FX Market Update 2-10

Market Briefs

• EUR/USD -0.65%, USD/JPY 0.29%, GBP/USD -0.7%, EUR/GBP 0.03%
• DXY 0.57%, DAX 0.32%, FTSE 0.5%, Brent -1.32%, Gold -0.43%
• EZ Markit Mfg Final PMI Sept 58.1 vs 58.2, 58.2 f’cast
• EZ Unemployment Rate Aug 9.1% vs 9.1%, 9.0% f’cast
• GB Markit/CPIS Mfg PMI Sept 55.9 vs 56.9, 56.4 f’cast
• DE Markit/BME Final PMI Sept 60.6 vs 60.6, 60.6 f’cast
• Japan’s business mood hits decade-high, labour shortage bites – BOJ tankan
• JP Sept Mfg PMI – final 52.9, flash 52.6, Aug final 52.2, sectoral growth up
• Capitalism is the only way, UK finance minister says in challenge to Labour
• Trump to top U.S. diplomat: Don’t bother talking to North Korea
• At least 20 killed at shooting rampage at Las Vegas concert
• Oil slips further below $57 after third-quarter rally
• Gold hits near 7-week low as rising U.S. yields lift dollar

Looking Ahead – Economic Data (GMT)

• 12:30 CA Markit Mfg PMI SA Sept 54.6 prior
• 13:45 US Markit Manufacturing PMI (final Sept) (flash 53.0)
• 14:00 US ISM Manufacturing PMI (Sept) (mkt 58.0, prev 58.8)
• 14:00 US Construction Spending (Aug) (mkt +0.2% m/m, prev -0.6% m/m)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.25 bn)
• 18:00 FRB Dallas’s Kaplan participates in moderated Q&A session; El Paso, TX

Currency Summaries

EUR/USD

• EUR/USD lower in Asia and extends the slide in Europe
• Asia range 1.1815-1.1761. European low 1.1733
• Higher U.S. rates leading moves across FX (31bp added this month)
• UST/Bund spreads wider across the curve pressuring EUR/USD
• Net EUR long position grew week to September 26 (circa EUR 11bn)
• Break of Sep low @ 1.1717 sure to spur long liquidation
• Fri’s 1.1833 peak & 55-DMA 1.1822 weigh. Target 100-DMA 1.1571

USD/JPY

• USD/JPY range has been 112.37-113.06
• Specs piled into USD/JPY before 113 barriers were erased last week
• Japanese exporters likely to remain good sellers above 113
• Despite this, gains above last week’s 113.26 high remain plausible
• Buy stops clustered above 113.30 remain within reach & are vulnerable
• BoJ seen trimming inflation outlook in October meeting – Nikkei
• BoJ September Tankan – Big mfg DI +22, big non-mfg +23, +18/+23 eyed
• DIs eyed at +19, +19 in December, previous +16, +20, USD eyed at 109.29
• FY ‘17/18 recurring profits eyed at +4.7%, CAPEX +7.7%, previous +8.3%

EUR/CHF

• USD/CHF a little higher at the start of a new week. 0.9682-0.9726 range
• Holds below last week’s 0.9770 peak & 38.2% Fibo of 2017 1.0335-0.9422 drop
• EUR/CHF offered through Europe, 1.1426-1.1389
• Some stops tripped sub-1.1400, more eyed below 1.1380
• Close under the 21-DMA last Tues-Fri last week keeps bear bias intact
• Swiss PMI rises to 61.7 pts in Sept [nZ8N1LU000]
• Swiss domestic sight deposits fall in w/e Sept 29 [nEONH9S0T4]

GBP/USD

• Cable fell to an 18-day low a pip shy of 1.3300 during the European am
• 1.3300 = Sept 12 high (two days before BoE’s hawkish hold)
• Some GBP longs were jettisoned on break below 1.3343 fibo support level
• Bids ahead of 1.3343 based cable losses last Thursday & Friday
• IMM specs turned net long GBP for 1st time since Nov 2015 week to Sept 26
• UK mfg PMI 55.9 vs 56.4 f/c. Annual UK Tory party conference this week

USD/CAD

• USD/CAD extended north from 1.2466 to 1.2522 during the European am
• 1.2466 was Asia low (1.2460 = pre-weekend pullback low from 1.2531)
• Ascent fuelled by across-the-board demand for USD
• IMM net CAD long position at highest since Nov 2012 in week to Sept 26
• Will have almost certainly shrunk since Sept 26 re: dovish Poloz Sept 27
• BoC deputy governor Leduc due to speak in Quebec on Tuesday

AUD/USD

• AUD/USD slid to an 11-week low of 0.7795 during the European am
• 0.7847 was Asia high. 0.7799 was last week’s low (Sept 28)
• RBA is expected to keep cash rate at 1.5% at 11.30pm ET
• IMM net AUD longs at highest level since Apr 2013 in week to Sept 26

NZD/USD

• NZD/USD dropped to test 0.7167 (Sept 28 low) during the European am
• 0.7225 was Asia high. AUD/USD also sagged during European am
• Recent NZD losses influenced by NZ election result
• NZ First to start talks with National & Labour this week

FX OPTIONS

• China holidays impacting trade flow and interest very light in options
• Almost no vol premium added for NFP Friday. 1mth EUR gets Nov FOMC now
• GBP/USD 1mth expiry captures Nov 2 BoE MPC, 1mth vol off its setback low
• Huge 4bln 1.1750-1.1800 EUR/USD expiries Tuesday help limit declines there
• USD/JPY election risk keeps 1mth vol and JPY call strikes bid
• Next day expiry AUD/USD vol sees minimal risk premium

COMMENT

Brexit – Last year was different

GBP traders will be cautious this week cognisant of the sharp falls (and flash crash) this time last year that followed PM May’s speech at the Conservative Party conference. She will be speaking again on October 4 around 12:00GMT. While last year the concern was over a hard/soft Brexit, this year all the attention is on party divisions and the impact from Foreign Secretary Boris Johnson. It is at events like this that the party will be looking to show unity and Johnson is likely to look to toe the party line. Failure to do so could raise the risk of Johnson being fired further complicating the voting maths in Parliament. The broader focus is on when the EU will deem the UK as having made “sufficient progress” and the risks are that it won’t be in time for the EU leaders summit on October 19 and could be delayed until the next summit on December 14.

CHART FOCUS

Cable slump looks set to intensify, 30-DMA beckons

Cable bears have forced a break of the 1.3321 level — 38.2% retrace of 1.2774 to 1.3659 (August to September) rise — a daily close below which will pave the way to a plethora of levels below. The ultimate target is the 200-DMA at 1.2753, while the 30-DMA at 1.3198 beckons in the interim. Fibonacci levels to watch on the downside include 1.3112 and 1.2983 — 61.8% and 76.4% retrace of the same 1.2774 to 1.3659 rise. GBP/USD bulls remain under intense pressure since the September failure ahead of 1.3669 — 38.2% retrace of the 1.7192 to 1.1491 (2014 to 2016) fall — and are at heightened risk of buckling further. Fourteen-day momentum is on the cusp of turning negative after positive readings throughout September. Bulls will need to top the aforementioned 1.3669 Fibonacci level, on a sustained basis, in order to avert a fall below 1.3000

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