FX Market Update 25-7

 Market Briefs

• EUR/USD +0.11%, USD/JPY +0.32%, GBP/USD -0.12%, EUR/GBP +0.24%
• DXY +0.04%, DAX +0.49%, FTSE +0.92%, Brent +1.01%, Gold -0.36%
• DE Jul Ifo Business climate, 116.0 vs f’cast 114.9, prev 115.1 rvsd 115.2
• DE Jul Ifo Current conditions, 125.4 vs f’cast 123.8, prev 124.1 rvsd 124.2
• DE Jul Ifo Expectations, 107.3 vs f’cast 106.5, prev 106.8
• DE Import prices y/y, 2.5% vs f’cast 2.9%, prev 4.1%
• Strong euro no impediment to German economy – Ifo economist
• GB Jul CBI Trends- orders, 10 vs f’cast 11, prev 16
• UK inflation expectations edge lower in July – Citi/YouGov
• ECB’S Mersch says the ongoing economic expansion in the euro area provides confidence
• Greece on right reform path, but needs to keep “pedalling” – Moscovici
• PM Abe advisor Hamada favors reappointment of BoJ Gov Kuroda – Nikkei
• BoJ Policy Board June 15-16 meeting minutes – Most agreed need to remain easy
• 2% inflation target still distant, some noted importance of explaining exit
• BOJ newcomers back 2 pct price goal, say too early to debate stimulus exit
• Oil extends gains as Saudi pledges export curbs
• Gold steadies ahead of Fed meeting as dollar sags

Looking Ahead – Economic Data (GMT)

• 12:30 Philadelphia Fed Non-manufacturing Business Outlook Survey (Jul) (prev 28.0)
• 12:55 US Redbook Same-Store Sales Index (weekly) (prev +2.0% y/y)
• 13:00 US FHFA House Price Index (May) (prev +6.8% y/y)
• 13:00 S&P/Corelogic Case-Shiller Home Price Index (May) (mkt +5.8% y/y, prev +5.7% y/y)
• 14:00 US Consumer Confidence (Jul) (mkt 116.5, prev 118.9)
• 14:00 US Richmond Fed Manufacturing Index (Jul) (prev 7)
• 14:00 US Richmond Fed Services Index (Jul) (prev 19)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.1 bn)
• 17:00 FOMC begins two-day meeting

Currency Summaries

EUR/USD

• EUR/USD opened London in 1.1650’s, Asia range 1.1631-69
• Traded 1.1650-68 after better than f/cast German IFO
• Pair settles back at 1.1650 since, 1.2bln 1.1645-50 option expiry contains
• Mon’s 1.1684 peak and defence of 1.1700 barriers likely holds pre FOMC
• Daily lows underpin – today 1.1631, Mon 1.1626 and Fri 1.1619
• Option vols steady pre FED, risk reversals favour more EUR gains

USD/JPY

• USD/JPY has risen from 110.83-111.46, risk growing for 112.00
• Build up of bids below 111.00, esp from Japanese names, gathers pace
• Talk interesting Japanese names joining the bid in size in USD/JPY
• Also ongoing rumour about semi-official name with bids, we are skeptical
• Some bids near 110.83 session low, note daily cloud comes in @110.80
• General talk of bids growing all way down to 110.00 barriers
• Market not so short gamma into or below 110.00 barriers as it was last week

EUR/CHF

• EUR/CHF up to 1.1042 intra-day high after German IFO beat at 0800GMT
• IFO chief Fuest said “sentiment among German businesses is euphoric”
• Le Temps-Jordan says at 1.10, CHF still significantly overvalued vs EUR
• EUR/CHF scaled 13mth peak of 1.1088 last week. 1.1009 = subsequent low
• 1.12 = high water-mark for cross since SNB scrapped 1.20 floor in Jan 2015
• 1.2664 = mid-point of EUR/CHF lifetime range of 0.8500-1.6828

GBP/USD

• Mooted offers around 1.3050 are helping to keep a lid on cable
• 1.3042 = early Europe high. 1.3058 was Monday’s high
• Bids are tipped circa 1.3000 (1.2990 was Monday’s low)
• Cumulative GBP 1.5bln of 1.3000 option expiries Thursday/Friday
• 0.8956 = European am high for EUR/GBP after German IFO beat
• M&A news: Michael Kors has agreed to buy Jimmy Choo for USD 1.2bln

USD/CAD

• USD/CAD rallied to 1.2526 after threatening 1.2484 early Europe
• 1.2484 was Monday’s 14mth low. 1.2523 was rally high from 1.2484
• CAD continues to benefit from expectations of another BoC rate hike in Oct
• US political uncertainty is helping weigh on the USD
• Another USD/CAD option barrie mooted at 1.2450 (1.2461 = May 2016 low)
• Large 1.2500 option expiry at end of next week (Aug 4), USD 1bln strike

AUD/USD

• AUD met European am headwind pre-0.7950 after extending north from 0.7903
• 0.7903 = Asia low. More offers tipped ahead of 0.80 (option barrier level)
• Canadian name went long at 0.7920 Monday, stop 0.7850, target 0.8080

NZD/USD

• NZD met early Europe headwind at 0.7450 after extending north from 0.7402
• 0.7402 was Asia low after NZ detected first cases of bacterial cattle disease
• 0.7455 was Monday’s high. 0.7460 was 10mth high last Friday
• ‘Looking at the stars’ speech from RBNZ McDermott slated for 2015GMT

FX OPTIONS

• EUR/USD risk reversals pricing more EUR gains ahead. 3mth risk rev 8yr hi
• USD/JPY vols rich vs realised, 1mth support at 7.5 could attract post FED
• GBP vols underperform realised, not helped by large 1.30 expiries
• Very high premiums for AUD gamma, CPI and Lowe Wed, RBA next Tues
• CAD vols yet to ease but look rich as spot settles around 1.2500

CHART

USD/ZAR set to fall, lower Bolli beckons

There’s growing risk USD/ZAR will fall to the 30-day lower Bolli band at 12.6543 as the seven day consolidation phase after the sharp drop from July’s 13.6250 looks set to end. The 10- and 30-day moving averages negative cross highlights the fragile state of the market, with the increasingly negative 14-day momentum readings reinforcing the bearish bias. Immediate supply at last Thursday’s 13.0650 peak which should stem near-term corrective moves. The upside will likely be bound by 13.1569 which is 38.2% retrace of the 13.6250 to 12.8675 July fall. If bulls manage to register a daily close above 13.1569, this will keep the lower 30-day Bolli at bay

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