FX Market Update 7-9

 

  • ECB leaves rates unchanged as expected
  • EUR/USD barely changed on the headlines, 1.1963 low
  • Key next are any hints on a perceived timeline for ECB taper
  • EUR also focus but ECB does not specifically target an FX rate
  • 1.2109 (Jan 2015 high, QE announced) is breakout target topside
  • 21-DMA 1.1846 is likely support & buy zone should Draghi engineer a dip

 

 

Market Briefs

• EUR/USD +0.51%, USD/JPY -0.32%, GBP/USD +0.23%, EUR/GBP +0.31%
• DXY -0.45%, DAX +1.04%, FTSE +0.35%, Brent +0.5%, Gold +0.42%
• ECB to start laying groundwork for stimulus exit
• China agrees more UN actions needed against N.Korea after nuclear test
• Deadly Irma pounds Caribbean, takes aim for Florida
• DE Jul Industrial output mm 0.0% vs -1.1%, f’cast 0.6%
• GB Aug Halifax house prices mm 1.1% vs 0.4%, rvsd 0.7%, f’cast 0.2%
• EZ Q2 GDP revised qq 0.6% vs 0.6%, f’cast 0.6%
• EZ Q2 GDP revised yy 2.3% vs 2.2%, f’cast 2.2%
• UK Brexit minister says “good prospect” of agreeing transitional deal with EU
• A further 5 percent euro rise will discomfort ECB-Poll
• Japan mulls extra budget as Abenomics disappoints – Nikkei
• MoF flow data week-ended Sep 2 – Japanese sell net Y117.9 bln foreign bonds
• Buys prev wk, sales 2 before, net Y161.4 bln stocks/Y115.2 bln bills bought
• Foreigners sell Y158.3bln Japan stks, Y1.481trln bills, buy Y1.359trln JGBs
• JP end-Aug foreign reserves $1.268 trln, end-July $1.260 tln
• Japan’s Tepco, Chubu Electric to buy more Aussie LNG – Nikkei
• China August FX reserves, up for 7th straight month, reach $3.092 trln
• Gold holds steady amid softer dollar; markets eye ECB meet
• Oil dips on fears Hurricane Irma could hit crude shipments, rising Libya output

Looking Ahead – Economic Data (GMT)

• 12:30 Initial Jobless Claims (w/e Sep 2) (mkt 241k, prev 236k)
• 12:30 Continued Claims (w/e Aug 26) (mkt 1.950 mn, prev 1.942 mn)
• 12:30 Productivity (revised Q2) (mkt 1.3% q/q AR, prev +0.9% q/q AR)
• 12:30 Unit Labor Costs (revised Q2) (mkt +0.3% q/q AR, prev +0.6% q/q AR)
• 14:00 Quarterly Services Survey (Q2)
• 15:00 EIA Weekly Petroleum Status Report
• 19:00 Treasury STRIPS (Jul)

Looking Ahead – Events, Other Releases (GMT)

• 11:45 ECB interest rate decision announcement
• 12:30 ECB’s Draghi holds a press conference, after the interest rate meeting
• 16:15 FRB Cleveland’s Mester speaks at event, Pittsburgh, PA
• 18:30 FedTrade operation 30-year Ginnie Mae (max $1.475 bn)
• 23:00 FRB New York’s Dudley before Money Marketeers of NYU; New York, NY
• 23:00 FRB Atlanta’s Bostic in moderated discussion on economic views; Atlanta, GA
• 00:15 FRB Kansas City’s George discusses the economic outlook; Omaha, NE

Currency Summaries
EUR/USD

• EUR/USD trades up 1.1915-1.1971 in Europe
• With traders already long the solid bid ahead ECB is a very bullish sign
• Potentially EUR is actually under-owned and ripe to take-off
• Time ECB taper & Draghi’s potential to comment on EUR are in the spotlight
• On the U.S. side of the equation rates have slumped in advance today
• Just 3bp needed for 10 yr US/Bund spread to hit new lows for 2017
• An 8bp fall would match the major 165bp trough seen ahead the US election

