FX Market Update 27-7

Market Briefs

• EUR/USD -0.15%, USD/JPY +0.17%, GBP/USD +0.24%, EUR/GBP -0.39%
• DXY -0.11%, DAX -0.55%, FTSE -0.01%, Brent +0.29%, Gold +0.17%
• DE Aug Gfk consumer sentiment, 10.8% vs f’cast 10.6%, prev 10.6%
• GB Jul CBI distributive trends, +22 vs f’cast 10, prev 12
• Britain to scrap Libor rate benchmark from end-2021
• EZ Jun Loans to Non-fin, 2.1%, prev 2.4%
• EZ Jun Loans to households, 2.6%, prev 2.6%
• EZ Jun Money-M3 annual growth, 5.0% vs f’cast 5.0%, prev 5.0%
• China factory sector seen maintaining solid growth in July
• China industrial profits jump most in 3 months, weather higher financing costs
• China economic outlook bright, prudent monetary policy to continue – senior official
• Japan’s life insurers curb enthusiasm for foreign bonds – Nikkei
• MoF flow data week-ended July 22 – Japanese again good buyers of foreign bonds
• Net Y1.1786 trln bought, adds to large buys previous week, stocks bought too
• Foreign investors buy net Y292.4 bln Japanese stocks, adds to buys previous wk
• Oil prices hover near 8-week highs on lower U.S inventories
• Gold rises to six-week high as dollar drops after Fed statement

Looking Ahead – Economic Data (GMT)

• N/A Atlanta Fed GDP Now (Q2) (prev +2.5% q/q AR)
• 12:30 Initial Jobless Claims (w/e Jul 22) (mkt 241k, prev 233k)
• 12:30 Continued Claims (w/e Jul 15) (mkt 1.950 mln, prev 1.977 mln)
• 12:30 Durable Goods Orders (Jun) (mkt +3.0% m/m, prev -0.8% m/m)
• 12:30 Durable Goods Orders ex-Trans (Jun) (mkt +0.4% m/m, prev +0.3% m/m)
• 12:30 Durable Goods Orders ex-Defense (Jun) (prev -0.3% m/m)
• 12:30 Core Capital Goods Orders (Jun) (mkt +0.3%, prev +0.2% m/m)
• 12:30 Advance Goods Trade Balance (Jun) (prev advance -$65.9 bln)
• 12:30 Advance Wholesale Inventories (Jun) (prev advance +0.3% m/m)
• 12:30 Advance Retail Inventories (Jun) (prev advance +0.6% m/m)
• 12:30 Chicago Fed National Activity Index (Jun) (prev -0.26)
• 12:30 Revised Building Permits (Jun) (as reported 1.254 mn SAAR, +7.4% m/m)
• 15:00 KC Fed Manufacturing Index (Jul) (prev 11)

Looking Ahead – Events, Other Releases (GMT)

• 13:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.575 bn)
• 18:30 FedTrade operation 30-year Ginnie Mae (max $1.1 bn)
• 19:00 New York Fed publishes tentative agency MBS operation schedule for period beginning July 28

Currency Summaries

EUR/USD

• Dovish turn in Fed expectations and DC political uncertainty weighing on USD
• ECB Nowotny comments Wed’s helped EUR, post FED rally peaks 1.1777 Asia
• Setback based at Tues prior hi 1.1712, now support. Fri/Mon lows 1.1684-83
• 2.5bln 1.1700 expiries today/Friday underpin. Barriers reside 1.18, 1.19, 1.20
• Barriers mostly RKO attached to long EUR calls – many shorter date expiries
• Key bull focus 200WMA 1.1797 – close above Friday reinforces 1.20 target

USD/JPY

• USD/JPY near 111.25-32 NY cut expiries worth 1.5B & cloud top 111.26
• There are said to be large Japanese bids ahead of 110.00
• Talk non Japanese spec accounts sold USD/JPY to 111.00 in Asia
• Model stops below 111.00 were triggered, more stops clustered sub 110.70
• Recall USD/JPY dropped from 111.27 to hit 110.79, ahead of recovery to 111.43
• Risk for squeeze higher, but 200-DMA @112.12 like to cap

EUR/CHF

• EUR/CHF breaks 1.1200 barriers during the European am
• 1.12 = high water-mark for cross since SNB scrapped 1.20 floor Jan 2015
• “Risk on” weighing on safe-haven CHF: VIX tested 1993 low Wednesday
• Swiss franc attractive as funding currency for carry trades
• German consumer morale up to 16-year high, EUR-positive
• 1.1365, 1.15 & 1.18 among EUR/CHF bull targets

GBP/USD

• 1.3124 = low water-mark for cable since 10mth high of 1.3157 in Asia
• 1.3124 approximates to last week’s high (1.3120 = Wednesday’s high)
• Ascent to 1.3157 fuelled by USD selling after dovish Fed statement
• Offers expected near 1.3200 (option barrier level)
• 1.3100 (option expiry level), 1.3084 (Monday’s high) & 1.3067 supports
• BoE MPA next week: 6-2 or 5-3 vote to keep Bank Rate at 0.25% expected

USD/CAD

• 1.2458 = high water-mark for USD/CAD since 1.2415 revisited in Asia
• 1.2415 was Wednesday’s 25mth low after USD sold on dovish Fed
• Recovery rally from Wednesday’s low topped out at 1.2463
• 1.2458/63 levels reside either side of May 2016 low (1.2461)
• Dovish shift in Fed expectations contrasts with hawkish BoC expectations
• 48% probability of another BoC 25bp rate hike Sept 6-BOCWATCH/Eikon

AUD/USD

• AUD/USD retreat to threaten 0.8014 influenced by profit-taking on longs
• 0.8014 = Wednesday’s high. 0.8066 was 26mth high in Asia
• Bids expectedd around 0.8000 (former key resistance) if retreat extends

NZD/USD

• 0.7524 = low water-mark for NZD/USD since 26mth peak of 0.7557 in Asia
• Ascent to 0.7557 fuelled by greenback selling on dovish Fed statement
• Fonterra raises forecast for farmgate milk prices to NZD 6.75/kg from 6.50

FX OPTIONS

• EUR/USD vols/calls firm as dealers position for further EUR/USD gains
• EUR/CHF vols/calls boosted by this weeks spot gains and 1.12 barrier break
• USD/JPY vols only marginally higher as broader ranges hold. Barriers below
• AUD vol demand falters as follow through above 0.80 barrier lacks impetus
• Cable 1wk vol higher on MPC capture/spot upleg, 1mth stagnates at 7.0

CHART

EUR/USD bulls eye 1.2167 Fibo

EUR/USD bulls are setting their sights on 1.2167–50% Fibonacci of the 1.3995-1.30540 drop (2014-2017) after taking out 1.1736, the 38.2% retrace of the same fall to hit a new 2017 high at 1.1777. The task for bulls now is to register a close above the 1.1736 at the end of July to pave the way to that 1.2167 level. EUR/USD is persistently trading well above the 30-month upper Bolli band currently at 1.1595 level, an unusual pattern which is indicative of a market heading to a new equilibrium. Fourteen-month momentum is likely to register a positive reading for the first month since January, highlighting the bullish outlook. If the market fails to register a monthly close above 1.1736, this will suggest that medium-term bulls are running out of steam

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