FX Market Update 8-8

Market Briefs

• EUR/USD +0.11%, USD/JPY -0.17%, GBP/USD -0.02%, EUR/GBP +0.14%
• DXY -0.1%, DAX +0.03%, FTSE -0.07%, Brent +0.52%, Gold +0.27%
• DE Jun Trade balance (EUR) SA, 21.2 bln vs f’cast 21.0 bln, prev 20.3 bln
• DE Jun Imports m/m SA, -4.5% vs f’cast 0.2%, prev 1.2% rvsd 1.3%
• DE Jun Imports m/m SA, -2.8% vs f’cast -0.30%, prev 1.4% rvsd 1.5%
• China July exports, imports weaker than expected, cloud global outlook
• BOJ should dial back stimulus even if inflation misses target – ex-dep gov Iwata
• No-confidence vote signals “High Noon” for South Africa’s Zuma
• Tillerson in Thailand presses for more action on North Korea
• Oil prices steady as Saudi cuts September supplies
• Gold rises as dollar eases, focus on U.S. inflation data

Looking Ahead – Economic Data (GMT)

• 10:00 US NFIB Small Business Optimism Index (Jul) (prev 103.6)
• 12:55 US Redbook Same-Store Sales Index (weekly) (prev +2.8% y/y)
• 14:00 US JOLTS job openings (Jun) (mkt 5.775 mn, prev 5.666 mn)

Looking Ahead – Events, Other Releases (GMT)

• 12:00 South Africa vote of no-confidence in Pres. Zuma
• 15:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $475 mn)

Currency Summaries

EUR/USD

• Another slow day with EUR/USD close to 1.1800
• European range 1.1802-18 after 1.1792-1.1824 in Asia
• Bond markets undermining EUR/USD:
• EUR 548mln 1.1800 vanilla option expiries today
• Weak mix for French & German trade as both imports/exports fall
• NFP impact on rates marginal:

USD/JPY

• USD/JPY very slightly lower 110.50-65 in Europe
• Continuing consolidation expected within NFP data range 109.85-111.05
• Today USD 490 mln option expiries at 111.00. No major US data
• Rates not providing expected NFP boost:
• USD 12 billion speculative longs continue to weigh on USD/JPY

EUR/CHF

• EUR/CHF met headwind just shy of 1.15 after extending north from 1.1461
• 1.1461 was pullback low from Monday’s 1.1502 high
• Resistance levels beyond 1.1500/02 include 1.1537 & 1.1561
• 1.1537 was last Friday’s 31-month high, 4.8% above prior week’s low
• Swiss July adjusted jobless rate 3.2%, as expected

GBP/USD

• Cable has traded a meagre 21 pip range thus far Tuesday, 1.3032-1.3053
• Peak of that range = pip shy of 21DMA. 1.3059 was Monday’s high
• Bids tipped towards 1.3000 (July 26 low). 1.3008 = 38.2% of 1.2589-1.3267
• 1.2589 = June low after UK election shock. 1.3267 = 11mth high Aug 3
• Aug 3 peak scaled before GBP tanked on dovish BoE hold
• Quarter-yard 1.3000 option expiry for 10am ET NY cut (1400GMT)

USD/CAD

• Spot elicited support pre-1.2650 in Asia after extending south from 1.2715
• 1.2654 = Asia low. 1.2657-1.2671 = European am range
• 1.2715 was Monday’s 24-day high (three cents above recent 25mth low)

AUD/USD

• Huge 0.7950 option expriy for the 10am ET NY cut, AUD 2.5bln strike
• Offers tipped pre-0.7950 (Monday’s high was 0.7949)
• RBA’s Kent due to speak Wednesday. RBA Governor Lowe speaks Friday

NZD/USD

• NZD continues to suffer on expectations of dovish RBNZ hold this week
• 0.7351-0.7369 = Tuesday range-to-date after Monday’s drop to 0.7348
• AUD/NZD up to 1.0779 in Asia, highest level since July 20
• NZD could rally if RBNZ message less dovish than expected Wednesday

FX OPTION EXPIRIES

• EUR/USD 1.1800 (548M)
• USD/JPY 111.00 (490M)
• AUD/USD: 0.7950 (2.5BLN)
• GBP/USD: 1.3000 (245M)

COMMENT

Perhaps EUR/USD longs should book profits

It maybe prudent to use EUR/USD rallies to book a profit. The technical picture remains very bullish and political risks and some fundamentals support the pair. However, a core part of rationale thought to support a higher EUR/USD rate has been running in opposition to that move since July 21. UST/bund spreads have widened. In the not too distant past that would have fuelled short selling of EUR/USD, and it is certainly good cause to book a profit. The shift to wider UST/bund spreads has been led by very long-dated spreads and that is noteworthy because it was the 30 year spread that was first narrowed leading the turn for interest rates that undermined short EUR/USD positions earlier this year. Speculators are holding a big long EUR position and there is little time left now ahead of major CB events in September and Jackson Hole this month. There is never a bad time to take a profit. Chart UST/bund:

CHART

Oversold USD/SEK looks ripe for reversal

An oversold USD/SEK is ripe for a bullish reversal and a few technical pointers are coming together to support that view with the 30-week Bollinger leading the charge. USD/SEK has been below the Bollinger (8.15 Tuesday) for seven weeks and this is a strong indication of an oversold market. Last week’s price moves delivered a hammer candle and modest bullish confirmation so far this week. Weekly bearish momentum is fading and slow stochs have crossed to the topside. We would look to retracement levels off the mid-Dec 2016 9.4476 high and 8.0525 Aug 2017 low. The initial objective is the 23.6% Fibo at 8.3817 but would favour an eventual run to the 50% pullback level at 8.75. A rising 200-week moving average converging on the price could be a double-edged sword with a break to trigger a bearish resumption but provides a natural stop at 8.0062

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