FX Market Update 24-10

Market Briefs 
• EUR/USD 0.09%, USD/JPY 0.24%, GBP/USD -0.11%, EUR/GBP 0.19%
• DXY -0.08%, DAX 0.19%, FTSE -0.04%, Brent -0.4%, Gold -0.29%
• Catalan leader can’t solve crisis by calling elections – Justice Minister
• Trump to press China on North Korea, trade on Beijing visit
• EZ Markit Mfg Flash PMI Oct 58.6 vs 58.1, 57.8 f’cast
• EZ Markit Serv Flash PMI Oct 54.9 vs 55.8, 55.6 f’cast
• EZ Markit Comp Flash PMI Oct 55.9 vs 56.7, 56.5 f’cast
• DE Markit Service Flash PMI Oct 55.2 vs 55.6, 55.6 f’cast
• DE Markit Mfg Flash PMI Oct 60.5 vs 60.6, 60.2 f’cast
• DE Markit Comp Flash PMI Oct 56.9 vs 57.7, 57.5 f’cast
• FR Business Climate Oct 111 vs 110, 110.00 f’cast,
• FR Markit Serv Flash PMI Oct 57.4 vs 57.0, 56.9 f’cast
• FR Markit Mfg Flash PMI Oct 56.7 vs 56.1, 56.0 f’cast
• FR Markit Comp Flash PMI Oct 57.5 vs 57.1, 57.0 f’cast
• Japan flash Oct manufacturing PMI shows slower growth
• Saudi energy minister says flexible, options open on OPEC oil pact
• Japan to host next round of TPP talks, New Zealand wants changes
• Dismantling of NAFTA would prompt S&P to revisit Mexico rating

Looking Ahead – Economic Data (GMT) 

• 12:30 Philly Fed Non-mfg Business Outlook Survey index (Oct) (prev 25.7)
• 12:55 Redbook Same-Store Sales Index (weekly) (prev +3.6% y/y)
• 13:45 Markit Manufacturing PMI (flash Oct) (mkt 53.5, prev 53.1)
• 13:45 Markit Services PMI (flash Oct) (prev 55.3)
• 14:00 Richmond Fed Manufacturing Index (Oct) (prev 19)
• 14:00 Richmond Fed Services Index (Oct) (prev 22)

Looking Ahead – Events, Other Releases (GMT) 

• 18:30 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.525 bn)

Currency Summaries
EUR/USD 

• EUR/USD 1.1743-67 in Europe after 1.1743-70 in Asia
• NA low yesterday at 1.1725. Base daily Ichimoku cloud 1.1731
• 21-DMA capping strength, now 1.1795. EUR 1.5bn 1.1800 expiries
• Pair expected to trade further tight ranges ahead Thursday’s ECB
• Rising bond yields evident again. High bund yield initially propped EUR

USD/JPY
• USD/JPY underpinned in Europe thanks to renewed rise for US rates
• US 10 year pushes up 3bp to 2.40%, spread to JGB widens 2.2bp
• USD/JPY 113.25-72 in Asia, then 113.35-77 in Europe
• Series of six Japanese life cos plan to buy more foreign bonds
• Shift towards the purchase of more unhedged bonds also notable
• Expiries USD 1.1bln 113.50-55 & USD 716mn 114.00. 114.50 barriers

EUR/CHF
• EUR/CHF bid returns Tuesday. 1.1572 Asia low. 1.1577-1.16 Europe
• Eyeing Friday’s 1.1626 peak once again. Upper 30-D Bolli resist @ 1.1620
• 1.1626 is highest since 0.85 low after SNB scrapped 1.20 floor in Jan ’15
• 0.9840 expiry for NY cut is helping define USD/CHF Tuesday range
• 0.9840 was the low in Asia. Europe plays a tight 0.9851-0.9858
• Hrly Ichimoku cloud also helping prop up the base, spans 0.9841-0.9800
• Bigger picture remains focused on the 200-DMA break. MA @ 0.9814 today
• Above the average keeps parity in sight. Weekly cloud base is at 0.9933
• One note of caution, Monday price action formed a Doji = indecision

