FX Market Update 11-7

Market Briefs

• EUR/USD -0.05%, USD/JPY +0.25%, GBP/USD +0.23%, EUR/GBP -0.25%
• DXY +0.1%, DAX +0.21%, FTSE -0.79%, Brent -0.58%, Gold -0.28%
• Fed’s Williams still sees rate hike, asset unwinding this year
• US Jun NFIB business optimism, 103.6 vs prev 104.5
• Launching gig economy review, Britain’s May hopes to regain authority
• Italy industry output rebounds in May after April drop
• IT Industrial output y/y, 2.8% vs f’cast 2.2%, rvsd 0.9% prev 1.0%
• IMF sees trouble ahead for emerging Europe
• EU set to approve strategy to tackle bad loans
• Oil falls as banks cut price forecasts
• Gold hovers near four-month low, undermined by firm dollar

Looking Ahead – Economic Data (GMT)

• N/A Atlanta Fed GDPNow (Q2) (prev +2.7% q/q AR)
• 12:15 CA House starts annualized (mkt +200k, prev +194.7k)
• 12:55 US Redbook Same-Store Sales Index (weekly) (prev +2.7% y/y)
• 14:00 US Wholesale Inventories (May) (mkt +0.3% m/m, prev -0.5% m/m)
• 14:00 US Wholesale Sales (May) (mkt +0.2% m/m, prev -0.4% m/m)
• 14:00 US JOLTS job openings (May) (mkt +5.950 mln, prev +6.044 mln)

Looking Ahead – Events, Other Releases (GMT)

• 13:45 FedTrade Operation 30-Year Ginnie Mae (max $1.05 bn)
• 16:30 Fed Governor Brainard speaks on monetary policy via balance sheet normalization
• 17:20 FRB Minneapolis’s Kashkari in Town Hall Q&A session; Minneapolis, MN

Currency Summaries

EUR/USD

• EUR/USD in the doldrums 1.1383-1.1400 in Europe
• No real threat to EUR/USD longs as dips to date are minimal
• 1.1313 since 1.1445 Jun high. 1.1382 since 1.1440 Jul high
• Options at 1.1450 and 1.1500 continue to define resistance
• EUR 600mln expiries 1.1375-1.1400 provide a small anchor
• Lows have been coming close to 100/200-HMAs now 1.1387/88

USD/JPY

• USD/JPY bulls eye 114.64 Fibo level
• 114.64 is 61.8% of the 118.66-108.13 drop
• 115.00 is key with decent sized barriers & 1.8 yards of NY cut expiries
• Japanese exporters good sellers on recent upticks, importers buying dips
• Range has been 114.02-114.47 Tuesday, offers ahead of 114.50
• Stops are above 114.50 & 115.00 levels
• Japan June money supply M2 +3.9% y/y, M3 +3.3%, broadest liquidity +3.1%
• Japan sitting on postal shares until price climbs – Nikkei

EUR/CHF

• EUR/CHF continues to soar, new high for move at 1.1040 and still climbing
• Above key 1.0980 61.8% Fibo of 2016 range. 1.1063 is 76.4% retrace level
• Little else in the way of resistance until 1.12, highest since floor abandoned
• Steady USD/CHF climb, 0.9668-9.9687. Tests 0.9687 Fibo resistance
• Dollar gains and EUR/CHF rise likely helping spot higher
• 0.9687 is 61.8% of Jun 0.9770-0.9554 drop as well as last wk’s peak (Wed)
• Break above opens up the June 15 0.9770 high. 76.4% is resist at 0.9720
• Techs are bullish but ranges could contain ahead of Yellen on Wed

GBP/USD

• GBP caught bid during European am, with cable rising to test 1.2917
• 1.2917 was post-NFP high. 1.2870 = early Europe intra-day low
• BoE’s Broadbent is due to speak in Aberdeen at 1100GMT
• Tone of Broadbent speech ahead of Aug 3 BoE MPA likely to impact GBP
• 1.2935 (option expiry), 1.2975 (Friday high) & 1.30 resistance beyond 1.2917
• EUR/GBP eased from 0.8847 to 0.8824 during the European am

USD/CAD

• USD/CAD rose from 1.2886 to 1.2920 during the European am
• Ascent accompanied WTI oil price fall from 44.91 to 44.00
• 1.2932 (Monday’s high) is a USD/CAD resistance level
• Monday’s high was notched when WTI fell to 43.65 low
• BoC is expected to hike 25bp Wednesday, accompany statement key

AUD/USD

• AUD/USD met early Europe headwind pre-0.7629 after vaulting 0.7621
• 0.7629 = 10DMA. 0.7621 was Asia high. More offers expected near 0.7650
• On Monday, US name said sell AUD/USD at 0.7650, stop 0.7740, target 0.72
• 0.7587-0.7615 was AUD/USD range Monday. 0.7603 = Asia low Tuesday

NZD/USD

• NZD/USD plumbed a fresh 19-day low of 0.7223 in early European trade
• Low plumbed after 6.8 magnitude quake struck south of NZ’s South Island
• 0.7226 was Asia low after NZD hurt by disappointing NZ retail sales data
• Flat in June vs +0.8% f/c (electronic card). 0.7278 was early Asia high
• Offers touted at 0.7245 (last week’s low), bids tipped near 0.7200

FX OPTIONS

• Yellen HH testimony Wed helps limit deeper short dated vol declines
• Spot markets mostly rangebound, realised and implied vols suffer
• Lack of interest in topside USD/JPY, JPY calls bid, vols heavy
• EUR/USD vols on the back foot as topside barriers hold
• Cable 1mth underpinned by events. CAD vols well bid in to BoC

COMMENT

Sterling will suffer if May exits before year-end

The pound will take a heavy hit if May unexpectedly resigns or is ousted as UK PM before the year is out. A May exit would increase the risk of another general election sooner rather than later–which could tee-up a Labour government under Corbyn. May, who will give a speech Tuesday on the first anniversary of her gaining power, has been under pressure since the Tories lost their Commons majority in June’s general election. Although her deputy Green has dismissed media reports about alleged plots to oust May as simply “gossip and chatter” at summer parties, her position isn’t as secure as it was before the election. If there is a shock May exit during H2, it is uncertain who would succeed her: Brexit minister Davis, Chancellor Hammond and foreign minister Johnson are the three front-runners, but there is no clear favourite among them according to bookies’ odds

CHART

NZD/USD bears set sights on 0.7145

NZD/USD bears are looking to force a daily close below 0.7222, which will pave the way to 0.7145– the 38.2% Fibo of the 0.6818 to 0.7347 rise. This will also put the 30-day lower Bollinger-band at 0.7110 and the 200-DMA at 0.7096 within bears’ reach. The market relapse has so far hit 0.7223, one pip shy of 0.7222, 23.6% retrace of the same 0.6818 to 0.7347 gain. The bull cycle from 0.6818 was halted at the end of June, as two other daily highs close to the 0.7347 June 30 peak forced NZD/USD longs to buckle. While fourteen-day momentum has been positive since May17, the risk is growing that this indicator will register negative readings in the days ahead. Bulls will need to register a daily close back above the 10-DMA in order to shift the overall bias back to the upside

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