FX Market Update 4-10

Market Briefs

• EUR/USD 0.24%, USD/JPY -0.35%, GBP/USD 0.34%, EUR/GBP -0.08%
• DXY -0.24%, DAX 0.05%, FTSE -0.08%, Brent -0.52%, Gold 0.48
• Bank of England talking up sterling to fight inflation – S&P
• ECB tells banks to set aside more cash on bad loans
• DE Sept Markit Comp Final PMI 57.7 vs 57.8, f’cast 57.8
• EZ Sept Markit Serv Final PMI 55.8 vs 55.6, f’cast 55.6
• EZ Sept Markit Comp Final PMI 56.7 vs 56.7, f’cast 56.7
• GB Sept Markit/CIPS Serv PMI 53.6 vs 53.2, f’cast 53.2
• EZ Aug Retail Sales YY 1.2% vs 2.6%, r’vsd 2.3%, f’cast 2.6%
• Trump tax plan expends recession-fighting U.S. business tax break
• Majority of Germans want Merkel’s conservatives, FDP, Greens to form govt
• Trump EPA to propose repealing Obama’s climate regulation -document
• Japan’s economy sees output exceed capacity the most in 9 years

Looking Ahead – Economic Data (GMT)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:15 ADP National Employment Report (Sep) (mkt +125k, prev +237k)
• 13:45 Markit Services PMI (final Sep) (flash 55.1)
• 14:00 ISM Non-Manufacturing Index (Sep) (mkt 55.5, prev 55.3)
• 14:30 EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 15-year Fannie Mae and Freddie Mac (max $500 mn)
• 19:00 Fed Bullard delivers opening remarks at community banking conference; St. Louis
• 19:15 Fed Chair Yellen delivers brief welcoming remarks at community banking conference

Currency Summaries


• EUR/USD trading a 1.1777-48 range early Europe. 1.1735-80 range in Asia
• 61.8% of recent 1.1833/1.1696 at 1.1781. Catalan situation a drag
• Offers above 1.1800, 1.1815 Mon’s high, 10/55dmas at 1.1811/29
• Huge 3.6bln expiries 1.1700-50 Friday help underpin EUR/USD setbacks
• Support Mon’s low 1.1695, bids 1.1680-50, some stops mixed in
• US yield setbacks limited for now, US/DE 10yr marginally wider on the day
• Option vol setbacks find a base, risk reversals retain firm topside bias


• Scope for 115 eventually as Japan election worries recede
• Further failures above 113.00 may discourage bulls unless 113.30 gives way
• Decent offers ahead of 113.30 but decent stops clustered above vulnerable
• Bulls will not panic unless 200-DMA below breaks
• There was said to be decent buying by Tokyo names in Asia
• Support circa 112.36 pivot point. Session range has been 112.41-90
• Market definately long gamma between 112.00-113.00


• Off 0.9787 multi-mth high in line with softer dollar but bid on the day
• Plays a 0.9725-40 European range, up from Asia’s 0.9710 low
• 10-DMA continues to lend support, today at 0.9707, broad bull trend intact
• 0.9771, the 38.2% Fibo of this year’s 1.0335 to 0.9422 drop remains key
• Bulls looking for a close above Fibo for a chance at the 200-DMA at 0.9840
• EUR/CHF tight 1.1.1436-54 range, remains below the 21-DMA, at 1.1465 today
• Thick daily Cloud rising up to meet prices next week


• Cable rose by a quarter-cent to 1.3285 on above f/c UK service PMI
• 53.6 vs 53.2 f/c. Service sector is dominant segment of UK economy
• 1.3245-1.3283 was early Ldn range, pre-UK data (high before low)
• EUR/GBP fell nearly a quarter-penny to 0.8853 on UK service PMI beat
• Beat is boost for hawks advocating 25bp BoE rate hike Nov 2
• UK PM May speaking at last day of Tory party conference


• USD/CAD rose to 1.2483 after threatening 1.2457 in early European trade
• 1.2457 = Asia low. Drop to 1.2457 influenced by Fed speculation
• Powell among names-in-the-frame, less hawkish than Warsh
• US ADP jobs report due 1215GMT, 125k f/c. US NFP data due Friday
• Canadian jobs data also due Friday, employment f/c +14.5k


• AUD/USD traded modest 19 pip range during European am, 0.7849-68
• Calm followed short covering-fuelled rise to 1wk high of 0.7875 in Asia
• 0.7800 expiries for NY cut WednesdayFriday, including yard strike Friday


• NZD/USD retreated to a low of 0.7165 during the European am
• 0.7205 was Asia high as USD hurt by Fed speculation
• Powell among names-in-the-frame, less hawkish than Warsh
• AUD/NZD extended north to 1.0963 (8-day high) during the European am


• Minimal NFP premium in USD majors, recent weather saps data credence
• JPY vols hit as election premium priced out but JPY calls stay bid for now
• EUR/USD setbacks stall, suggested value vs realised. EUR calls holding firm
• GBP/USD vols sold beside spot, 1mth vol underpinned by November MPC
• Some interest for NZD gamma as coalition still uncertain post election


Euro may take a hit if Catalonia situation escalates

The euro could weaken in coming days if the situation in Catalonia escalates. The euro’s reaction to recent events in Catalonia has been relatively calm to date, but this may change. Catalan regional government leader Puigdemont will make a statement at 1900GMT, according to a Catalan regional government source. The pipeline statement comes after Puigdemont said Catalonia could declare independence from Spain as early as this weekend. Spain’s government borrowing costs rose to a seven-month high Wednesday. The Ibex is set for its worst day in 14 months with a 2.1 percent fall. The market was sanguine ahead of Sunday’s independence referendum in Catalonia, which the Spanish government deemed illegal. This was based on the peaceful reaction to a non-binding referendum in 2014 which returned a ‘yes’ to Catalan independence on a low turnout.


GBP/JPY slump set to persist as big level overcome

GBP/JPY relapse persists with the market managing to register a daily close below the 149.65 Fibonacci level — 23.6% retrace of the 139.60 to 152.85 (August to September) rise. The path down is clear for a spiral lower to 147.65 — 38.2% retrace of the same 139.60 to 152.85 gain. On September 21 and 22 GBP/JPY candlestick lines formed a bearish engulfing pattern, consisting of a white candlestick body which was subsequently contained within large black candlestick body. This was an early warning that we would see a significant bearish reversal as the market was in an uptrend at the time. The result of this continues to weigh heavily on the price.


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