FX Market Update 6-9

Market Briefs

• EUR/USD +0.24%, USD/JPY -0.6%, GBP/USD flat, EUR/GBP +0.25%
• DXY -0.8%, DAX -0.12%, FTSE -0.58%, Brent +0.84%, Gold +0.11%
• Putin says sanctions, pressure alone won’t resolve N.Korea crisis
• DE Jul Industrail orders mm -0.7% vs 1.0%, rvsd 0.9%, f’cast 0.3%
• Hurricane Irma churns through Caribbean islands, possibly en route to Florida
• ECB working on licensing rules for fintechs, Nouy says
• Britain says to pursue balanced post-Brexit immigration policy
• Britain could still reverse Brexit, former minister Heseltine says
• Britain considers tough curbs on EU migration re: leaked UK govt document
• JP July cash earnings -0.3% y/y, June +0.4%, real wages -0.8%, -0.1%.
• JP Cash earnings fall for 1st time in 14 months, real wages most since Jun ’15
• LDP Kishida – Japan can’t afford another tax hike delay – Nikkei.
• Japanese insurers seek new European bases to ready for Brexit – Nikkei
• Gold steady, supported by North Korea tensions and Fed rate outlook
• Oil markets subdued by storm Harvey fallout; Hurricane Irma heads into Caribbean

Looking Ahead – Economic Data (GMT)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:30 International Trade (Jul) (mkt -$44.6 bn, prev -$43.6 bn)
• 12:55 Redbook Same-Store Sales Index (weekly) (prev +4.3% y/y)
• 13:45 Markit Services PMI (final Aug) (flash 56.9)
• 14:00 ISM Nonmanufacturing PMI (Aug) (mkt 54.6, prev 53.9)

Looking Ahead – Events, Other Releases (GMT)

• 14:00 BLS issues preliminary benchmark revision to establishment survey data
• 15:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $600 mn)

Currency Summaries
EUR/USD

• Quiet session but EUR/USD holds its bid tone ahead ECB tomorrow
• EUR/USD slightly extends the gains made yesterday in NA to 1.1950
• German Fin Min says everyone wants normalization as soon as possible
• Deutsche Bank Chief also urges ECB to end days of cheap money
• Europe today trades slowly up 1.1910-50, Asia 1.1904-40
• EUR 471mn exp @ 1.1940/50 may attract, EUR 700/900mn @ 1.1900/1.2000
• Dump in U.S. rates weighing broadly on USD ahead services ISM today

USD/JPY

• Sources point to large Japanese interest to buy around 108.50
• USD/JPY range has been 108.45-85
• Recovery attempts are likely to be limited, offers circa 109.00
• Geopolitical risks persistently in weighing on USD/JPY
• USD/JPY bears zero in on 108.13 2017 low

EUR/CHF

• USD slips against the CHF and makes marginal new low at 0.9534 fm 0.9554
• CHF benefiting from safe haven flows on the back of N.Korea concerns
• Lower 30-D Bollinger is close support at 0.9530 on technicals
• Bollis historically contain but spike below was seen at the end of August
• Aug 29 lo @ 0.9428, unlikely to see brk ahead of SNB MPA next wk (Sept 14)
• EUR/CHF marginally better bid, +0.05%. Plays 1.1378-1.1401 in Europe
• Tenkan resistance @ 1.1415, last week’s peak was 1.1472

GBP/USD

• Cable scaled a fresh 4wk peak of 1.3048 during European am
• 1.3043 was Tuesday’s high after GBP shorts squeezed
• Scope for further position adjustments if 1.3062 & 1.3079 vaulted
• 1.3062 = cloud top (1.3059 = Aug 7 high). 1.3079 = 61.8% of 1.3267-1.2774
• EUR/GBP rose to a European am high of 0.9163 amid Brexit uncertainty

USD/CAD

• USD/CAD held below 1.2400 thru the European am, pre-BoC rate decision
• 1.2400 was rally high from Tuesday’s 27mth low of 1.2336
• 22% chance of BoC 25bp hike at 1400GMT-BOCWATCH/Eikon
• Hawkish statement could limit any knee-jerk CAD hit from unchanged verdict
• 1.2430 (Monday’s high) among USD/CAD resistance levels beyond 1.2400

AUD/USD

• AUD/USD held below 0.80 thru the European am: 0.7975 = session low
• Spot lost 0.80 handle after slightly weaker than expected Aussie Q2 GDP data
• 0.8021 = Asia high into 0130GMT data release. 0.8028 = 5wk high Tuesday
• Positioning could limit scope for further AUD/USD appreciation
• Latest IMM data showed net AUD long at highest since Apr 2013

NZD/USD

• NZD/USD traded a modest 17 pip range thru European am, 0.7220 low
• 0.7220 = low since Tuesday’s 0.7263 high. 0.7261 = Asia high Wednesday
• Upcoming NZ event risks include Sept 23 election & Sept 28 RBNZ meeting

FX OPTIONS EXPIRIES

• EUR/USD: 1.1800 (862M), 1.1900 (730M), 1.1940/50 (471M), 1.2000 (895M)
• GBP/USD: 1.2750 (752M), 1.3160 (501M)
• AUD/USD: 0.8100 (672M). AUD/NZD: 1.0900 (201M), 1.0950 (268M)
• USD/JPY: 108.00 (280M), 109.35-55 (1BLN), 110.00 (311M)
• EUR/SEK: 9.45/9.46 (350M)

COMMENT
Euro isn’t strong enough for Draghi to talk it down

ECB chief Draghi is unlikely to talk the euro down this week as the currency isn’t that strong. It is the dollar that is weak. EUR/USD is yet to recover half the losses that evolved under the ECB’s dovish monetary policy having only narrowly avoided a drop below parity early this year. Adding to the notion that the euro and euro zone were failing, a move below parity would likely have resulted in intervention. The ECB has purchased euros at sub-parity levels, buying shortly after the euro’s launch and again versus the yen to assist the BOJ a few years later. Notably, the ECB has not sold euros before. The euro is also still weak versus the timeline of ECB policy actions. EUR/USD traded a 1.3213-1.4168 range May 2009 when the buying of covered bonds/corp debt was announced. It was close to 1.4000 when Draghi promised all to save the euro zone, 1.36 when a negative deposit rate was introduced and 1.2109 Jauary 2015 when the expanded asset programme began.

CHART FOCUS
Growing scope for cable upside breakout

Cable upside has further to run and gains could extend to the top of the weekly cloud at 1.3257. That top coincides with the 50% Fibo retracement of the June to December 2016 1.5022 to 1.1491 drop. The price spiked just above that level to the 2017 1.3267 peak on Aug 3 but failed to hold. With the weekly slow stochastic rebounding from oversold levels, and bullish momentum building on the daily charts following the break above 1.3000, a return to the mid-1.3200s is likely. In the event of a sustained 1.3257 break, resistance is thin until the September 2016 1.3445 high, then the 61.8% Fibo of the aforementioned 1.5022-1.1491 fall at 1.3673. Closer to market, the daily cloud top at 1.3062 is key for short-term gains. Only a break below the cloud at 1.2920 would deter the bulls

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