FX Market Update 20-10

Market Briefs

• EUR/USD -0.41%, USD/JPY 0.72%, GBP/USD 0.087, EUR/GBP -0.46%
• DXY 0.24%, DAX 0.26%, FTSE 0.22%, Brent -0.58%, Gold -0.69%
• ECB should decide next week to take foot off gas on QE -Nowotny
• Merkel sends positive signal to May on Brexit talks
• EU’s Tusk says 27 leaders open internal work on Brexit phase two
• GB Sept PSNB Ex Banks GBP 5.902B vs 5.669B, f’cast 6.500B, r’vsd 4.71B
• EZ Aug Current Account SA, EUR 33.3B vs 25.1B, r’vsd 31.5B
• EZ Aug Current Account NSA, EUR 29.6B vs 32.5B, r’vsd 37.1B
• DE Sept Producer Price YY 3.1% vs 2.6%, f’cast 2.9%
• BOJ’s Kuroda says households more willing to accept price hikes
• Japan FinMin Aso – Japan Inc piling up of reserves has gone too far
• Japan EconMin Motegi – Voters appreciate government’s economic policies
• Nikkei from red to black following news of GOP draft passage

Looking Ahead – Economic Data (GMT)

• 12:30 CA CPI Inflation (Sept) (mkt 1.6% y/y, prev 1.4% y/y)
• 12:30 CA CPI BoC Core (Sept) (prev 0.9% y/y)
• 12:30 CA Retail Sales (Aug) (mkt 0.5% m/m, prev 0.4% m/m)
• 14:00 US Existing Home Sales (Sep) (mkt 5.30 mn SAAR, prev 5.35 mn SAAR)
• 17:00 US Baker-Hughes Weekly Oil Rig Count (prev 743; -5 w/w, +311 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 18:00 FRB Mester speaks on global finance panel; New York, NY
• 23:30 Fed Chair Yellen speaks on “Monetary Policy Since the Financial Crisis”; DC

Currency Summaries


• EUR/USD trades a slightly lower range 1.1792-1.1826 in Europe
• Rebounding stocks ease prior inclination to buy EUR as safer asset
• NA 1.1858 high yesterday with week low at 1.1730 trading Oct 18
• Quiet finish to the week likely with only U.S. existing home sales due
• EUR 1.4bln expiries at 1.1800 seem to be currently anchoring spot


• USD/JPY has been forced higher as optimism rises about U.S. tax reform
• USD/JPY breaks 6 Oct 113.44 peak to reach 113.47
• Daily close above 113.44 would add to bullish bias into next week
• Asia bought plenty of USD/JPY on EBS & then took profit before Ldn arrived
• London are doing the same before NY, therefore fewer sell stops to aim at
• If 113.50 breaks & stops above get triggered then 114 barriers will be unlocked


• EUR/CHF trades 1.1626, highest since SNB dropped 1.2000 floor
• USD/CHF rebounds after yesterday’s slide reaching 0.9849 in Asia
• Europe trades a quieter 0.9796-0.9838 range
• Closing basis for 200-DMA at 0.9816 is seen key today
• U.S. existing home sales data the main event ahead the weekend


• Frantic Friday for GBP: 1.3154 = cable high since 1.3087 early Europe low
• 1.3087 = 11-day low after stops below 1.3122 & 1.3100 tripped
• EUR/GBP up to 0.9022 (eight-day high) as cable broke below 1.3100
• 0.8975 = subsequent low (0.8971 was low around Ldn fix Thursday)
• Dovish shift in BoE expectations after dovish steer from Cunliffe Thursday
• UK Sept budget deficit smaller than expected, GBP 5.9bln vs GBP 6.5bln f/c


• USD/CAD retreated to 1.2496 after testing 1.2519 early Europe
• 1.2519 was Asia high. Canada inflation/retail sales data due 8.30am ET
• BoC is expected to keep interest rates unchanged next week (Oct 25)


• AUD/USD traded modest 17 pip range thru European am, 0.7837-0.7854
• 0.7829 was Asia low after half-cent+ drop on news from US senate
• Senate passed budget blueprint by 51-49 vote, key to Trump tax effort
• AUD/NZD scaled new 18-month peak of 1.1253 in Asia


• NZD/USD met headwind pre-0.70 after rising from 0.6971 (Asia 5mth low)
• Bids ahead of 0.70 based pair Thursday after NZD tanked on NZ govt news
• Large 0.7000 option expiry next week (Oct 25), NZD 724mn strike


• Japan election risk seen as tame with O/n break evens not excessive
• Monday USD/JPY 10.0/85 pips, EUR/JPY 9.0 or 88 pips break-even
• Spot break out fears and pick up in realised vols prop JPY implied vols now
• EUR/USD sees 2.8bln 1.1800-50 expiries. Curve finds support at cycle lows
• 1 week expiry captured ECB from Thursday, EUR/USD 1wk up 3.0 to 9.75/125 pips
• NZD gamma firm amid NZD weakness and new Gov’ uncertainty ahead


BoE interest rate outlook gets foggier by the day

Dovish steers from a couple of BoE policymakers this week have clouded the outlook for the BoE’s Nov 2 monetary policy announcement, with scope for spectacular sterling fireworks on that day. Comments by BoE deputy governors Ramsden and Cunliffe suggest they will vote to keep the Bank Rate at 0.25%. Assuming Haldane finally delivers on his June signal to vote for a hike in H2, and Saunders and McCafferty vote for a hike again, this will leave Tenreyro, Vlieghe, Broadbent and Carney as the swing voters. Tenreyro was relatively dovish in her TSC testimony Tuesday while Vlieghe was perceived to be the MPC’s most dovish member before his hawkish steer a day after the BoE’s “hawkish hold” Sept 14. Broadbent, the favourite to succeed Carney as BoE Governor in July 2019, last year spoke about the potential knock-on effect on UK monetary policy from a sharp fall in GBP. If the decision hinges on Carney, GBP bulls could be forgiven for anxiety given his “unreliable boyfriend” epithet.


USD bulls are not yet in control of their destiny

Dollar bulls will not regain control of their destiny unless they manage to force a weekly close above the USD index 94.034 Fibonacci level — 23.6% retrace of the 103.82 to 91.011 2017 fall. If bulls are successful at closing above 94.034 in the next couple of weeks, then a run through the recent 94.267 peak to probe the 30-WMA, which is currently at 95.660, will become increasingly likely. Recall the false break above the 94.034 Fibonacci level two weeks ago put a strain of dollar bulls, but they managed to regroup. Bulls found support under the 200-WMA under 93.000, there was a failure to sustain the break below that average. Fourteen-week momentum remains negative, as has been the case since March, highlighting the underlying offered structure of the index. Therefore if bulls fail to close above the 94.034 Fibonacci level in the next couple of weeks, expect another visit of the 200-WMA in November

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