FX Market Update 5-9

Market Briefs

• EUR/USD -0.09%, USD/JPY -0.29%, GBP/USD flat, EUR/GBP -0.12%
• DXY flat, DAX +0.74%, FTSE +0.9%, Brent +0.31%, Gold -0.18%
• S.Korea seeks bigger warheads, N.Korean ICBM reportedly on the move
• ECB replaces N.Korea in euro zone bond market spotlight
• GB Aug Markit/CIPS Serv PMI 53.2 vs 53.8, f’cast 53.5
• GB Aug Markit/CIPS cons PMI 51.1 vs 51.9, f’cast 52
• GB Aug BRC retail sales yy 1.30% vs 0.90%
• EZ Aug Markit serv final PMI 54.7 vs 54.9, f’cast 54.9
• EZ Aug Markit comp final PMI 55.7 vs 55.8, f’cast 55.8
• EZ Jul Retail sales mm -0.3% vs 0.5%, f’cast -0.2%
• EZ Jul Retail sles yy 2.6% vs 3.3%, f’cast 2.5%
• DE Aug Markit comp final PMI 55.8 vs 55.7, f’cast 55.7
• JP Aug services PMI 51.6, July 52.0, Aug composite 51.9, July 51.8
• JP Services PMI weakest in six months but still above 50
• Japan preparing for evacuation of tens of thousands in SoKorea – Nikkei
• Gold edges up, hovers near 1-year high on haven demand
• US crude rises on returning refineries; gasoline slumps to pre-Harvey levels

Looking Ahead – Economic Data (GMT)

• 13:45 ISM-New York Business Conditions Index (Aug) (prev 62.8)
• 14:00 Employment Trends Index (Aug) (prev 133.8)
• 14:00 Factory Orders (Jul) (mkt -3.2% m/m, prev +3.0% m/m)
• 14:00 Factory Orders ex-Trans (Jul) (prev -0.2% m/m)

Looking Ahead – Events, Other Releases (GMT)

• 12:00 Fed Governor Brainard speaks before Economic Club of New York
• 15:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.9 bn)
• 17:10 FRB Minneapolis’s Kashkari in moderated Q&A; Minneapolis, MN
• 23:00 FRB Dallas’s Kaplan in moderated Q&A; Dallas, TX

Currency Summaries
EUR/USD

• EUR/USD relatively quiet but slightly lower in Europe
• 1.1907-1.1872 dip came just ahead release of Italian PMI data
• Italian PMI disappointed but pair only traded 1.1868 before small bounce
• Spanish, Italian & French service PMIs on the softside, German a tad better
• Europe 1.1908-1.1868 range, Asia 1.1892-1.1908
• Looks like quiet day dictated by EUR 2bln expiries 1.1850-1.1900

USD/JPY

• USD/JPY has peaked at 109.83, 110.00 offers weigh
• Decent 109.20 bids continue to prop, more ahead of the 109.00 level
• The expectation is that bulls are likely to build from here
• Speculation about NK ICBM test led to USD/JPY drop to 109.20
• Sales to 109.20 were led by Tokyo names, said to have sold EUR/JPY too
• A break below 109.00 would trigger stops
• Big downside reaction only if 108.00 barriers go, short gamma below

EUR/CHF

• EUR/CHF rallied to 1.1420 after threatening 1.1368 during European am
• 1.1368 was 1wk low in Asia. Cross rise helped inflate USD/CHF to 0.9614
• USD/CHF 0.9600 option expiry for 10am ET NY cut, USD 235mn strike
• Swiss Q2 GDP +0.3% vs +0.5% f/c. Q1 GDP revised down to +0.1% too
• CHF slump in July-August could tee up better Swiss Q3 GDP number
• Swiss Aug CPI +0.5% y/y, exactly as expected. SNB MPA next week (Sept 14)

GBP/USD

• Cable elicited fresh support pre-1.2900 after dipping on UK service PMI miss
• 1.2908 = European am low. 1.2906 = last Friday’s low. Stops tipped sub-1.30
• 1.2940 (Asia high), 1.2968 (Monday’s high) & 1.30 are cable resistance levels
• Big 0.9200 option expiry for 10am ET NY cut is helping to anchor EUR/GBP
• EUR 1.34bln strike. 0.9182-0.9212 = Tuesday range-to-date

USD/CAD

• USD/CAD pivoting 1.2400 as North American traders get back in the saddle
• 1.2386-1.2416 = Tuesday range-to-date. 1.2376-1.2430 was Monday range
• This week’s key Canadian event risk is Wednesday’s BoC rate verdict
• 45% chance of another 25bp hike-BOCWATCH on Eikon (BoC hike in July)
• On Monday, a US name sold USD/CAD with a stop set at 1.2450, target 1.21
• In contrast, a UK clearer went long USD/CAD as its trade of week on Monday

AUD/USD

• AUD/USD revisited 0.7985 after initial dip to 0.7961 on Lowe speech
• RBA Governor said rise in AUD would not be helpful for Aussie exports
• 0.7985 was Asia high. Key resistance 0.80 (two fails just shy last week)

NZD/USD

• NZD/USD firmed to an intra-day high of 0.7190 during the European am
• 0.7159-0.7177 was Asia range. 0.7141-0.7183 was Monday’s range
• AUD/NZD elicited support pre-1.1080 after retreating from 1.1130
• 1.1080 was Monday’s low. 1.1130 = Asia high. 1.1140 = recent 17mth high
• GDT auction result expected circa 1400GMT, often impacts NZD

FX OPTIONS EXPIRIES

• EUR/USD: 1.1800 (666M), 1.1850 (692M), 1.1870-75 (1.18BLN), 1.1900 (500M), 1.2000 (1.5BLN)
• USD/CHF: 0.9600 (235M). GBP/USD: 1.2940 (200M), 1.3000 (525M)
• EUR/GBP: 0.9200 (1.34BLN). NZD/USD: 0.7255 (210M)
• USD/JPY: 109.25 (310M), 109.50 (250M), 110.00 (403M), 110.50 (340M)

CHART FOCUS
USD bulls risk medium-term capitulation

There is a growing risk that EUR/USD will see a reversion to mean by dropping towards the 30-month moving average currently at 1.1094. The failure in August ahead of the major 1.2097 Fibonacci level, which is 38.2% retrace of the 2011 to 1.0340 (2011 to 2017) fall, heighten the downside risks. Another reason to be bearish is the continued trading above the upper 30-month Bolli band currently at 1.1804, a situation which is bound to change in the near-term. As the expected fall edges towards the aforementioned 30-month moving average, bears will need to convincingly overcome the 1.1409 Fibonacci level, which is 38.2% retrace of the 2017 1.0340 to 1.2070 range, by registering a monthly close below it. The 30-month lower and upper Bolli bands are persistently diverging, highlighting the risk of wider than usual ranges. Only a monthly close above 1.2097 will reverse the trend

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