FX Market Update 13-9

Market Briefs• EUR/USD 0.08%, USD/JPY -0.14%, GBP/USD -0.17%, EUR/GBP 0.28%
• DXY -0.03%, DAX 0.04%, FTSE -0.35%, Brent 0.52%, Gold 0.1%
• N.Korea defiant over UN sanctions as Trump says tougher steps needed
• Juncker urges EU for tighter union amidst Brexit and economis upswing
• Juncker wants EU finance minister, no separate euro budget or parliament
• DE Aug CPI Final YY 1.8% vs 1.8%, f’cast 1.8%
• DE Aug HICP Final YY 1.8% vs 1.8%, f’cast 1.8%
• DE Aug Wholesale Price Index YY 3.2% vs 2.2%
• UK Jul Claimant Count unem Chng -2.8% vs -4.2%, rvsd -2.9k, f’cast 0.6k
• UK Jul ILO Unemployment Rate 4.3% vs 4.4%, f’cast 4.4%
• UK Jul Avg Wk Earnings 3M YY 2.1% vs 2.1%, f’cast 2.3%
• EZ Q2 Employment QQ 0.4% vs 0.4%, rvsd 0.5%
• EZ Q2 Employment YY 1.6% vs 1.5%, rvsd 1.6%
• EZ July Industrial Production YY 3.2% vs 2.6%, rvsd 2.8%, f’cast 3.4%
• Canada PayNet Small Business Lending Index rose to 126.2 in July
• Japan PM Abe– Next BoJ Gov must focus on meeting CPI goal, trust in Kuroda
• Japan-China-SoKorea CB governors meeting in Seoul today, tom
• Japan Aug domestic corp goods prices unch m/m, +2.9% y/y, +0.1/+3.0% eyed

Looking Ahead – Economic Data (GMT)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:30 PPI-Final Demand (Aug) (mkt +0.3% m/m, +2.5% y/y; prev -0.1% m/m, +1.9% y/y)
• 12:30 PPI-Final Demand core (mkt +0.2% m/m, +2.1% y/y; prev -0.1% m/m, +1.8% y/y)
• 12:30 PPI-Final Demand core and Trade Services (prev 0.0% m/m, +1.9% y/y)
• 14:30 EIA Weekly Petroleum Status Report
• 15:00 TR/ Ipsos PCSI (Sep) (prev 59.54)
• 18:00 Federal Budget (Aug) (CBO -$109 bn, mkt -$119.5 bn, prev Aug -$107.1 bn)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.9 bn)

Currency Summaries

EUR/USD

• EUR/USD rallies to 1.1995 early in the European session
• Rise mainly influenced by higher bund yields and narrowing with USTs
• Rally fails around the 100-HMA @ 1.1997 before falling to session low 1.1969
• Similar range in Asia 1.1964-93, Support @ 200-HMA 1.1951
• 10 yr bund still elevated at 0.39% & likely leads to EUR/USD dip buying
• German August final CPI unchanged @ 1.8% yy
• German wholesale price index rises to 3.2% in August from 2.2% in
• EUR 700mn vanilla expiries between 1.1930 and 1.1950

USD/JPY

• USD/JPY finds support just below the 110.00 level
• Bids said to be layered below 110.00 underpin, some circa 109.90
• Market recovers off 109.91 session low, pivot comes in @109.89
• Decent USD/JPY supply weighs ahead of the 55-WMA @110.50
• Bulls resilient, but their sell stops below could become vulnerable
• Large 109.00/10 strikes lurking below could attract

EUR/CHF

• USD/CHF rise has been capped ahead of the daily cloud base at 0.9624
• Bid again heading for the 0.9609 European range top. 0.9585 the pullback low
• The cloud top is at 0.9649. Break there eyes 100-DMA at 0.9694
• EUR/CHF trades a little higher to 1.1215 in Europe fm 1.1483 Asia base
• Testing the upper 30-D Bollinger and just shy of August’s 1.1537 peak
• Cross is treading water ahead of SNB Thurs. SNB seen on hold with ECB
• Focus is whether SNB changes view of CHF as “significantly overvalued”

