FX Market Update 26-9

Market Briefs

• EUR/USD -0.28%, USD/JPY -0.02%, GBP/USD 0.03%, EUR/GBP -0.31%
• DXY 0.2%, DAX 0.24%, FTSE -0.05%, Brent -0.73%, Gold -0.36%
• North Korea appears to bolster defences after flight by U.S. bombers as rhetoric escalates
• Republican tax plan expected to include new ‘pass-through’ business rate
• UK consumer lending growth slows in August, industry data shows
• DE Import Prices YY 2.1% vs 1.9%, f’cast 2.1%
• Japan FinMin Aso: Need more time to hit budget-balancing goal
• BoJ July Policy Board minutes – To stick to QQE, YCC program
• JP Aug corporate service price index -0.2% m/m, +0.8% y/y
• Oil near 26-month high as Turkey threatens to choke Kurdish exports
• Gold steady near 1-wk high on North Korea worries

Looking Ahead – Economic Data (GMT)

• 12:30 Philly Fed Nonmanufacturing Business Outlook Survey (Sep)
• 12:55 Redbook Same-Store Sales Index (weekly) (prev +3.5% y/y)
• 13:00 S&P Corelogic Case-Shiller House Price Index (Jul) (mkt +5.8% y/y, prev +5.7% y/y)
• 14:00 New Home Sales (Aug) (mkt 588k SAAR, prev 571k SAAR)
• 14:00 Consumer Confidence (Sep) (mkt 120.0, prev 122.9)
• 14:00 Richmond Fed Manufacturing (Sep) (prev 14)
• 14:00 Richmond Fed Services (Sep) (prev 22)
• 14:30 Dallas Fed Texas Service Sector Outlook Survey (Sep) (prev 15.1)
• 14:30 Dallas Fed Service Revenues Index (Sep) (prev 14.2)

Looking Ahead – Events, Other Releases (GMT)

• 13:30 FRB Cleveland’s Mester moderates “Global Outlook” session at Cleveland, OH
• 14:30 Fed Brainard speaks on “Labor Market Disparities and the Mission of the Fed”, Washington
• 15:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $675 mn)
• 16:30 FRB Atlanta’s Bostic speaks at Atlanta Press Club Newsmaker Luncheon
• 16:40 Fed Chair Yellen delivers keynote address to NABE annual meeting; Cleveland, OH
• 20:00 OMB Director Mulvaney addresses NABE annual meeting

Currency Summaries

EUR/USD

• Heavy EUR/GBP selling leads EUR/USD lower in European session
• Session bereft data or news to influence the fresh selling
• Seems a carry over from EUR negative German election results
• Seems some think UK is a safer alternative thanks far-right & coalition
• EUR/USD funds support ahead 55-DMA (1.1800). Trade over 55-DMA since April
• Europe 1.1810-59 range after 1.1834-61 in Asia
• Hedging of EUR 1.3bn 1.1800-25 expiries may underpin EUR/USD

USD/JPY

• USD/JPY has seen a narrow 111.50-80 range
• Decent supply ahead of the 112.00 level, session high as been 111.80
• Daily cloud propping up spot, spans 110.21-111.55
• There are said to be large bids circa 111.50 which underpin intra-day
• Spot was hit by NK risk-off flows which saw a drop to 111.50 in Asia
• Large (1.9B) 112.00 strike expiring Thu could attract later this week

EUR/CHF

• EUR/CHF off Mon 1.1413 base but remains offered. 1.1487-1.1454 in Europe
• EUR/USD continues to slip on German election woes & weighs on the cross
• Sept 1.1362 base & 38.2% fibo of post-Brexit 1.0623-1.1623 at 1.1241 supports
• Technical confirmation of Friday Doji reinforces bearish structure on charts
• USD/CHF better bid, continues to track EUR/USD. 0.9680-0.9707 range Europe
• Monday’s 0.9645 base propped by 10-DMA. Today at 0.9658. 0.9654 was Asia’s low
• Dble day high at 0.9747/48 (Mon/Thurs) break would put bulls back in drivers seat

