FX Market Update 9-10

Market Briefs

• EUR/USD 0.06%, USD/JPY -0.01%, GBP/USD 0.61%, EUR/GBP -0.55%
• DXY -0.1%, DAX 0.02%, FTSE -0.17%, Brent -0.49%, Gold 0.6%
• DE Aug Industrial Output MM 2.6% vs 1.90%, f’cast 0.7%, r’vsd -0.1%
• ECB still concerned about existing stock of bank bad loans-Mersch
• ECB says euro zone banks well prepared for rate shocks
• Bank of France keeps French Q3 GDP growth forecast at 0.5 pct
• EZ Oct Sentix Index 29.7 vs 28.2, f’cast 28.5
• Brexit talks stutter, but EU leaders might give May break
• Oil prices stable after OPEC signals possible further action
• Gold hits 1-week high amid renewed North Korea fears

Looking Ahead – Economic Data (GMT)

• 14:00 Conference Board Employment Trends Index (prev 134.6)

Looking Ahead – Events, Other Releases (GMT)

• US Holiday: Columbus Day (Banks Closed, Markets Open)

Currency Summaries


• Quiet day thanks to Japan, U.S, and Canada holidays
• EUR/USD making small gains just above Friday’s closing level @ 1.1739
• Asia 1.1716-1.1747. Europe 1.1720-45
• EUR 1.5bn expiries @ 1.1700 and EUR 1bln at 1.1765
• 200-HMA @ 1.1751 looks key short-term:
• Strong German industrial output data +2.6% in August (f/c 0.7%)
• Euro zone investor morale hits 10-year high in October


• USD/JPY jumped to 112.85 on GBP/JPY buying in early Asia
• Reversed to fall to 112.34 later in the Asian session
• Could be subdued by large expiries this week between 112 & 113
• Option sellers ahead of 113.00 likely to cap while NK concerns weigh
• Bullish but beware of repeated failures above 112.99 Fibo
• 112.99 — 61.8% retrace of the 118.66 to 107.32 fall
• Immediate support between recent 112.22/32 session lows
• Decent support likely all the way down to 200-DMA @111.91


• USD/CHF is off Friday’s peak in line with a softer dollar
• Plays extremely tight 0.9788-0.9877 range in Europe
• Likely to be gain consolidation ahead of fresh leg higher while above 0.9770
• 0.9770 was a previous key support & 38.2% Fibo. 50% Fibo is resist at 0.9878
• EUR/CHF gradually inching higher, managed a close just above 21-DMA Fri
• Avg @ 1.1477. 1.1467-1.1485 range. Kijun line resistance @ 1.1493
• Thick rising cloud lends support. Top @ 1.1407. Likely prop
• Could be some official support circa 1.14, not been sig below since early Sept
• Swiss domestic sight deposits fall to 472.875bln in w/e Oct 6


• Cable rose to test 1.3150 (Asia high) during the European am
• GBP buoyed by absence of major negative weekend news for UK PM May
• EU officials believe EU leaders could soon offer May a hand
• 1.3175 (100HMA) & 1.3200/20 are cable resistance levels
• EUR/GBP eased to an intra-day low of 0.8929 during the European am
• Last week’s rise to threaten 0.90 fuelled by speculation about May’s future


• Modest 21 pip range for USD/CAD thus far Monday, 1.2527-1.2548
• 1.2526-1.2600 was Friday’s range (high before low)
• Friday’s IMM data showed CAD net long position highest since Nov 2012


• AUD/USD eased to an intra-day low of 0.7750 during the European am
• 0.7782 was Asia high (0.7786 = 100DMA). 0.7733 = Friday’s 12wk low
• Profit-taking on longs has helped deflate AUD/NZD from 1.1020 to 1.0951
• 1.1020 = 3wk high in Asia on NZ political uncertainty after final vote count


• NZD/USD helped off 0.7052 to 0.7085 by profit-taking on kiwi shorts
• 0.7052 = Asia low on NZ political uncertainty after final vote count
• Simultaneous AUD/NZD decline from 1.1020 (3wk high) to 1.0951
• 0.7052 = lowest level for NZD/USD since May 30. 0.7059 = Friday’s low


• Huge USD 22bln+ USD/JPY 112 to 113 expiries this week help contain spot
• 2 week-1month JPY calls bid on risk reversals due to Japan election tail risk
• EUR/USD still contained, reflected by low front end vols. EUR calls remain bid
• GBP/USD 1mth risk reversals ramped to 0.7 GBP puts vs 0.1 GBP calls last week
• NZD vols back en vogue amid coalition talks. 1 month expiry gets RBNZ


Huge JPY gamma, GBP puts ramped

USD/JPY sees USD 22 billion+ expiries in 112-113 zone this week to contain spot and pressure vols. Two-week vol jumps to 9.5 from 8.0 on Japan election capture, but risk premiums have taken a hit over recent sessions, with 1-month back at 8.8 from 10.3 (settles 9.0 for now). Cheaper OTM JPY calls preferred as election tail risk seen as low, keeps 1-month risk reversals 1.5 and 2-week jumps 0.8 to 1.7 JPY calls. EUR/USD contained in low 1.17s, keeping pressure on vols, curve well off initial post-ECB highs, 1-month 7.1 from 8.75 and 3-month 6.9 from 8.4. Risk reversals still bid for topside, 1-month 0.35 EUR calls. GBP/USD 1-month risk reversals 0.7 GBP puts from 0.1 GBP calls early last week, to highlight concerns about deeper GBP declines. Vols ramped up last week as GBP fell, 1-month almost regaining initial post-September MPC high 9.25 from 7.7. EUR/GBP vols/skew gain in similar fashion. NZD vols bid on weaker spot/coalition concerns, 1-month gets RBNZ now.


Growing scope for a AUD/USD correction

Technicals suggest AUD/USD is due a correction of the broader downtrend which could see a rise to the Oct 4 high at 0.7875 and then the cloud top at 0.7929. A lift back inside the daily Ichimoku cloud (base at 0.7803) looks likely. The 10-DMA is close to the market resistance at 0.7786 and the 10-DMA at 0.7827 is a hurdle further up. The 10-DMA has capped the market on its last descent and a break and close above would be significant. Friday closed up on the day after setting a new trend low at 0.7733 and formed a bullish hammer reversal. A higher high and close Monday is required to confirm and if so there is potential for a retracement of the September-October 0.8105 to 0.7733 fall. The 38.2% retrace, at 0.7875, is the minimum requirement for a correction and coincides with the Oct 4 high, strengthening the significance of any break. A fresh fall and new low today would negate the correction theory and see the bear trend resume


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