FX Market Update 12-9

Market Briefs

• EUR/USD 0.05%, USD/JPY 0.28%, GBP/USD 0.87%, EUR/GBP -0.79%
• DXY -0.03%, DAX 0.56%, FTSE -0.18%, Brent -0.19%, Gold -0.01%
• Major U.S. allies in Asia welcome new U.N. sanctions on N.Korea
• Floridians return to storm-battered homes as Irma flooding spreads
• German economy could lose some momentum in H2 – ministry
• US Aug NFIB Business Optimism 105.3 vs 105.2
• GB Aug Core CPI YY 2.7% vs 2.4%, 2.5% f’cast
• GB Aug CPI YY 2.9% vs 2.6%, 2.8% f’cast
• GB Aug PPI Input Prices YY NSA 7.6% vs 6.2%, 7.3% f’cast
• GB Aug PPI Output Prices MM NSA 0.4% vs 0.1%, 0.2% f’cast
• GB Aug PPI Output Prices YY NSA 3.4% vs 3.2%, 3.1% f’cast
• GB Aug PPI Core Output Prices YY NSA 2.5% vs 2.4%, 2.3% f’cast
• Japan Inc busy with USD, EUR issues, eyeing higher yields abroad, weak JPY
• Japan Softbank USD 7/10-yr, EUR 8/12-yr, Asahi E1.2 bln dual on tap – IFR
• Oil prices slip on demand concerns following U.S. hurricanes
• Gold eases as investors pile into equities

Looking Ahead – Economic Data (GMT)

• 12:55 Redbook Same-Store Sales Index (weekly) (prev +4.4% y/y)
• 14:00 JOLTS (Jul) (prev job openings level 6.163 mn (record high))

Looking Ahead – Events, Other Releases (GMT)

• 18:30 FedTrade operation 30-year Ginnie Mae (max $1.475 bn)

Currency Summaries

EUR/USD

• EUR/USD a quiet 1.1947-78 range in Europe (Asia low 1.1946)
• Pair weighed by EUR/GBP selling after higher UK CPI
• German yields following UST yields up narrowing UST/bund slightly
• EUR 716mln 1.2000 expiries might attract close to NY cut @ 14GMT
• 200-HMA @ 1.1941 & 21-DMA 1.1876 are support
• 100-HMA 1.1987 1st resistance. Hourly cloud twist (often attract) @ 1.2010

USD/JPY

• Japan Inc has been buying USD/JPY leading to squeeze higher
• USD/JPY has risen from Mon’s 108.05 low to reach 109.77 today
• Model said to have offered ahead of 110.00, stops just above
• 14-hour momentum likely to turn negative Tues

EUR/CHF

• USD/CHF up again as risk sentiment improves. 0.9547-0.9572 Europe
• 0.9574 was the peak in Asia. 21-DMA is next resistance at 0.9599
• Daily cloud twist by 0.9620 also helping to attract spot higher
• EUR/CHF better bid as well today. Trades to 1.1449 from 1.1429
• Brk of Tenkan at 1.1423 is bullish. Last week’s 1.1483 peak in sight
• Thurs SNB main scheduled event risk. SNB seen on hold with ECB

GBP/USD

• EUR/GBP elicited support pre-0.9091 after quarter-penny fall early Europe
• 0.9091 = 1.10 GBP/EUR & 38.2% of 0.8744 (July low) to 0.9307 (Aug high)
• Cable met headwind at 1.3200 after firming from 1.3169 (late Asia low)
• Large 1.3200 option expiry Friday, GBP 1.69bln strike
• UK Aug CPI data due Tuesday, 2.8% f/c vs 2.6%. UK wage data due Weds
• Wage growth f/c 2.3% vs 2.1%. BoE event risk Thursday, 7-2 rate vote f/c

USD/CAD

• USD/CAD rose from 1.2083 to 1.2130 during the European am
• Asia range was 1.2097-1.2124. Monday’s range was 1.2098-1.2170
• On Monday, BoC defended its silence ahead of last week’s rate hike
• CAD soared on the back of the BoC hike: 1.2063 = USD/CAD 28mth low
• 40% chance of another BoC hike Oct 25-BOCWATCH/Eikon

AUD/USD

• AUD/USD met headwind just shy of 0.8050 after rising from 0.7998
• 0.7998 was Asia low. 0.8080 among resistance levels beyond 0.8050
• Large 0.8010 option expiry Thursday, AUD 1.27bln strike
• AUD/NZD tanked on Newshub-Reid NZ election poll, 1.1105-1.0980

NZD/USD

• Kiwi soared after 0600GMT publication of Newshub-Reid NZ election poll
• Poll indicated ruling National Party on course for 4th term in office
• NZD/USD up by a cent to 0.7321 on the back of the poll
• AUD/NZD down by a cent-and-a-quarter to 1.0980 (Sept low)
• Prior polls flagging possible Labour-led govt weighed on NZD recently
• NZD/USD offers expected ahead of 0.7340 (0.7338 = Sept 8 high)

FX OPTIONS

• Front end EUR/USD vols/calls ease as spot consolidates sub 1.20
• USD/JPY vol setbacks amid firmer spot. 1mth risk rev 1.0 vs 1.6 JPY calls
• Cable rallies toward 1.33 barrier. Huge 1.32 vanilla underpins, MPC focal
• GBP put bias sold, noted demand for Cable call strikes
• NZD vols firm pre NZ election. CAD vols have peaked as 1.2050 holds

COMMENT

UK inflation beat may add to BoE MPC hike crowd

Forecast-beating UK inflation data today increases the risk of another BoE MPC member joining hawks Saunders and McCafferty in voting for an interest rate hike on Thursday, which would bolster GBP gains. British prices continue to overshoot the BoE’s 2% target, with August data showing consumer prices overall increased by 2.9% yr/yr, up from 2.6% in July and above a 2.8% forecast in a Reuters poll (Full Story). The BoE MPC is expected to vote 7-2 to keep monetary policy steady this week but the data may spur Haldane to back his June 21 hawkish signal to make it 6-3. Haldane voted to keep rates steady on Aug 3, disappointing sterling bulls who had expected him to follow through on his comments that he was likely to vote for a hike in H2. Apart from the MPC vote, policymakers will be mindful that sterling’s recent weakness is bound to make inflation worse and toughen up their rhetoric.

CHART FOCUS

GBP/JPY bulls in for a setback as cloud twist looms

GBP/JPY bulls are likely to suffer a setback into next week with charts showing a likely reversal in their fortunes as they come up against important technical levels. Though USD/JPY is likely to register a daily close above the thick Ichimoku cloud, which currently spans 143.20-145.20, a cloud twist in the 143.00s on Sept 21 will likely act as a magnate. Bulls will also be up against the key 145.75 Fibonacci level–the 76.4% retrace of the 147.75 to 139.30 (July to August) fall–where potentially significant supply resides. Watch for price action for the rest of this week for signs of a reversal and a potential medium-term top. If GBP/JPY bulls manage to extend gains through the 145.75 Fibonacci level and register a daily close above, this will pave the way to the Aug 3 146.75 peak. A daily close above 146.75 would tighten GBP bulls’ grip and extend gains

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