FX Market Update 24-7

Market Briefs

• EUR/USD -0.05%, USD/JPY -0.39%, GBP/USD +0.34%, EUR/GBP -0.39%
• DXY +0.05%, DAX -0.64%, FTSE +1%, Brent -0.06%, Gold +0.2%
• ECB’s Mersch: As conditions normalise, it is unlikely that uncoventional policies
will remain necessary
• EZ Markit Comp Flash PMI Jul 55.8 vs f’cast 56.2, prev 56.3
• EZ Markit Mfg Flash PMI Jul 56.8 vs f’cast 57.2, prev 57.4
• EZ Markit Serv Flash PMI Jul 55.4 vs f’cast 55.5, prev 55.4
• DE Markit Comp Flash PMI Jul 55.1 vs f’cast 56.3, prev 56.4
• DE Markit Mfg Flash PMI 58.3 vs f’cast 59.2, prev 59.6
• DE Markit Serv Flash PMI 53.5 vs f’cast 54.3, prev 54.0
• IMF keeps US forecasts unchanged from Jun revisions at 2.1% for both 2017 and 2018
• China’s politburo says will stabilise foreign investment, private investment – Xinhua
• Saudi calls OPEC members to stick to limits, sees oil demand up
• S.Korea FX authorities suspected of buying dollars – traders

Looking Ahead – Economic Data (GMT)

• 12:30 CA Wholesale Trade MM (May) (mkt 0.5%, prev 1.0%)
• 13:45 US Markit Manufacturing PMI (flash Jul) (mkt 52.1, prev 52.0)
• 13:45 US Markit Services PMI (flash Jul) (mkt 54.3, prev 54.2)
• 14:00 US Existing Home Sales (Jun) (mkt 5.57 mn SAAR, prev 5.62 mn SAAR)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.575 bn)
• 18:30 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $500 mn)

Currency Summaries

EUR/USD

• EUR/USD pipped Fri’s post ECB peak to 1.1684 today before easing
• Mild EUR/GBP setback helps to cap, likewise sellers pre 1.17 barrier
• 1.1656 Asia setback low. Down in Europe after weaker PMI’s
• 1.1631 low after German PMI. EZ weak too but EUR recovers 1.1656
• Support 55HMA 1.1625, Fri’s 1.1619 low. Bids touted 1.1620-1.1600
• Bulls eye 38.2% retrace 1.3995-1.0340 (2014 peak to 2017 low) at 1.1736
• Option market risk reversals move more in favour of EUR call strikes

USD/JPY

• USD/JPY edges lower below the 110.77 cloud base hitting 110.63
• Non-Japanese names were the main sellers in Asia
• Narrowing UST-JGB spreads weigh on USD/JPY
• Heavy supply likely at the 111.26 daily cloud. 111.19 has been the high
• Pay particular attention to 10yr spread, has a strong USD/JPY relationship
• 10yr UST-JGB 30/60-day log correlations spread with USD/JPY is +0.61/+0.67

EUR/CHF

• EUR/CHF peaked 1.1088 early Fri, backs off as havens outperform EUR
• Slide in stocks helps CHF recovery to 1.1024 by Fri’s close, 1.1012 today
• Support by Thurs-Wed lows 109.98-88 and 21DMA 1.0986
• USD/CHF pressured as EUR/USD gained post ECB, based 0.9439 Fri
• USD/CHF consolidates in tight 0.9447-75 today. Drop in Swiss site deposits

GBP/USD

• GBP has started week on front-foot with cable rising to threaten 1.3052
• 1.3052 is 61.8% of 1.3126 (July 18 high) to 1.2933 (July 20 low)
• EUR/GBP fell to 0.8932 during the European am. 0.8994 = 8mth high Friday
• GBP benefitting from hopes of soft Brexit and M&A news
• Sentiment among top UK cabinet ministers has shifted towards soft Brexit
• Asda, owned by Wal-Mart, considering GBP 4.4bn bid for B&M-Sunday Times

USD/CAD

• USD/CAD eased to test 1.2522 (Friday’s 14mth low) during European am
• US political concerns contributing to USD-negative sentiment
• USD/CAD bids expected near 1.2500, inclusive of corporate interest
• 1.2500 = 0.80 CAD/USD. 1.2550 (Asia high) & 1.26 are resistance levels
• 21.67% chance of another BoC rate hike as early as Sept 6-BOCWATCH

AUD/USD

• AUD/USD vaulted 0.7934 en route to 0.7967 high during the European am
• 0.7934 was pre-weekend peak following Friday’s drop to 0.7875
• US political concerns contributing to USD-negative sentiment
• Offers expected near 0.80 (option barrier level). 0.7992 = 26mth high July 20

NZD/USD

• NZD/USD remained below 0.7460 thru European am as AUD/NZD rose
• 0.7460 = Friday’s 10mth high. 0.7485 (Sept high) resistance beyond
• AUD/NZD extended north to 1.0703 during European am. 1.0617 = Asia low
• 1.0611 was pre-weekend low vs 1.0845 July 20 high (pre-Debelle)

FX OPTIONS

• Limited FED event risk, but USD could suffer more in its wake
• EUR/USD risk reversals pricing more upside risk, 3mth EUR call 8yr high
• USD/JPY market makers short gamma toward 110 barriers – props vol/skew
• GBP underpinned by big 1.30 expiries at the end of the week
• CAD eyes 1.25 barriers. AUD awaits Lowe Wed’, 80 barrier still vulnerable

CHART

EUR/USD options market lifts EUR call premiums

• Premiums for EUR calls over EUR puts have increased since Draghi-ECB
• 1mth 25 delta risk reversals to 0.5 from 0.35 EUR calls (0.7 late June peak)
• 3mth 25D risk reversals now at their highest topside bias since 2010 at 0.2
• 1yr 25D risk rev see downside bias eroded to lowest level since 2010 at 0.5
• Further EUR gains will boost vols, which are underpinned in anticipation

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s