FX Market Update 12-10

Market Briefs

• EUR/USD -0.03%, USD/JPY -0.12%, GBP/USD -0.31%, EUR/GBP 0.26%
• DXY 0.05%, DAX -0.03%, FTSE 0.18%, Brent -0.9%, Gold 0.23%
• EZ Aug Industrial Production YY 3.8% vs 3.2%, f’cast 2.6%, r’vsd 3.65%
• UK small businesses not changing plans in face of Brexit – survey
• Banks filling London staffing gaps before Brexit – Hays
• GB Sept RICS Housing Survey 6 vs 4, f’cast 4
• DE Oct TR IPSOS PCSI 58.02 vs 57.13
• GB Oct TR IPSOS PCSI 49.20 vs 47.78
• U.S. House to vote on $36.5 billion disaster relief package
• Trump expected to sign order side-stepping Obamacare rules

Looking Ahead – Economic Data (GMT)

• 12:30 US Initial Jobless Claims (w/e Oct 7) (mkt 251k, prev 260k)
• 12:30 US Continued Claims (w/e Sept 30) (mkt 1.935 mn, prev 1.938 mn)
• 12:30 US PPI Final Demand (Sept) (mkt +0.4% m/m, +2.5% y/y; prev +0.2% m/m, +2.4% y/y)
• 12:30 US Core PPI Final Demand (Sept) (mkt +0.1% m/m, +2.0% y/y; prev +0.1% m/m, +2.0% y/y)
• 12:30 CA New Housing Price Index (Aug) (mkt 0.3%, prev 0.4%)
• 15:00 US EIA Weekly Petroleum Status Report
• 18:00 US (tentative) Treasury Budget (Sept) (CBO $6 bn, prev Sep $33.445 bn)

Looking Ahead – Events, Other Releases (GMT)

• 12:00 FRB St. Louis’s Bullard speaks to Reuters editors
• 14:30 Fed Governor Brainard participates in panel on monetary policy; Washington, DC
• 14:30 Fed Governor Powell speaks on emerging markets; Washington, DC
• 14:30 ECB President Draghi speaks at the Peterson Institute event on monetary policy; Washington, DC
• 15:45 FedTrade operation 30-year Fannie Mae and Freddie Mac (max $2.2 bn)

Currency Summaries


• EUR/USD 1.1880 high matching a 50% retrace 1.2092-1.1669 decline
• Daily Kinsen line also 1.1880. Pair eases to 1.1852 ahead NA open
• More strong EZ data ignored for now. Aug Industrial output 1.4% vs 0.5% f/c
• EUR 1.4bln expiries 1.1870-1.1905 adding to resistance of cloud top 1.1917
• EUR 2bln expiries may attract if a market long EUR decides to pare risk
• U.S. PPI today to give some insight for the major U.S. CPI release Friday


• USD/JPY net selling flows this week might haunt bears
• Stops above 113.00 might become vulnerable
• Expect increased volatility on break sub 200-DMA @111.84 or above 113.44
• Narrow 112.21-53 range as long gamma market continues to take its tol
• Huge Expiries. Thu: 112.00 (1.8B), 112.40-60 (2.9B). Fri: 112.50-60 (2.0B)
• Japanese importers remains circa 112, Japanese exporters ahead of 113
• Sept dom corp goods prices +0.2% m/m, +3.0% y/y, as eyed, highest in 9 yrs
• Sept bank loans Y516.81 trln, +3.0% y/y, Aug +3.2%, July +3.3%.
• PM Abe’s LDP on track for solid majority, maybe 2/3 – Nikkei poll
• Global banks are after Japan’s cash – Nikkei


• EUR/CHF rises to a new trend high at 1.1557, tracking EUR/USD north
• 1.1534-1.1558 range in Europe and remains bid into NY
• Not much resistance until the 1.1588 Sept 25 German vote collapse day high
• Then post-1.20 SNB floor break high at 1.1623
• USD/CHF firmer, plays 0.9713 to 0.9750, supported above 0.9707 21-DMA
• A close above the 10-DMA at 0.9749 is required for run at 0.9770+
• U.S CPI data Friday is the next key event risk


• Cable met fresh headwind pre-1.3268 in early Ldn trade after similar in Asia
• 1.3268 is 38.2% of 1.3659 (Sept 20 high) to 1.3027 (last Friday’s low)
• 1.3222 = cable low since 1.3262 early Ldn high. 1.3265 was Asia high
• Large 1.3200 option expiry for 10am ET NY cut, GBP 503mn strike
• Profit-taking on longs helped deflate EUR/GBP from 0.8988 to 0.8950
• 0.8950 = European am low. 0.8988 was Wednesday’s high


• USD/CAD lift from 1.2434 (early Ldn 1wk low) aided by profit-taking on shorts
• 1.2484 (Tuesday’s low) is now a resistance level, with 1.2500 beyond
• Size of 1.2500 option strike for 10am ET NY cut is now USD 836mn


• AUD/USD extended north to a 1wk high of 0.7836 in early European trade
• Ascent influenced by copper price rise to 1mth high of USD 6,850/tonne
• 0.7810 (Wednesday’s high) is now a support point


• NZD/USD ticked up to fresh one-week high of 0.7124 during European am
• Some short NZD positions have been squeezed en route to that high
• 0.7052 = recent 19-week low. NZ govt decision expected by end of next week


• 7 billion USD/JPY option expiries between 112-113 today NY cut
• USD/JPY 1 month vol new 6wk lows. JPY calls bid on election tail risk
• EUR/USD vols and EUR calls up with spot. Risk reversals 8 year highs
• GBP vol and put setbacks limited, highlight ongoing downside spot fears
• AUD/USD 1mth vol new setback lows. NZD vols premium, coalition awaited


UK CPI data rise could seal deal for BoE Nov hike

Sterling may get a boost if next week’s UK inflation figures show annualized CPI accelerated to 3.0% or higher in September, from a five-year high of 2.9% in August. A CPI number of 3.0% or more could cement the consensus expectation of a 25bps BoE interest rate hike next month (Nov 2). A hawkish shift in BoE expectations on the back of last month’s hawkish hold was the prime reason GBP was the best performing G10 currency in September. A new month then ushered in pain for late-to-the-party GBP bulls, before the pound recovered this week. The UK inflation data will be published on Tuesday (Oct 17), with the UK earnings report due a day later. More immediately, BoE chief economist Haldane is a slated panellist at a Rethinking Macro Policy Conference in Washington at 1745 GMT. Back in June, sterling rallied on the back of a hawkish steer from former dove Haldane.


Dollar bulls should brace for more bouts of weakness

Dollar bulls should brace themselves for deeper falls as USD index seems to have established a significant peak at last week’s 94.267 high. Worryingly for bulls, the index has dropped this week to break the 200-WMA at 92.933. A close below the 200-DMA on Friday could prompt significant falls in coming weeks back towards the 2017 91.011 low posted in September. Recall last week there was a spectacular failure above 94.034 — 23.6% retrace of the 103.82 to 91.011 2017 fall — resulting in a lot of dollar bulls getting trapped. Fourteen-week momentum remains negative, as has been the case since March, highlighting the underlying offered structure of the index. If there is a failure to sustain this break below the 200-WMA into next week, then this will give bulls room to regroup.


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