FX Market Update 1-8

 Market Briefs

• EUR/USD -0.23%, USD/JPY +0.09%, GBP/USD +0.08%, EUR/GBP -0.35%
• DXY +0.07%, DAX +0.53%, FTSE +0.85%, Brent -0.06%, Gold -0.12%
• EZ Q2 GDP flash prelim y/y, 2.1% vs f’cast 2.1%, prev 1.9%
• EZ Jul Markit final PMI, 56.6% vs f’cast 56.8%, prev 56.8%
• GB Jul Markit/CIPS mfg PMI, 55.1 vs f’cast 55.4, prev 54.3 rvsd 54.2
• GB Jul Nationwide house price y/y, 2.9% vs f’cast 2.7%, prev 3.1%
• DE Jul Markit/BME mfg PMI, 58.1 vs f’cast 58.3, prev 58.3
• DE Jul Unemployment rate SA, 5.7% vs f’cast 5.7%, prev 5.7%
• China factory activity accelerates in July on strong export orders – Caixin PMI
• U.S. small business borrowing highest in nearly two years
• Japan foreign direct investment jumped to record $169.6 bln in ’16 – Nikkei
• Japan April-June GDP on track for 2.6% annual pace – Nikkei
• Japan July mfg PMI – final 52.1, 8-month low, flash 52.2, June final 52.4
• Oil hits 2-month high, further U.S. inventory drop seen
• Gold dips on profit taking after touching 7-week high

Looking Ahead – Economic Data (GMT)

• N/A US Light Vehicle Sales (Jul) (mkt 16.80 mn SAAR, prev 16.5 mn SAAR)
• N/A US Domestic Car Sales (Jul) (mkt 4.50 mn SAAR, prev 4.27 mn SAAR)
• N/A US Domestic Light Truck Sales (Jul) (mkt 8.67 mn SAAR, prev 8.77 mn SAAR)
• 12:30 US Personal Income (Jun) (mkt +0.4% m/m, prev +0.4% m/m)
• 12:30 US Personal Consumption Expenditures (Jun) (mkt +0.1% m/m, prev +0.1% m/m)
• 12:30 US PCE Price Index (Jun) (prev -0.1% m/m)
• 12:30 US Core PCE Price Index (Jun) (mkt +0.1% m/m, prev +0.1% m/m)
• 12:55 US Redbook Same-Store Sales Index (weekly) (prev +2.1% y/y)
• 13:30 CA Markit mfg PMI SA (Jul) (prev 54.7)
• 13:45 US Markit Manufacturing PMI (final Jul) (flash 53.2, prev 52.0)
• 14:00 US ISM Manufacturing PMI (Jul) (mkt 56.5, prev 57.8)
• 14:00 US Construction Spending (Jun) (mkt +0.4% m/m, prev 0.0% m/m)
• 14:30 Dallas Fed Texas Service Sector Outlook Index (prev 10.1)
• 14:30 Dallas Fed Services Revenues Index (prev 14.8)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.375 bn)

Currency Summaries

EUR/USD

• EUR/USD 1.18 barrier break peaked 1.1845 Mon/1.1846 Tues
• Backs off to 1.1811 before EZ CPI, 1.1816-32 after EZ GDP in line
• EUR drifts back to 1.1807, dip buyers expected in to 1.1800
• 1bln 1.1800 option expiry NY cut. Hourly kin-sen support 1.1785
• US consumption and ISM manf PMI key data from US today
• DXY support Mon’s 14mth 92.784 low. Yeilds indifferent for now
• Option vols peak with spot but ongoing demand for strikes 1.20+

USD/JPY

• USD/JPY has been under severe strain, but as yet 110 barriers remain intact
• Dollar has taken a beating on WH “dysfunction” stemming from Scaramucci firing
• Macro name was said to have sold plenty in order to take out 110 barrier
• Halted @110.01, 110 barriers still protected by large option related bids
• 110 brk will Increase volatility, big stops said below
• 110.43 has been the high today, risk of a temporary short squeeze

