FX Market Update 6-10

Market Briefs

• EUR/USD 0.01%, USD/JPY 0.04%, GBP/USD -0.41%, EUR/GBP 0.43%
• DXY 0.02%, DAX 0.08%, FTSE 0.21%, Brent -0.49%, Gold 0.16%
• ECB to release more data on corporate bond holdings
• Cautious BoE in no rush to restrict algorithmic trading
• Franco-German bonds would be a good move, senior Merkel ally says
• FDP leader wants tougher euro zone policy, no new German debt
• UK productivity falls at joint-fastest rate since 2013 – ONS
• DE Aug Industrial Orders MM 3.6% vs -0.7%, f’cast 0.7%, r’vsd -0.4%
• GB Sept HalifaxHousePrice 3M/YY 4.0% vs 2.6%, f’cast 3.6%
• French trade deficit narrows in August as exports rebound
• Japan’s economy likely posted 2nd best stretch of post-war growth – index
• BOJ’s bond holdings fall for first time since deploying stimulus in 2013
• Japan’s new party vows to scrap over-reliance on fiscal, monetary steps

Looking Ahead – Economic Data (GMT)

• 12:30 US Nonfarm Payrolls (Sept) (mkt +90k, prev +156k)
• 12:30 US Private Nonfarm Payrolls (Sept) (mkt +83k, prev +165k)
• 12:30 US Manufacturing Payrolls (Sept) (mkt +10k, prev +36k)
• 12:30 US Unemployment Rate (Sept) (mkt 4.4%, prev 4.4%)
• 12:30 US Average Hourly Earnings (Sept) (mkt +0.3% m/m, prev +0.1% m/m)
• 12:30 US Workweek Hours (Sept) (mkt 34.4, prev 34.4)
• 12:30 CA Employment Change (Sept) (mkt 14.5k, prev 22.2k)
• 12:30 CA Sept Unemployment Rate (Sept) (mkt 6.3%, prev 6.2%)
• 14:00 US Wholesale Inventories (Aug) (mkt +0.9% m/m, prev +0.6% m/m)
• 14:00 US Wholesale Sales (Aug) (mkt 0.0% m/m, prev -0.1% m/m)
• 14:00 CA Ivey PMI (Sept) (prev 56.8)
• 17:00 US Baker-Hughes Weekly Oil Rig Count (prev 750, +6 w/w, +325 y/y)
• 19:00 US Consumer Credit (Aug) (mkt +$16.0 bn, prev +$18.50 bn)

Looking Ahead – Events, Other Releases (GMT)

• 13:15 FRB Bostic speaks at workforce development conference; Austin, TX
• 15:45 FedTrade operation 30-year Fannie Mae and Freddie Mac (max $2.2 bn)
• 16:15 FRB Dudley speaks at Council for Economic Education event; NY
• 16:45 FRB Kaplan speaks at workforce development conference; Austin, TX
• 17:50 FRB Bullard speaks on standard of living; St. Louis, MO

Currency Summaries

EUR/USD

• EUR/USD slow day ahead US jobs data 1.1686-17 in Asia 1.1687-07 Europe
• Over EUR 6bln vanilla option expiries between 1.1640-1.1750 today
• Option trades see little action on NFPs with o/n ATM straddle just 55ps
• Key support including 100-DMA and daily cloud base near 1.1600
• Major resistance 1.1830-60. NFPs f/c a soft looking 90k due hurricanes
• Average earnings eyed 0.3% (0.4% is highest print for earnings since 2008)

USD/JPY

• USD/JPY bulls seem poised for steady climb to July’s peak
• Market has risen from 112.76 to 113.07, heaviest trading @112.85 & 112.99
• Decent support way down to the 200-DMA @111.93, calculated VWAP @112.90
• Offers said to be in size up to 113.30, with large stops clustered above
• Market expectation is that a 113.30 break will see increased volatility
• Our expectation is that a 113.30 break will not see fireworks

