FX Market Update 23-10

Market Briefs 
• EUR/USD -0.35%, USD/JPY 0.33%, GBP/USD -0.08%, EUR/GBP -0.2%
• DXY 0.23%, DAX 0.56%, FTSE 0.14%, Brent -0.35%, Gold -0.31%
• Japan’s Abe to push pacifist constitution reform after strong election win
• China’s home price growth steadies in September as speculative curbs weigh
• GB CBI Trends – Orders Oct -2 vs 7, 9 f’cast
• UK households’ morale and rate hike expectations rise – IHS Markit
• Big money stays away from booming bitcoin
• Oil keeps gains, supported by Iraq disruptions and drop in U.S. rigs
• Gold hits 2-week low as dollar rallies vs yen

Looking Ahead – Economic Data (GMT) 
• 12:30 US Chicago Fed National Activity Index (Sept) (-0.31 prev)
• 12:30 CA Wholesale Trade MM Aug 1.50 prev, 0.60 f’cast

Looking Ahead – Events, Other Releases (GMT) 
• 15:45 Fed Trade operation 30-year Ginnie Mae (max $1.085 bn)

Currency Summaries
EUR/USD 

• EUR/USD a little lower in Europe but still resilient support
• EUR longs reduced fractionally, circa EUR 1bln from EUR 24bln
• EUR/USD 1.1741-1.1777 in Europe after Asia 1.1751-77
• Catalan/Spain uncertainty so far largely ignored
• Continuing and intensifying pressure from rates also ignored
• ECB & US GDP Oct 26/27. EUR 1.2bn 1.1720-30 exp may attract today

USD/JPY 
• USD/JPY consolidates Asia’s rise a little lower in Europe
• USD/JPY 114.10 high after Abe cruises to victory in Japan
• Europe 113.62-89 range, seems a bullish result give depth of spec longs
• 114.10 highest since 114.49 on July 11. Fell from there to 107.32 on Sep 8
• 114.49 suggests successful barrier defence @ 114.50, now a mega level
• Another major high occurred in May at 114.38 fell to 108.81 in June

EUR/CHF
• EUR/CHF lower fm Fri 1.1626. 1.1584-71, then up to 1.1590. 1.1596 Asia high
• 1.1626 is highest since 0.85 low after SNB scrapped 1.20 floor in Jan ’15
• Could see some corrective action towards the 21-DMA (was key resist on way up)
• Avg just under 1.15 at 1.1495. Expect to find bidding interest ahead/at figure
• Swiss domestic sight deposits fall to 468.663 bln w/e Oct 20 [nEONHAH0SY]
• USD/CHF maintains Friday’s 200-DMA break. Plays 0.9833 to 0.9868 in Europe
• USD/CHF benefits from broad dollar gains. 200-DMA now support at 0.9815
• 0.9878 is 50% of the 2017 1.0335-0.9422 drop and the next resistance level

GBP/USD
• Cable rose to an early Ldn high of 1.3227 on Spire/Mediclinic M&A news
• Britain’s Spire rejects GBP 1.2bln offer from South Africa’s Mediclinic
• Spire said the offer significantly undervalues the British company
• 1.3165 = cable low since 1.3227 (1.3170-1.3203 was Asia range)
• Bids near 0.8900 based EUR/GBP as cable rose to 1.3227
• 0.8910-0.8928 was Asia range. UK Q3 GDP data Wednesday, +0.3% f/c

USD/CAD 
• USD/CAD scaled a fresh 7wk peak of 1.2641 in Asia Monday
• 1.2630 = pre-weekend peak after CAD hit hard by soft Canada retail sales
• BoC is expected to keep its key rate at 1% Wednesday after July/Sept hikes
• Accompanying statement & quarterly MPR could impact CAD
• Poloz & Wilkins will discuss MPR at subsequent press conference

AUD/USD 

• AUD/USD met headwind at 0.7835 after heading north in early Ldn trade
• 0.7835 = 21DMA. More offers are tipped ahead of 0.7850
• Large 0.7850 option expiry Wednesday, AUD 1bln strike
• 0.7804 = low since 0.7835. Asia low was 0.7802 (11-day low)

NZD/USD
• NZD/USD met headwind pre-0.70 after firming from 0.6932
• 0.6932 = fresh 5mth low in Asia. 0.6990 = early Europe high
• 0.70 = former resistance level (sub-0.70 stops tripped last Friday)

FX OPTIONS 
• EUR/USD focus on ECB Thursday, event break evens around 90-95 pips
• EUR/USD not giving up on topside yet, ongoing demand for EUR calls
• USD/JPY election risk premiums pared, vols and JPY call bias lower
• Barriers at 114.50 next resistance but notable lack of demand for strikes above
• GBP/USD focus Wed’s GDP and 2 week vol propped by FOMC and UK MPC

COMMENT
Looks like USD/CAD has more room to rise 

The strength of USD/CAD’s rise following slightly disappointing data suggests the pair rises further. Friday’s data reaction was intense with USD/CAD surging 1.2477-1.2630. Undeniably retail sales data was poor but inflation data only missed forecast by one tenth of one percent. The FX reaction seems way out of synch with the CPI miss and one month’s soggy sales data. CAD’s sharp reverse also bucks a 6% rise in crude oil prices in the last ten days. Speculative positioning is clearly a big factor. Specs built USD/CAD shorts to similar excessive levels reached for longs earlier this year. USD/CAD peaked in May and dumped around 1600 points or 12.4% as a result of those excessive bullish bets. Bearish bets are smaller but USD/CAD is only about 600 pips off the low for the year which traded in September and will only reach a 38.2% correction of the big May-September drop at 1.2730. Rates have tightened about 12bp favour higher USD/CAD since September 8.

CHART FOCUS
EUR/GBP reversal targets September base

Friday’s price action in EUR/GBP formed a bearish outside day on the charts. The rejection from near the daily cloud and just shy of October’s 0.9033 peak helped reinforce the reversal signal. The cross has continued lower on Monday and those playing the short side are targeting the September 16/17 near double day lows at 0.8857/59. Those lows are close to the 61.8% Fibo retracement level of the September to October 0.8747 to 0.9033 rise at 0.8856. The 0.8856/59 region is the key level for EUR/GBP bears where a break likely opens the path for a full retracement to the September 27 0.8747 base. The 200-DMA close to there at 0.8749 has been a long term target for short trades. Close to market the 21-DMA at 0.8890 is support while on the upside a cloud break is required to negate the bear bias

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