EUR/CHF

• EUR/CHF eased to an intra-day low of 1.1392 during the European am
• 1.1392 = base since Monday’s 30-month high of 1.1455
• Month-end buying flagged as factor in Monday’s rise from 1.1336 to 1.1455
• 119 pip rise followed last week’s 3.2% EUR/CHF surge to 1.1405
• Profit-taking on longs may have influenced retreat from 1.1455
• Bids mooted at 1.1350-70. Key psychological resistance 1.15

GBP/USD

• Cable rose to 11mth high of 1.3240 after UK July mfg PMI beat at 0830GMT
• 55.1 vs 54.4 f/c, mfg export orders 58.2, highest since Apr 2010
• 1.3235 was Asia high, 1.3200 = ensuing pullback low (pre-UK mfg PMI)
• US political developments have influenced recent GBP/USD appreciation
• Cable vaulted 1.3200 after Scaramucci exit news Monday
• Obstacles beyond 1.3240 include 1.3250 (option barrier level) & 1.33

USD/CAD

• USD/CAD fell to 1.2452 European am low as WTI held above 50 bucks
• 1.2512 was Asia high. Bids may emerge near 1.2420 if fall extends
• Talk that hedge funds were buyers of USD/CAD near 1.2420 last week
• Mooted HF demand followed rapid CAD gainst after BoC hike July 12
• Interest rate futures suggest 70% chance of another BoC hike in October

AUD/USD

• Large 0.8000 option expiry is helping to anchor AUD/USD as RBA dust settles
• Option rolls off Wednesday, AUD 859mn strike. 0.7992 = European am low
• 0.8038 = post-RBA high. 0.8043 was pre-RBA high after Caixin mfg PMI beat

NZD/USD

• NZD/USD dropped to threaten 0.7470 ahead of the North American open
• 0.7470 was Monday’s low. 0.7524 was Asia high
• Global Dariy Trade auction result expected circa 1430GMT, may impact NZD

FX OPTIONS

• EUR/USD targets 1.20, EUR calls and vols bid for now. Big 1.18 expiry
• USD/JPY wary of 110 barrier break/short gamma, keeps vols bid
• Cable awaits UK MPC and inflation report Thursday
• AUD/USD circles big 0.8000 expiry Wed, minimal post RBA vol setbacks
• NZD vols regain ground. CAD vols realising nicely, keeps gamma bid

COMMENT

Battered dollar set to buckle further

There’s growing risk that the dollar index will dive through 90.000 after White House dysfunction sank the index to a new 92.784 low on Monday, reaching levels not seen since early May. The market heavily sold the dollar when it emerged that President Trump had fired recently installed communications director Scaramucci. This plays into the narrative and concerns that the Trump administration is in a quagmire politically and legislatively. The healthcare bill failure last week had already put the dollar index on the path for a test of the 91.931 Fibonacci level and latest developments heighten the downside risk. Dollar bulls will be hoping that new chief of staff, retired General John Kelly, will bring an extended period of order to the White House. Only a sustained recovery of the dollar in coming weeks will reverse the current negative outlook.

CHART

EUR/USD gear up for 1.2167 test

EUR/USD bulls are setting their sights on 1.2167 – 50% Fibonacci of the 1.3995 to 1.0340 drop (2014-2017) after a monthly close above 1.1736, the 38.2% retrace of the same fall, to hit a new 2017 high at 1.1846 Tuesday. EUR/USD is still trading well above the 30-month upper Bolli band currently at 1.1698, signalling that the market is transitioning to a new equilibrium. Fourteen-month momentum registered a positive reading for July, for the first month since January, highlighting the bullish outlook. The diverging 30-month lower and upper Bolli bands highlight the risk of increased statistical volatility. If the market falls back below 1.1736 for a sustained period of time, this will suggest that medium-term bull’s advantage is eroding and the risk will grow for an overshoot to the downside

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 )

Twitter picture

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

Facebook photo

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

Google+ photo

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

Connecting to %s