FX Market Update 19-9

Market Briefs

• EUR/USD 0.34%, USD/JPY 0.04%, GBP/USD 0.07%, EUR/GBP 0.27%
• DXY -0.23%, DAX -0.1%, FTSE 0.33%, Brent 0.52%, Gold 0.15%
• EUR/CHF rises to its highest since Jan 2015 at 1.1565
• DE Sep ZEW Economic Sentiment 17 vs 10, 12.5 f’cast
• DE Sep ZEW Current Conditions 87.9 vs 86.7, 86.6 f’cast
• EZ Jul Current Account NSA 32.5B vs 28.1B, 29.8B r’vsd
• EZ Jul Current Account SA 25.1B vs 21.1B, 22.8B r’vsd
• France trims deficit outlook on firm growth
• Oil steady on tighter Middle East supplies, as rising U.S. output weighs
• Gold steady; markets brace for Fed meeting

Looking Ahead – Economic Data (GMT)

• 12:30 US Housing Starts (Aug) (mkt 1.175 mn SAAR, prev 1.155 mn SAAR)
• 12:30 US Building Permits (Aug) (mkt 1.220 mn SAAR, prev 1.230 mn SAAR)
• 12:30 US Import Price Index (Aug) (mkt +0.4% m/m, prev +0.1% m/m)
• 12:30 US Export Price Index (Aug) (mkt +0.2% m/m, prev +0.4% m/m)
• 12:30 US Current Account (Q2) (mkt -$115.1 bn, prev -$116.8 bn)
• 12:55 US Redbook Same-Store Sales Index (weekly) (prev +4.5% y/y)
• n/a US Atlanta Fed GDPNow (Q3) (prev +2.2% q/q AR)
• 12:30 CA Manufacturing Sales MM (Jul) (mkts -1.6%, prev -1.8%)

Looking Ahead – Events, Other Releases (GMT)

• 17:00 FOMC begins two-day policy meeting
• 18:30 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.625 bn)

Currency Summaries


• EUR/USD buoyant ahead a supposedly USD bullish event
• U.S. rates up steeply ahead tomorrow’s FOMC but matched by bunds
• Euro zone data and news is all favourable for the euro today
• EZ c/a surplus grows despite supposed negative impact of a stronger euro
• ZEW 17 in September so recoups most July-Aug 17.5-10.0 drop (VW emissions)
• Germany’s HDE retailer body cranks up its 2017 sales forecast
• EUR/USD underpinned ion a higher 1.1972-1.2006 range


• Bulls have vice grip with the focus on 200-DMA at 112.25
• Despite the bullish structure, large 112 option barriers weigh
• Barriers @112.00 said to be sizeable & well defended
• Bids seem to be circa the 111.38 pivot point
• 111.38-88 has been Tue’s USD/JPY range


• EUR/CHF extends its rise, hitting its highest since Jan 2015 at 1.1565
• 1.1537 was the high since 0.85 low after SNB scrapped 1.20 floor in Jan 2015
• The cross failed just shy of there last wk forming a double top on charts
• Tech resist is thin above. 1.1671 is the 76.4% Fibo of 1.2650-0.8500
• Weekly Bolli at 1.1590 but market not shown much respect for envelope lately
• USD/CHF getting a boost from the EUR/CHF rise, plays 0.9595-0.9645
• Spike back above the daily cloud. The 100-DMA is next resist at 0.9681
• Last week’s 0.9706 high may be tough to clear before the Fed


• Cable elicited support pre-1.3465 after sliding from 1.3552 (early Ldn high)
• 1.3465 was Monday’s low after profit-taking on GBP longs
• Monday’s profit-take flow kicked in after second failure pre-1.3620
• 1.3450 (last Friday’s early Ldn high, pre-Vlieghe) is additional support level
• Offers just shy of 0.89 capped EUR/GBP gains during European am
• 0.8900 is 23.6% of 0.9307 (Aug 29 high) to 0.8775 (last Friday’s 8wk low)


• USD/CAD fell to 1.2263 after meeting fresh offers above 1.23 early Europe
• 1.2309 = early Europe high. 1.2274-1.2308 was Asia range
• More offers expected near 1.2345-50 (1.2345 = 0.81 CAD/USD)
• 1.2338 was Monday’s high after Lane said BoC watching stronger CAD
• 40% probability of BoC hike Oct 25-BOCWATCH/Eikon. Poloz speaks Sept 27


• AUD/USD rose to a high of 0.8000 during the European am
• Large 0.8000 option expiry Wednesday, AUD 773mn strike
• 0.8000 = high water-mark for AUD/USD since Monday’s 0.7940 low


• NZD/USD firmed to an intra-day high of 0.7299 during the European am
• Decent size 0.7295 option expiry for 10am ET NY cut, NZD 378mn strike
• GDT auction result expected circa 1430GMT. NZ C/A data due 2245GMT


• Offshore reports waves of vol selling o/n post BOE minutes and post Bernanke
• Bernanke was full of caveats o/n with QE tapering likely to be a drawn out affair
• Dog days of summer thus arrives early and long gamma positions will be pared
• AXJ vol set to follow the lead witnessed in the majors in Asia o/n


Sterling set for another big bang Nov 2

To hike or not to hike on Nov 2? That is the question facing the BoE. The c.bank’s verdict currently looks too close to call with any certainty, as evidenced by the BOEWATCH page on TR Eikon suggesting a 54% probability of a 25bp hike. The only certainty on Nov 2 is that the pound will be volatile regardless of the verdict. If the MPC decides against a rate rise, the pound could take a big knee-jerk hit. If policymakers bite the bullet and hike, then sterling could gain. There’s also plenty of UK data event risks ahead of Nov 2. These include Wednesday’s ONS Aug retail sales figures, next week’s disclosure of the size of the UK’s Q2 current account deficit, Markit/CIPS Sept manufacturing, construction and service sector PMIs in the first week of October, the release of September inflation statistics Oct 17 and the first ONS estimate of UK Q3 GDP Oct 25.


EUR/GBP bulls in with a chance above the cloud

EUR/GBP has extended its rise back inside the daily cloud today and there is scope for a return to the cloud top at 0.8984. The base of the cloud is at 0.8866 and the cross has rallied to 0.8898 so far. A positive close on the day, above the 0.8866 cloud base, gives EUR/GBP scope to extend further. For upside objectives look at the Fibonacci retracements of the August to September 0.9307 to 0.8775 drop. The 38.2% Fibo of that move is at 0.8978, close to the aforementioned daily cloud top which reinforces resistance in that region. The 38.2% retrace is the minimum technical requirement for a correction and those looking to play the long side again are hopeful of a move above the Fibo to pave the way to further gains. A close above the 38.2% could bring the 50% and 61.8% Fibos into play at 0.9041 and 0.9104, respectively


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