GBP/USD

• Cable fell to 1.3263 after UK earnings data miss at 0830GMT
• Earnings growth 2.1% vs 2.3% f/c, ex-bonus earnings 2.1% vs 2.2% f/c
• 1.3329 was fresh 12-month high for cable in early Ldn trade
• EUR/GBP rose to 0.9029 on the back of the UK earnings data miss
• Cross had dropped to test 0.8984 in early European trade
• 0.8984 was Tuesday’s 6wk low. BoE event risk Thursday 1100GMT

USD/CAD

• USD/CAD retreated to 1.2137 Europe am low after holding sub-1.22 in Asia
• 1.2190 was Tuesday’s high after some CAD position adjustments
• Morneau indicated he could live with a more robust CAD (Reuters interview)
• 1.2063 = recent 28mth low for USD/CAD (after BoC hiked last week)

AUD/USD

• Offers ahead of 0.8050 are keeping lid on AUD/USD amid copper price fall
• 0.8043 = European am high. Ldn copper -1.5% after 1.2% fall Tuesday
• Large 0.8010 option expiry Thursday, AUD 1.27bln strike

NZD/USD

• Offers around 0.7300 kept lid on NZD/USD during European am
• 0.7300 option expiries WednesdayFriday, NZD 578mn strikes
• More offers expected near 0.7320 & 0.7340 (0.7338 = Sept 8 high)
• 0.7321 was Tuesday’s high after NZD jumped on Newshub-Reid poll
• Subsequent retreat extended to 0.7258 in Asia. NZ election Sept 23

FX OPTIONS

• Cable O/n vol at 17.5/100 pips pre MPC, one of highest readings post Brexit
• 1wk vol up 1.75 to mid 9’s/140 pips, 1mth 7.5 to 8.1 since Tues
• 1mth 25D risk rev lowest downside bias since 2009 at 0.15 GBP puts
• EUR options still poised for spot gains, underpins vols and risk reversals
• USD/JPY vols retraced Fri’s spikes, JPY call bias sold, awaits Thurs US CPI

COMMENT

UK wage miss muddies the waters pre-BoE

Sterling could be in for another volatile day Thursday, with today’s UK wages data miss muddying the waters as to the tone of the BoE’s message. The market moved to price in a “hawkish hold” and a greater risk of a 6-3 MPC rate vote following Tuesday’s higher than expected UK inflation data. The chicken and egg problem for the BoE is that if their message is less hawkish than the market expects, it could spur fresh selling of the pound–which could contribute to a further rise in inflation. The pound tanked after the BoE’s “dovish hold” on Aug 3, with the weakness influencing August’s annualized CPI inflation rise to 2.9%. If the BoE decided to take the inflation bull by the horns and deliver a shock hike on Thursday the pound would probably soar and eventually bear down on UK inflation. This would be a much bigger surprise than the BoC hike last week.

CHART FOCUS

USD/TRY rise offers improved selling levels

Technicals suggest USD/TRY downside still has further to run and the weekly cloud base at 3.3659 remains a viable target for bears. Should the cloud base yield, then the December 2016 low at 3.3410 is a further downside objective. For now, the sharp rebound from Monday’s 3.3885 low to Tuesday’s 3.4445 top suggests there may be better levels to rejoin the bear trend. Spot is off that high today but remains bid and the charts show scope for a further rise. The close above the 10-DMA Tuesdayreinforces the correction theory. USD/TRY hasn’t closed above the average since early August. For resistance, look at the retracement levels of the August to September 3.5590 to 3.8885 drop. The 38.2% Fibo is close to market at 3.4536 while the respective 50% and 61.8% are at 3.4738 and 3.4939. A break above the 61.8% would shift the bias back to the bull side but a rejection there is more likely if the price extends that high.

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