GBP/USD

• Cable rose to 1.3514 early Ldn as EUR/GBP dropped thru 0.8772
• Bids ahead of 0.8772 had propped cross since it tanked Sept 15
• 0.8755 = 10wk low for EUR/GBP during European am
• 49 pip cable retreat from 1.3514 influenced by EUR/USD drop to 1.1810
• 1.1810 = 1mth low. German political uncertainty helping weigh on euro
• Recent talk of EUR/GBP stops below 0.8740 (0.8744 = July’s low)

USD/CAD

• USD/CAD met fresh headwind pre-1.24 after rising from 1.2363
• 1.2363 = early Europe low. 1.2392 = European am high. 1.2389 = Asia high
• Last week’s high was 1.2390 (after USD rose on Fed’s hawkish dot plots)
• Yellen to speak about “Inflation, Uncertainty & Monetary Policy” 1645GMT
• Poloz will speak about the meaning of “Data Dependence” on Wednesday
• BoC Governor will hold press conference after his Newfoundland speech

AUD/USD

• AUD/USD eased to an intra-day low of 0.7914 during the European am
• Losses influenced by risk aversion amid North Korea concerns
• Stops are tipped below 0.7900 (0.7908 = Sept low last Friday)
• 0.7950 expiry for 10am ET NY cut, AUD 445mn strike. 0.7949 = Asia high

NZD/USD

• NZD/USD extended south to threaten 0.7213 during the European am
• 0.7213 = Sept 15 low. NZ political uncertainty is weighing on the kiwi
• Labour says it has reached out to New Zealand First (kingmaker)
• Governing National has been courting NZ First since election night

FX OPTIONS

• N.K tensions see some risk off flows today, JPY vols/calls higher
• 1mth JPY gets snap election. USD/KRW risk reversals near cycle highs
• EUR 1mth vols higher as expiry captures ECB. EUR/USD tests 1.18 barrier
• NZD short dated vols underpinned in to RBNZ. AUD vols sidelined/propped
• USD/CAD 1mth vol up nearly 1.0 to 8.75 on BoC capture

COMMENT

GBP/JPY bulls stymied by UK’s May and Moody’s

GBP/JPY suffered a double whammy on Friday which may be difficult to recover from and points to deeper losses through 149.65 — 23.6% retrace of the 139.30 to 152.85 (August to September) rise. A daily close below 149.65 will unlock 147.65 –38.2% of the same 139.30 to 152.85 gain. UK PM May’s much-anticipated Brexit speech was met with mild disappointment by sterling traders which was compounded by the late downgrade of the UK by Moody’s to Aa2 from Aa1. Continued uncertainty surrounding the Brexit negotiations means the pound is likely to suffer disproportionately against the yen. Thursday and FridayGBP/JPY candlestick lines formed a bearish engulfing pattern, consisting of a white candlestick body on Thursday which was subsequently contained within Friday’s large black candlestick body. This is normally a sign of a significant bearish reversal when seen in an uptrend. Only a break and daily close above Thursday’s high will shift the overall bias back to the upside.

CHART FOCUS

EUR/GBP risks deeper fall below key Fibo support

EUR/GBP is closing in on key Fibo support at 0.8694. This is the 61.8% Fibo of the April to August 0.8315 to 0.9307 rise where a break opens the way for a full retracement to April’s 0.8315 base. The weekly Ichi cloud also holds some significance close to that Fibo. The cloud top is at 0.8638 and a break risks a further slide to the base of the pattern at 0.8484. The cross has not traded below the weekly cloud since December 2015 and a move under there would be significant for those playing the short side. Closer to market are the July 0.8744/45 double lows. September’s previous 0.8775 base gave way this morning in Europe and the cross made a fresh 10-week low at 0.8755. A test of those July lows looks imminent. The bearish structure on the charts is expected to remain while the falling 10-DMA at 0.8846 caps the market.

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