USD/CHF

• USD/CHF close abv 0.9771 38.2% Fibo 2017 1.0335-0.9422 triggered further gains
• Fresh 0.9800 high but consolidation intraday below. Pullback shallow to 0.9791
• USD/CHF helped higher by rising dollar, set for 4th week of gains
• The close above the Fibo now targets the 200-DMA at 0.9840
• US jobs data is key event risk in NY. F/c 90k
• Tight 1.1452/1.1463 range for EUR/CHF in Europe after Thurs close under 21-DMA
• Thick rising cloud lends sppt. Unlikely to see brk below cloud top at 1.1403
• Swiss forex reserves up in Sept, 724.415bln vs 716.928
• Experts recommend SARON as Swiss franc Libor alternative – SNB

GBP/USD

• GBP continues to suffer on the back of UK political uncertainty
• Divisions over PM May’s future have burst into open with plot to topple her
• Cable down to 1.3060 during European am, EUR/GBP up to 0.8954
• 1.3060 = 4wk low. 0.8954 = 3wk high. 0.8961 = 38.2% of 0.9307-0.8747
• Cable could extend south to/thru 1.3000 if US earnings above +0.3% f/c
• NFP f/c 90k. Sunday newspapers could make tough reading for May

USD/CAD

• USD/CAD met headwind pre-1.26 after heading north early Europe
• 1.2594 = 5wk high. Big 1.26 expiry next week, USD 1.2bln strike (Oct 12)
• Fibo resistance level just beyond figure: 1.2609 = 76.4% of 1.2778-1.2063
• Canada/US jobs reports due 1230GMT, Canada employment f/c +14.5k
• 1.2663 (Aug 31 high) among USD/CAD bull targets if jobs data stars align
• 12% chance of BoC hike Oct 25-BOCWATCH/Eikon. 40% pre-Poloz last week

AUD/USD

• AUD met headwind pre-0.7785 after rising from 0.7743 (Asia 12wk low)
• 0.7778 = European am high. 0.7783/85 = 100DMA/Tuesday’s low
• Drop to 0.7743 courtesy of dovish steer from RBA’s Harper in WSJ

NZD/USD

• NZD/USD fell from 0.7110 to 0.7084 during the European am
• 0.7084 = fresh 4mth low. USD up across the board pre-US jobs data
• Earnings f/c +0.3%, NFP f/c 90k, jobless rate f/c 4.4%

FX OPTIONS

• Huge 6bln EUR/USD expiries 1.1640-1.1750 keep spot sticky
• Vols find a floor, EUR calls stay bid. No signs of Catalonia concerns
• USD/JPY vol setbacks base for now, but JPY calls bid on election tail risk
• AUD vols firmer on spot decline. NZD gamma sought
• GBP vol and put demand at the fore on political woes/GBP decline
• Limited premiums for NFP with reactions likely muted amid weather distortions

COMMENT

New week may not lift UK May or sterling gloom
Prospects for a sterling revival next week do not look good as UK political uncertainty on the back of divisions about UK PM May’s future intensify. The pound is headed for its worst week since the first seven days of October 2016–a week which culminated in the pound’s flash crash. The awful week for GBP comes after it was the best performing G10 currency in September–courtesy of a hawkish shift in BoE expectations. The Sunday newspapers may not make pleasant reading for May, and could help raise the UK political temperature to boiling point. Forty-eight Conservative MPs need to write to the chairman of the Conservative party’s 1922 backbench committee to trigger a formal leadership challenge: current estimates suggest 30-35 might have their pens at the ready.

CHART FOCUS

Cable under pressure, August low beckons
GBP/USD fortunes have reversed markedly in recent weeks and risks collapsing to the August 1.2774 low. Cable bulls were as recent as last week eyeing a possible test of 1.4000, but instead ran into huge supply ahead of 1.3673 — 61.8% retrace of the 1.5022 to 1.1491 (June to October 2016) drop. This has caused them to buckle and cede ground to bears who are seeking to close below 1.3147 at the end of NY on Friday — 23.6% retrace of the 1.1491 to 1.3659 rise. If bears are successful, this will drive cable to the 30-WMA at 1.2920 initially below which will unmask 1.2831 — 38.2% retrace of the same 1.1491 to 1.3659 gain. Sustained trading above the 30-week upper Bolli band for a few weeks highlighted the overbought nature of the market. Failure to register a weekly close below 1.3147 Fibonacci level may thwart the bears.

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