FX Market Update 4-9

Market Briefs

• EUR/USD 0.48%, USD/JPY -0.67%, GBP/USD -0.7%, EUR/GBP 0.56%
• DXY -0.34%, DAX -0.52%, FTSE -0.15%, Brent -0.57%, Gold 0.72%
• EZ Jul Sentix Index 28.2 vs 27.7, 27.4 f’cast
• EZ Jul Producer Prices MM 0.0% vs -0.1%, -0.2% r’vsd, 0.1% f’cast
• EZ Jul Producer Prices YY 2.0% vs 2.5%, 2.4% r’vsd, 2.2% f’cast
• GB Aug Markit/CIPS Cons PMI 51.1 vs 51.9, 52.0 f’cast
• Labor shortage, Olympic buildup seen sustaining Japan CAPEX growth – Nikkei
• Japan industrial material imports hit by chancing Asia landscape – Nikkei
• Foreign Investment – Japan better bet than US? – Barron’s
• South Korea warns that North may launch ICBM after nuclear test
• Trump to scrap protection for “Dreamers,” give Congress 6 months to fix
• U.S. gasoline price sink as Harvey subsides
• Gold prices near 1-year high in wake of N.Korea nuclear test

Looking Ahead – Economic Data (GMT)

• No data scheduled.

Looking Ahead – Events, Other Releases (GMT)

• No significant events.

Currency Summaries

EUR/USD

• EUR/USD higher to 1.1922 in Europe after Asia traded 1.1855-92
• Most likely EUR deriving some support as perceived safer asset
• A period of consolidation is likely ahead the ECB this week
• As traders are mostly long the euro is likely to be weighed ahead
• CNY’s rise is likely to weigh on euro which is biggest component TWI
• EUR 17 billion option expiries 1.18-1.20 this week will help anchor spot

USD/JPY

• Geopolitical risk weighs heavily USD/JPY, offers touted @110.00
• Decent sized 110.00 strikes (795M) set to expire at the NY cut
• North Korea missile test saw spike lower to 109.22
• Japanese investor takes opportunity to buy near session lows
• Bulls suffer setback, cloud twist provides hope
• Market has settled down within the 109.22-109.92 session range

EUR/CHF

• EUR/CHF 1.1427-1.1384 on latest NK bomb test, recovery capped 1.1410
• Support 1.1360/59, 29/25 Aug lows. Thurs 1.1472 high caps n/term range
• Consolidation likely pre ECB Thurs. USD/CHF 0.9617-0.9553 today
• Lacks direction, Still tracking EUR/USD, 0.9428-0.9679 Tues-Thurs recovery
• Initial support Fri’s 0.9547 low, daily cloud top 0.9623 resistance

GBP/USD

• EUR/GBP extended north to threaten 0.9222 after UK construction PMI miss
• 51.1 vs 52.0 f/c. 0.9222 was Friday’s high. 0.9172 = early Europe low
• Big 0.9200 option expiry Tuesday, EUR 1.34bln strike
• Cable fell to 1.2930 intra-day low after UK construction PMI miss
• 1.2968 = Asia high. 1.30 resistance beyond. Half-yard 1.30 expiry Tuesday

USD/CAD

• USD/CAD met headwind pre-1.2430 after rising from 1.2388 (early Ldn low)
• 1.2430 = early Asia high as greenback gained on North Korea concerns
• This week’s key Canadian event risk if Wednesday’s BoC rate verdict
• 49% chance of another 25bp hike-BOCWATCH
• A UK clearer has reportedly gone long USD/CAD as its trade of the week
• In contrast, a US name reportedly said sell: stop set at 1.2450, target 1.21

AUD/USD

• AUD/USD retreated to 0.7947 after threatening 0.7973 early Europe
• 0.7973 = Asia top. 0.80 key resistance beyond (0.7996/97 = recent highs)
• RBA expected to leave cash rate at 1.5% Tuesday 0430GMT
• Accompanying RBA statement in focus. Lowe speaks Tuesday 0915GMT

NZD/USD

• NZD/USD rose from 0.7157 to 0.7183 during the European am
• 0.7183 = intra-day high. 0.7185 = 100DMA. 0.7207 resistance beyond
• 0.7207 was Friday’s high, after NFP miss
• Upcoming NZ event risks: election Sept 23, RBNZ meeting Sept 28

FX OPTIONS

• Latest NK bomb test fuelling usual risk aversion, USD/JPY vols/calls up
• EUR/USD consolidates pre ECB – post event vols underpinned
• BoC risk and bearish USD/CAD take 1mth vol back to cycle highs
• NZD related 1mth vols stay bid over election and RBNZ
• GBP vols more downside potential vs realised as spot ranges hold

COMMENT

CNY rise to influence euro and JPY

As larger components of the trade-weighted basket, a steep rise in the Chinese yuan may weigh on euro and yen. China switched its focus from the dollar to a trade-weighted basket in December 2015 which influenced the euro and JPY. Both currencies found support during a period of extreme bearish expectations that were based upon ultra-easy ECB and BOJ polices. The yen has never traded lower than the 120.01-123.68 range of December 2015, while EUR/USD only had a brief drop below the 1.0523 low of that month. Traders were very short euro then, today they hold a large long so CNY’s rise may have a notable impact. However, JPY traders hold a similar sized short yen position to that of 2015 so the impact may be less noticeable. But, no CNY rise has ever been maintained, and some have been larger, so if CNY’s rally does impact, it may only be to offer better levels to buy yen and euro.

CHART FOCUS

GBP/USD bulls brace for assault on 30-DMA

Cable bulls are gearing up for another assault on the 30-DMA, currently at 1.2982, a daily close above which will pave the way to the the 30-day upper Bolli band at 1.3212. The market managed to break above the 30-DMA last week but failed to register a daily close above in a setback for bulls. Fourteen-day momentum could potentially show a positive reading at the end of trading today which would reinforce the underlying upside potential. As things stand, the outlook is mixed mainly because trading persists close to but below the 30-DMA. Each day that bulls fail to close above the 30-DMA weakens the underlying structure and puts the downside back in play

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