FX Market Update 7-8

Market Briefs

• EUR/USD +0.27%, USD/JPY +0.13%, GBP/USD +0.15%, EUR/GBP +0.14%
• DXY -0.16%, DAX -0.41%, FTSE +0.1%, Brent -1.43%, Gold -0.04%
• EZ Aug Sentix Index, 27.7 vs f’cast 27.8, prev 28.3
• GB Halifax House prices 3m/yy, 2.1% vs f’cast 2.0%, prev 2.6%
• DE Industrial output m/m, -1.1% vs f’cast 0.2%, prev 1.2%
• China July FX reserves unexpectedly hit 9-month high as dollar weakens
• British election failure shakes confidence in May’s Brexit strategy – ORB poll
• Sunday Telegraph said UK ready to pay 40 billion euros to leave EU
• Oil slides from 9-week highs as market looks to OPEC
• Gold hovers near lows, investors wary about U.S. rates

Looking Ahead – Economic Data (GMT)

• 14:00 US Labor Market Conditions Index (Jul) (prev +1.5)
• 14:00 US Employment Trends Index (Jul) (prev 133.1)
• 19:00 US Consumer Credit (Jun) (mkt +$15.54 bln, prev +$18.4 bln)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 Fed’s Bullard speaks on the U.S. economy and monetary policy; Nashville, TN
• 17:25 Fed’s Kashkari speaks in moderated audience Q&A session at Rotary Club event
• 18:30 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.65 bn)

Currency Summaries

EUR/USD

• Slow session sees EUR/USD gravitate towards larger option expiries
• EUR 895 million vanilla expiries at 1.1800 today
• Asia trade bullish pattern 1.1771-1.1814, mostly over NA close @ 1.1774
• German industrial output down 1.1% in June vs 0.2% f/c, ignored
• Europe range 1.1778-1.1814. No U.S. data of note today

USD/JPY

• USD/JPY 110.65-85 in Asia and 110.65-87 in Europe
• Resistance at Friday’s post NFP best @ 111.05
• Support at last week’s twin lows @ 109.85
• Higher U.S rate outlook underpinning USD/JPY
• Large & mainly losing bullish bets weigh:

• USD 1.3bln 110.80 option expiries have anchored spot today

EUR/CHF

• EUR/CHF met headwind circa 1.1500 after rallying from 1.1458
• 1.1458 = early Europe low (1.1455 = July 31 high). 1.15 = former resistance
• Swiss annualized CPI inflation +0.3% in July, as expected
• SNB held CHF 714.33bln in fx reserves end July vs 693.682bln end June
• CHF value of SNB’s EUR fx reserves boosted by recent EUR/CHF surge
• Cross scaled 31mth peak of 1.1537 Friday (4.8% above prior week’s low)

GBP/USD

• Cable traded a meagre 21 pip range thru European am, 1.3038-1.3059
• Loss consolidation from recent 10mth high of 1.3267 = big-picture story
• Recent losses courtesy of dovish BoE hold Thursday & NFP beat Friday
• 1.3024 (Friday’s low) & 1.3000 (July 26 low) are support levels
• Fresh EUR/GBP bids expected around 0.9000 (former resistance level)

USD/CAD

• USD/CAD rose to a 20-day high of 1.2682 during the European am
• Ascent influenced by lower oil prices: WTI below 49 bucks/barrel
• 1.2631 was Asia low. 1.2667 was Friday’s high

AUD/USD

• AUD/USD dropped to threaten 0.7900 during the European am
• Losses influenced by NZD/USD fall on expectations of dovish RBNZ hold
• 0.7892 (Friday’s low after NFP beat) is AUD/USD support level below figure
• Dalian iron ore closed up 3% Monday having been up 7.3% at one stage

NZD/USD

• NZD/USD fell to an 18-day low of 0.7357 during the European am
• Expectations of dovish RBNZ hold this week helping weigh on NZD
• RBNZ survey showed fall in NZ inflation expectations (published 0300GMT)
• RBNZ OCR announcement & MPS Wednesday 2100GMT (9am local time)

FX OPTION EXPIRIES

• EUR/USD 1.1800 (895M)
• USD/JPY 110.80 (1.29BLN)
• GBP/USD 1.3075 (397M), 1.3000 (427M)
• EUR/SEK 9.63 (299M)
• EUR/NOK 9.40 (366M)

COMMENT

Losing spec bets are key to a lower USD/JPY

Speculative positions will continue to weigh heavily on USD/JPY and could see it fall back through the psychologically sensitive 110.00 level. Speculators have been bullish and long USD/JPY all year, taking on larger positions from the end of June. Unfortunately for them, USD/JPY peaked in early July and has headed lower since but they have clung to bad positions and half of those long, around 6 billion dollars, are losing money. A sector that is usually keen to make a quick buck is now likely trying to limit those losses. This should restrict the size of bounces and lead to further downside pressure under 110 and potentially key 2017 lows. Corps and option players who would have initially seen value buying around 110.00 have seen those orders filled and will doubtless look for better value before buying again. This should result in gradually descending USD/JPY ranges and eventually pressure on major 2017 lows, 109.12/108.81 in June and 108.13 April.

CHART

Charts point to potential USD/ZAR reversal

A Doji candle Friday and potential hanging man candle Monday suggest USD/ZAR could head lower–a brave call given the close proximity of the 200-DMA support line. A cloud twist on the horizon at 13.1375 value Aug 14 adds to the bearish argument. Fibo retrace levels off the 12.86 July 27 low and 13.4875 Aug 4 high present bear targets with 13.1738 50% pullback point just ahead of the daily cloud top at 13.1375. The 200-DMA at 13.3595 Monday presents the main hurdle to a price reversal and a bounce off the line could trigger a run back to the 30-DMA upper Bollinger line, currently at 13.5620. The weekly chart shows price stalling ahead of the 13.5181 55-WMA and 13.6250 high from mid-July. Those looking for a deeper pullback can target the base of the weekly range at 12.86

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