FX Market Update 25-10

Market Briefs

• EUR/USD 0.14%, USD/JPY 0.21%, GBP/USD 0.81, EUR/GBP -0.68%
• DXY 0.06%, DAX 0.05%, FTSE -0.14%, Brent 0.07%, Gold -0.23%
• GB Q3 GDP Prelim QQ 0.4% vs 0.3%, f’cast 0.3%
• GB Q3 GDP Prelim YY 1.5% vs 1.5%, f’cast 1.4%
• UK aims for outline Brexit transition deal by first quarter of 2018
• German three-way coalition still a way off, Greens say
• DE Oct IFO Business Climate 116.7 vs 115.2, f’cast 115.2, r’vsd 115.3
• DE Oct IFO Current Conditions 124.8 vs 123.6, f’cast 123.5, r’vsd 123.7
• DE Oct IFO Expectations 109.1 vs 107.4, f’cast 107.3, r’vsd 107.5
• Japan Abe’s post-election policy targets wages, delays fiscal reform
• China unveils new leadership line-up with no clear successor to Xi

Looking Ahead – Economic Data (GMT)

• 11:00 US MBA Weekly Mortgage Application Indices
• 12:30 US Durable Goods Orders (Sep) (mkt +1.0% m/m, prev +2.0% m/m)
• 12:30 US Durable Goods Orders ex-Transportation (Sep) (mkt +0.5% m/m, prev +0.5% m/m)
• 12:30 US Durable Goods Orders ex-Defense (Sep) (prev +2.5% m/m)
• 12:30 US Nondefense Capital Goods Orders less Aircraft (mkt +0.5% m/m, prev +1.1% m/m)
• 13:00 US FHFA Home Price Index (Aug) (prev +6.3% y/y)
• 14:00 US New Home Sales (Sep) (mkt 555k SAAR, prev 560k SAAR)
• 14:00 CA BoC Rate Decision (mkt 1.00%, prev 1.00%)
• 14:30 US EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $435 mn)

Currency Summaries


• EUR/USD static ahead the ECB tomorrow
• IFO sets record high in October at 116.70
• US 10 year yield hits 2.45%, a seven month high
• IFO supports EUR and US yields boost USD/JPY so EUR/JPY up
• EUR/JPY demand sees EUR/USD inch up 1.1755-75 (Asia high 1.1770)
• EUR 3.2bln expiries 1.17-1.18 add to unlikely probability move ahead ECB


• U.S.10 year yield rises to a seven-month high at 2.45%
• USD/JPY rises in reaction hitting 114.24
• Traders are long USD and long viz option, so no quick move up expected
• High may hint at 114.25 barrier. Big options are seen at 114.50
• USD 2.1bln 114 expiry a brake on gains but now possible underpinning USD/JPY
• In light yields U.S. durables today (f/c 1%) may have extra significance


• GBP boosted by higher than expected UK Q3 GDP growth, 0.4% vs 0.3% f/c
• Cements consensus expectation of BoE 25bp rate hike next week
• 1.3211 = cable high since GDP beat vs 1.3110 early Ldn low (pre-data)
• Recent talk of stops above 1.3230 (1.3227 = Monday/Tuesday high)
• 1.3228 was Oct 19 high. 1.3230 = 21-day moving average
• EUR/GBP down to 0.8908 on UK GDP beat vs 0.8972 early Europe high


• USD/CAD rose to a 10wk high a pip shy of 1.2700 during European am
• CAD weakness fuelled by expectation of dovish BoC steer at 10am ET
• Large 1.2700 option expiry for 10am ET NY cut, USD 834mn strike
• Poloz/Wilkins to discuss quarterly MPR from 11.15am ET


• AUD/USD extended south to new 15wk low of 0.7700 during European am
• AUD has been hurt by softer than expected Australian Q3 inflation data
• RBA unlikely to hike cash rate anytime soon. 200DMA just under 0.7700
• Offers mooted at 0.7740 (0.7741 was initial low after Aussie CPI data)
• RBA deputy governor Debelle speech on “Uncertainty” slated for Thursday


• NZD/USD eased to fractionally fresh 5mth low of 0.6879 during European am
• Weakness influenced by AUD/USD drop to 0.7700 (15-week low)
• AUD/NZD down to 1.1182 from 19mth high of 1.1290 pre-Aussie inflation data
• Recent NZD losses fuelled by policy steers from NZ’s incoming government
• Policy focus includes RBNZ. Ardern becomes NZ PM Thursday
• NZ Sept trade data due 5.45pm ET. RBNZ seen on hold in a fortnight


• Overnight vols capture ECB and see a decent bid/break-even ahead
• O/n EUR/USD 17.0/84 pips, EUR/GBP 16.5/62 pips, EUR/JPY 14.0/79 pips
• USD/CAD O/n vol gets BoC and is around 16.5 or 79 pips break-even ahead
• GBP vols find a base, 1wk gets MPC from tomorrow. Good GDP props GBP
• USD/JPY 2.2bln 114.00 expiry today. Long gamma up to 114.50 barriers


UK GDP beat boosts GBP bulls’ morale pre-BoE

Sterling has risen on the back of the higher than expected 0.4 percent estimate of UK Q3 GDP growth, which cements the consensus expectation for a BoE 25bp rate hike next week (by a 7-2 or 6-3 MPC vote). The GDP data beat is a relief for GBP bulls after the pound fell on Tuesday amid disorderly Brexit concerns highlighted by a Reuters survey. The probability of a quarter-point BoE rate increase on Nov 2 is back up to 81%, according to the BOEWATCH measure on TR Eikon, for the first time since Ramsden’s dovish testimony to the UK TSC last week. The measure fell as low as 64% last Friday, after a dovish steer from Cunliffe last Thursday. The Bank Rate


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