fell to 1.2913 after 0830GMT release of worse than expected UK data
• May industrial, mfg & construction output numbers all unexpectedly negative
• May trade deficit wider than expected too. 1.2949-1.2965 = early Ldn range
• Disappointing UK data is blow for hawks advocating BoE rate hike Aug 3
• EUR/GBP up to threaten 0.8850 on the back of the disappointing UK data
• 0.8850 is 76.4% of 0.8880 (last week’s 7mth high) to 0.875

USD/CAD

• USD/CAD held sub-1.30 during European am, despite oil price drop
• WTI fell to 1wk low of 44.20/barrel during European am, buck+ lower on day
• 1.2994 = USD/CAD peak in Asia (revisited in early European trade)
• 1.2994 = high since 1.2924 (Thurs low). 1.3020 key resistance beyond 1.30
• Multiple recent fails near 1.3020, including since 1.2912 10mth low Tues
• Canada & US jobs data due 1230GMT. BoC rate verdict next week (July 12)

AUD/USD

• AUD/USD gravitated to 0.7600 option expiry during European am
• 0.7600 expiry rolls off at 10am ET NY cut, AUD 375mn strike
• Dalian iron ore closed up 3.3% Friday on drop in Australian exports

NZD/USD

• NZD/USD held below 0.73 during the European am
• 0.7293 was Asia peak/high since Thursday’s 2wk low of 0.7245
• Profit-taking on shorts has helped inflate AUD/NZD to 1.0440
• 1.0397 was 10-day low in Asia (1.0550 = Tuesday high, pre-neutral RBA)

FX OPTIONS

• EUR/USD barriers 1.1450-1.1500 cap spot/vol advance
• Similar story in USD/JPY with 114.00 barriers. JPY calls still bid
• Cable and EUR/GBP 1m vols good value vs realised and MPC ahead
• AUD/USD vols heavy with spot at 0.76 pivot. 1wk CAD firm in to BoC
• O/n vols obviously propped in to NFP, with above barriers vulnerable

COMMENT

NOK struggling to get back bullish credentials

The Norwegian crown’s fortunes are starting to look up moving through mid-year, thanks to the Norges Bank’s rate path up-tick and an improved look to oil price, but it faces some headwinds. EUR/NOK and NOK/SEK short-term trends have lacked magnitude as the battle between oil, monetary policy and economic performance brought relatively tight ranges and quick reversals. However, EUR/NOK weekly charts are pointing higher and a buy on dips strategy is still valid. It will take a drop under 9.4040, mid-June low, to alter the picture significantly enough to justify longer-term short plays. It will be a struggle to reverse the longer-term trend that has been against the NOK since February.

CHART

EUR/GBP making fresh stab at 2017 peak

EUR/GBP bulls are set to make another stab at a daily close back above the flat 0.8818 tenkan line, which in turn will pave the way to a retest of 2017’s 0.8880 peak posted at the end of June. The tenkan and kijun lines are positively aligned, reinforcing the underlying bullish structure. As the cross found decent support circa the kijun line at 0.8760 in recent days, it enabled bulls to reassert themselves. This support was found well ahead of important bid platform at 0.8746 – 23.6% retrace of 0.8315-0.8880 (April-June) rise. Only a break and daily close back below the 0.8746 Fibonacci level will shift the overall bias to the downside and warn that the bullish cycle is at an end

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