FX Market Update 21-7

Market Briefs

• EUR/USD +0.09%, USD/JPY -0.29%, GBP/USD +0.31%, EUR/GBP -0.26%
• DXY -0.17%, DAX +0.3%, FTSE +0.06%, Brent +0.47%, Gold +0.25%
• ECB survey sees lower inflation, higher GDP growth
• ECB policymakers see Oct as most likely date for QE decision: sources
• Inflation hits UK public finances in June, adding to Hammond’s headache
• U.S. toughens stance on foreign deals in blow to China’s buying spree
• Japan’s household spending seen rising for 1st time since Feb 2016
• Oil rises on weak dollar, Gulf tensions as producers set to meet
• Dollar dip puts gold on track for biggest weekly rise in two months

Looking Ahead – Economic Data (GMT)

• 12:30 CA Jun CPI Inflation y/y, (mkt 1.0%, prev 1.3%)
• 12:30 CA Jun CPI BoC core y/y, (prev 0.9%)
• 12:30 CA Jun Retail sales m/m, (mkt 0.2%, prev 0.8%)
• 12:30 CA May Retail sales ex-autos m/m, (mkt 0.0%, prev 1.5%)
• 15:15 New York Fed Staff Nowcast for Real GDP (Q2) (prev 1.9%)
• 15:15 New York Fed Staff Nowcast for Real GDP (Q3) (prev 2.7%)
• 15:15 New York Fed Staff Nowcast for Real GDP (Q4) (prev 2.0%)
• 17:00 Baker-Hughes Oil Rig Count (weekly) (prev 765, +2 w/w, +408 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 11:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.575 bn)

Currency Summaries

EUR/USD

• EUR/USD jumps to 1.1676 shortly after opening 1.1629
• Retreats to 1.1639 comfortable above Asia’s 1.1619 low & EU open
• Pattern of shallow dips repeated and sure to further fuel EUR bulls
• Numerous targets 1.1700-50 area, Aug 2015 high @ 1.1715
• Prior Jul 18 peak at 1.1583 now seen value by hopeful dip buyers
• No data ahead in US so profit-taking may weigh ahead weekend

USD/JPY

• Continued rumours on semi-official bids below down to 111.50
• Recall 111.48 was Thursday’s session low, so demand to some extent there
• Techs bearish despite repeated failures to close sub 111.65
• 111.65 is 50% retrace of the 108.81 to 114.49 (June to July) rise
• A close below 111.65 Fibonacci level will unmask 110.00 barriers
• Watch the UST-JGB spreads closely, further narrowing will weigh on spot
• Offers capping USD/JPY just above 112.00, 112.08 has been the high
• USD/JPY low has been 111.58 so far, rumours of semi-official bids to 111.50

EUR/CHF

• EUR/CHF up again, continues to track EUR/USD which hit a new 2 year high
• Cross 1.1064-1.1088, some resistance by 1.11 from last June, pre-Brexit
• Very little then until 1.12, highest for the cross since floor abandoned
• Pullback to 1.0988 (Wed) helped techs work off OB bias, new rebound seen
• USD/CHF weighed down by EUR/USD gains, 0.9494 Thurs/Fri lows
• Attempts at recoveries limited to 0.9512 in Europe
• Next USD/CHF support of note is last year’s 0.9444 low

GBP/USD

• EUR/GBP trades 0.8991 early likely capped by options sellers
• 0.9000 barrier defence likely given last traded Nov 2016
• 1.1100 is 0.9009 so corp GBP demand possible too
• GBP/USD creeps up 1.2972-1.3008, small stops on Asia’s 1.2999 high
• Larger than expected UK Govt borrowing ignored by cable traders
• But reflected in GBP TWI touched 76.40 today, June lows 76.30

USD/CAD

• USD/CAD extended 2yr lows to 1.2541 Thurs, helped by weaker USD
• 1.2571-1.2605 today’s range as broader markets settle in to weekend
• Fibo resistance 1.2628 – 50% 0.9059-1.6197 and 1.2655 50% 1.0620-1.4689
• No real support until 3 May 2016 low 1.2461 after yesterdays low
• Profit taking on implied vols could signal expected consolidation in to next BoC

AUD/USD

• AUD hit with Dep Gov Debelle dispelling post RBA mins speculation
• Debelle had been expected to try and talk down the AUD – hit 0.7875
• Recoveries limited to low 0.79’s. 0.80 barrier defenders get chance to reload
• 0.8000 break needed to target the May 2015 peak at 0.8164
• Vols achieve cycle highs – solid gains on short gamma coverage this week
• 1mth risk reversals hit 8yr lows 0.2 AUD puts Thurs, but 0.35 now
• RBA Gov Lowe on The Labour Market & Monetary Policy Wed’s pre FOMC

NZD/USD

• NZD extends 22 month to 0.7440, helped by RBA Debelle knock on AUD
• NZ finmin comments also keeping the NZD on the front foot
• AUD/NZD falls 1.0756-1.0620 today vs Thurs 1.0845 high since May
• Cross now within 1.0662-1.0543 daily cloud, 200DMA support 1.0606
• NZD underpinned by 0.7400 option expiry (864mln) and Asia low 0.7394 n/term
• Focus remains on 8-7 Sept 2016 highs 0.7482-85 (not above since May 2015)

FX OPTIONS

• AUD vols peak from cycle highs after post Debelle spot setback
• CAD vols see some profit taking along the curve, spot recovery limited
• USD/JPY 1mth vol only 0.5 above Junes 18mth low, but JPY calls bid
• EUR/USD vols supported, spot setbacks minimal – 1.17 barriers next target
• GBP/USD vols steady for now – large 1.30 expiry today

CHART

EUR/USD remains very bullish on longer term charts

EUR/USD is maintaining its upward trend with the bulls targeting the August 2015 1.1715 peak next. Close to the high is the 38.2% retracement of the 1.3995 to 1.0340 May 2014 to January 2017 drop at 1.1736. The 38.2% retrace is the minimum technical requirement for a correction and bulls are hopeful of a move above the Fibo to pave the way to further gains. A close above the 38.2% could bring the 50% and 61.8% Fibos into play at 1.2167 and 1.2599, respectively. The move outside the 30-day Bollinger band, however, suggests that the market is heavily overbought and could still see an adjustment back toward the 30-DMA at 1.1347 ahead of a fresh run higher. Those looking to join the trend can use pullbacks as opportunities to pick up euros at better levels. The rising 10-DMA, at 1.1498 today, provided a platform for Thursday’s bounce and similar activity could be seen on a retest there

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