FX Market Update 13-10

Market Briefs

• EUR/USD 0.02%, USD/JPY -0.13%, GBP/USD 0.11%, EUR/GBP -0.1%
• DXY 0.01%, DAX 0.08%, FTSE -0.18%, Brent 2.28%, Gold 0.03%
• ECB homes in on 9 more months of bond buying, at lower volumes
• Lawmakers hit out at ECB as bad loans standoff hardens
• Germany’s economic upswing to lose some momentum in second year-half – ministry
• British PM May could have more to say on Brexit money at EU summit- spokeswoman
• “They have to pay”, EU’s Juncker says of Britain
• DE Sept CPI Final YY 0.1% vs 0.1%, f’cast 0.1%
• DE Sept HICP Final YY 1.8% vs 1.8%, f’cast 1.8%
• Trump nails Obamacare with decision to cut off billions in subsidies
• Trump to target Iran nuclear deal, Revolutionary Guard in speech

Looking Ahead – Economic Data (GMT)

• 12:30 Retail Sales (Sept) (mkt +1.7% m/m, prev -0.2% m/m)
• 12:30 Retail Sales ex-Autos (Sept) (mkt +0.3% m/m, prev +0.2% m/m)
• 12:30 Control Retail Sales (Sept) (mkt +0.4% m/m, prev -0.2% m/m)
• 12:30 CPI (Sept) (mkt +0.6% m/m, +2.3% y/y; prev +0.4% m/m, +1.9% y/y)
• 12:30 CPI ex-Food and Energy (Sept) (mkt +0.2% m/m, +1.8% y/y; prev +0.2% m/m, +1.7% y/y)
• 14:00 Business Inventories (Aug) (mkt +0.4% m/m, prev +0.2% m/m)
• 14:00 U of Michigan Consumer Sentiment Index (prelim Oct) (mkt 95.0, prev 95.1)
• 14:00 U of Michigan Current Conditions Index (prelim Oct) (mkt 111.3, prev 111.7)
• 14:00 U of Michigan Expectations Index (prelim Oct) (mkt 84.7, prev 84.4)
• 15:00 Cleveland Fed Median CPI (Sept) (prev +0.2% m/m)
• 17:00 Baker-Hughes Weekly Oil Rig Count (prev 748, -2 w/w, +320 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 12:30 FRB Rosengren opens conference on monetary policy rules; Boston, MA
• 14:25 FRB Evans speaks in moderated discussion at financial literacy summit; Green Bay, WI
• 15:30 FRB Kaplan speaks in moderated Q&A session at CFA conference; Boston, MA
• n/a Fed Vice Chair Fischer steps down

Currency Summaries

EUR/USD

• EUR/USD fairly static ahead of today’s big U.S. CPI/retail sales releases
• Early session saw EUR/JPY sell-off about 50 ticks
• Likely pre-data position adjustment, given large size of spec EUR/JPY longs
• Cross has recouped most of those losses, EUR/USD range 1.0815-52
• UST/bund spreads wider today influenced by most recent ECB speculation
• ECB seen extending bond buys but lower size of purchases

USD/JPY

• Bulls hoping U.S. CPI digs them out of a hole, causes a short squeeze
• Squeeze may run into 112.50 supply, large (1.6B) 112.60 expiry a beacon
• Bulls are hanging on despite heavy selling from 112.30 to 111.86 earlier
• Buyers have forced a minor recovery to 112.16 where they hit a wall
• Stops likely clustered below 200-DMA @111.82 which is proving pivotal
• USD/JPY trending water circa the 112.10 hourly pivot

EUR/CHF

• EUR/CHF slips from Thurs peak in line with a lower EUR/USD
• Shooting star on candles Thurs after a new trend high = reversal signal
• Lower low Friday half way to confirming. 1.1555-1.1525 European range
• 21-DMA key support at 1.1491, break opens up a further drop
• Touted official bid circa 1.14. Spike to 1.1389 Oct 2 short lived
• USD/CHF plays a very tight 0.9758-48 range in Europe. 100-HMA caps
• Holds off 21-DMA support at 0.9712 but still below Wed’s 0.9767 peak
• Treading water ahead of US CPI & RS data releases Friday

GBP/USD

• Cable extended north to an 11-day peak of 1.3322 during the European am
• Stops above 1.3300 were tripped en route to that high
• Ascent fuelled by hopes of Brexit transition deal for Britain
• 1.3249 = pullback low from 1.3322 on fresh Brexit mutter (pessimistic)
• EUR/GBP slid to an eight-day low of 0.8877 during the European am
• 0.8930 = subsequent rally high on fresh Brexit mutter (pessimistic)

USD/CAD

• Modest 19 pip range for USD/CAD during European am, 1.2456-1.2475
• 1.2450 & 1.2465 option expiries for 10am ET NY cut, USD 921mn strikes
• US Sept inflation & retail sales data due 1230GMT. CPI f/c +0.6%
• BoC business outlook survey may impact CAD Monday

AUD/USD

• AUD is benefitting from higher metals prices: Dalian iron ore up 5% Friday
• 0.7849 = Ldn am high for AUD/USD. 0.7844 was Asia high
• Resistance levels include 0.7875 (last week’s high) & 0.79

NZD/USD

• NZD/USD ticked up to a fresh 8-day high of 0.7153 during European am
• 0.7153 = 101 pips above Monday’s 19-week low
• NZ political fog should finally lift next week: NZ First board meeting Monday

FX OPTIONS

• EUR/USD vols peak with spot but EUR calls remain bid on risk reversls
• 2wk vol propped by Oct ECB and 2mth captures Dec ECB and FOMC
• USD/JPY 1mth vol at 6 week lows, 1mth realised just 5.1 amid stagnant spot
• USD/JPY risk reversals hold firm downside bias in to election
• GBP/USD gamma bid amid recent spot moves/Brexit headlines
• NZD 1-2 week vols propped as markets await coalition results

COMMENT

U.S. retail sales may jolt range-bound USD/JPY
U.S. retail sales may jolt USD/JPY traders’ week long calm. USD/JPY has traded a tight 111.86-112.85 range this week, but given moves on retail sales release days, the range today may exceed that of the prior four days. USD/JPY vols have sunk, so the overnight ATM straddle for USD/JPY (indication of expectations for the day’s range) is just 52 pips. The last three retail sales releases have been much busier for USD/JPY traders. Sept 15 saw a 178 pip range, Aug 15 124 pips and July 14 122 pips. The average 141 pips suggest 111.00-113.50 are the extremes of a data reaction today. Large JPY shorts have been widely reported in advance of the event. The greater focus has been on the vulnerability of these bets to the loss of bullish momentum. The 200-DMA at 111.82 is key on a closing basis yet the resilience of support above the 200-DMA during the consolidation phase since late September depicts USD/JPY in bullish light.

CHART FOCUS

USD/ZAR slump gathers momentum, 13.00 beckons
USD/ZAR bears are gathering momentum and have the 61.8% Fibo at 13.1636 and the daily cloud at 13.1775/13.0294 in their sights. A break and close under 13.1636 (the 61.8% retracement of the September to October 12.73 to 13.865 rise) favors a full retracement to 12.73. The price has been falling since Monday’s rejection at the upper 30-day Bollinger while Wednesday’sbreak and close below the daily Tenkan line helped bolster the downside view. The 30-DMA at 13.3279 was the initial bear target and is very close on Friday. A break under the average could open the path for a deeper fall to the lower Bollinger at 12.7572 which is close to the aforementioned Sept 6 12.73 rally origin. Only a break back above the Tenkan line at 13.6138 would alter the bearish set up and open up 14.00 again

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