GBP/USD 
• Cable fell half-a-cent to a low of 1.3167 during the European am
• Fall influenced by 10yr UST yield rising to threaten 2.40%
• Cable revisited 1.3227 (Monday’s high) in Asia. Stops tipped above 1.3230
• EUR/GBP rose to threaten 0.8928 during the European am
• 0.8928 = Monday’s low & 1.12 GBP/EUR. 0.8887 = six-day low Monday
• 1st ONS estimate of UK Q3 GDP Wednesday 0830GMT, +0.3% f/c

USD/CAD 
• USD/CAD rose to a new 2mth high of 1.2668 during the European am
• 1.2622 was Asia low (1.2660 was Monday’s high)
• Expectation of dovish steer from BoC Wednesday helping weigh on CAD
• Large 1.2700 option expiry Wednesday, USD 694mn strike

AUD/USD 
• AUD/USD tripped stops sub-0.7796 early Europe en route to 0.7773
• 0.7796 = 61.8% of 0.7733-0.7898 (Oct 6-13). 0.7773 = 13-day low
• 0.7797 was Monday’s low. 0.7825 = subsequent high (in Asia Tuesday)
• AUD/NZD rose to test 1.1274 in Asia on NZ govt policy steers
• 1.1274 = Apr 2016 high. Cross sub-1.10 before Oct 19 NZ govt news

NZD/USD
• NZD/USD extended south to new 5mth low of 0.6919 during European am
• Kiwi losses courtesy of policy steers from NZ’s incoming government
• Policy focus includes RBNZ. 0.7005 was Asia high (0.7010 = Oct 20 low)

FX OPTIONS 
• EUR/USD vols cycle lows, casualty of spot range. ECB event premium 88 pips
• USD/JPY vols weighed by low realised post election. Huge 114.50 barriers cap
• Big USD 1.1bln USD/JPY expiries today at 113.50-55 help contain
• GBP vols falling too, event risk for Wednesday key UK GDP just 55 pips
• NZD vols up, but lack demand as yet. Barriers touted down at 0.6800

COMMENT
FX traders brace for Trump’s Fed chair choice

Foreign exchange traders are braced for U.S. President Trump’s announcement potentially this week on who should chair the Federal Reserve from Feb 4 2018. Trump on Monday told reporters he was “very, very close” to making his decision. Jay Powell has powered ahead in the betting market, so the knee-jerk USD reaction to the favourite winning the race may be less pronounced than if Trump springs a surprise and says either John Taylor, Kevin Warsh, Janet Yellen or Gary Cohn has got the job. The best result for lovers of foreign exchange volatility would be if Trump announces his decision on Thursday–a day when the ECB’s monetary policy announcement could materially impact the EUR, ideally during Draghi’s press conference. It is expected that Trump will reveal his Fed chair choice by Nov 2 at the very latest, just before he heads off to Asia.

CHART FOCUS
USD/TRY bulls set sights on all time high

Technicals suggest USD/TRY has further to run and the all time high at 3.9417 is a viable target for long trades. The price rallied to 3.9223 on Oct 9 and the correction back from there has been supported by the rising 10-DMA, at 3.6671 today. There was a fleeting break of the average Thursday but this week’s trade sees the pair pull positively away from the line. The 38.2%, 50% and 61.8% Fibo retracements of the 3.9223-3.6255 drop at 3.7389, 3.7739 and 3.8089 respectively, are prospective stall points. However, with bullish sentiment improving daily, the price is unlikey to do more than just pause. A positive close on the weekly charts Friday helped keep the bull bias alive and those not already playing the long side can use dips above the weekly cloud top at 3.6199 as opportunities to join the trend. Only a break back below the 200-DMA at 3.5929 would shift the bias back to the downside.

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