USD/JPY

• USD/JPY range has been 108.84-109.26
• Offers in size from 109.50 weigh on spot, this should limit recovery moves
• Continued trading circa 109.03 pivot, bears need sustained trading below
• Bids trail down below 108.90, recall Japanese buying interest @108.50 Wed
• Sustained trading sub 108.50 will unmask 2017 108.13 low & 108.00 barriers
• Prudent to fade recovery moves in USD/JPY

EUR/CHF

• Higher high at 1.1435 for EUR/CHF in Asia at but treading water since
• 1.1416-1.1390 range in Europe ahead of the ECB/Draghi
• Tenkan @ 1.1416, Aug 31 peak @ 1.1472 key resist should the euro rise
• Close above Tenkan key. Been pierced this week but not sustained
• USD/CHF sold in Europe, 0.9567-0.9518 range, amid broad dollar weakness
• Lower 30-D Bolli threatened at 0.9520. Sppt thin until 0.9428 Aug 29 low

GBP/USD

• GBP weighed vs EUR and so TWI ahead today’s ECB meeting
• Like broader dollar GBP/USD underpinned by the decline of U.S. rates
• Halifax house price index leaps 1.1% in August 2.6% yy from 2.1%
• GBP/USD 1.3033-1.3070 in Europe, Sep 6 high 1.3082, daily cloud top 1.3087
• Break opens weekly cloud top 1.3257 (high since 1.1491 low is 1.3267)
• Support @ daily cloud base 21/100-DMAS 1.2922/28
• EUR/GBP resistance @ 21-DMA 0.9167 (0.90-0.94 targets next closing break

USD/CAD

• Big 1.2415-1.2140 drop after BoC hiked 25bpts Wed
• Bounce back to 1.2244, drifts to 1.2193 since
• 1.2245 resistance – 38.2% retrace of 1.2415-1.2140 fall
• Scope to 1.2048 – 50% retrace of 9407-1.4689 (2011-2017 rally)
• 1.1920 thereafter – May 2015 lows. Post BoC vol setbacks limited
• Market short downside option coverage, limited support from techs/options

AUD/USD

• AUD/USD peaked 0.8028 Tues, back to 0.7963 Wed, 0.7974-0.8019 Thurs
• Break of 27 July 0.8066 opens potential to May 2015 high 0.8164
• Demand for AUD/NZD of late to target March 2016 high 1.1335 helps AUD
• CAD demand also underpins AUD after BoC hike Wed, AUD dip buyers seen
• Option mkt has seen demand for short dated implied vol as spot moves
• Pick up in realised vols justifies long gamma for now

NZD/USD

• 0.7218-0.7173 today. Solid support at 200DMA 0.7134
• Initial support at Tues/Mon 0.7159/41 lows
• Wed/Tues recovery highs at 0.7261-63 cap, 100DMA 0.7191 pivotal
• Market awaits NZ elections 23 Sept, likely range bound ahead
• RBNZ 28Sept, keeps 1mth vol firmly underpinned above 10.0 for now
• AUD/NZD retests 1 Sep 1.1140 peak, scope to Mar 2016 hi 1.1335

FX OPTIONS

• O/n EUR related vols bid in to ECB , EUR/USD pricing 107 pips
• GBP 1 week vol captures UK MPC next Thusrday
• USD/JPY vols reprice lower as spot downside risk fades for now
• AUD vols bid as spot moves, NZD 1mth favoured over election/RBNZ
• USD/CAD vol setbacks limited after Wed’s sharp fall in spot

CHART FOCUS
USD/JPY risks fall below 2017 as bears retain control

USD/JPY risks collapsing below the 108.13 2017 low hit in April and then the 108.00 psychological level just below as the recovery from Wednesday’s 108.45 low runs out of steam. Bulls are struggling despite the “cloud twist” above in the 111.60s this week which normally act as a magnate. The long black candlestick line on Tuesday weighs heavily on USD/JPY, reinforcing the weakness which followed the recent failure above the Fibonacci level at 110.65 – 38.2% retrace of the 114.49 to 108.27 fall. The risk is growing for a collapse to the 2017 low which would pave the way to 108.00. If the 108.00/13 region is taken out on a sustained basis, a sharp extension to test the 107.00 level looks likely. Tenkan and kijun lines are negatively aligned, reinforcing the overall bearish market structure. While further short-term recovery attempts cannot be ruled out, the current technical setup means bears retain the upper hand

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