FX Market update 6-11

Market Briefs

• EUR/USD -0.11%, USD/JPY 0%, GBP/USD 0.27%, EUR/GBP -0.37%
• DXY flat, DAX -0.22%, FTSE -0.1%, Brent 0.55%, Gold 0.18%
• EZ Nov Sentix Index 34 vs 29.7, f’cast 30.8
• EZ Oct Markit Comp Final PMI 56 vs 55.9, f’cast 55.9
• EZ Oct Markit Serv Final PMI 55 vs 54.9, f’cast 54.9
• EZ Sept Producer Prices MM 0.6% vs 0.3%, f’cast 0.4%
• EZ Sept Producer Prices YY 2.9% vs 2.5%, f’cast 2.8%
• Investors never felt better about the German economy: Sentix
• DE Sept Industrial Orders MM 1% vs 3.6%, f’cast -1.5%, r’vsd 4.1%
• DE Oct Markit Services PMI 54.7 vs 55.2, f’cast 55.2
• DE Oct Markit Comp Final PMI 56.6 vs 56.9, f’cast 56.9
• Only 1 in 7 Catalans see dispute with Madrid ending in independence – poll
• Oil rises to highest since mid-2015 on Saudi purge, tighter markets

Looking Ahead – Economic Data (GMT)

• 15:00 US Treasury STRIPS
• 15:00 CA Oct Ivey PMI (prev 68.6)
• 15:00 CA Oct Ivey PMI SA (prev 59.6)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade Operation 30-year Ginnie Mae (max $1.225 bn)
• 16:10 FRB’s Dudley speaks at Economic Club of New York; New York, NY

Currency Summaries

EUR/USD

• EUR/USD drifts to new post-NFP low at 1.1588 in Europe
• Small bounce follows stellar eurozone Sentix data (range 1.1588-1.1616)
• Sentix leaps to 34, highest since 2007. Germany an all-time high
• Euro zone composite PMI rises to 56.0 in October, f/c unch @ 55.9
• EUR 600mln option expiry, not that large but proves sticky in a quiet day
• EUR longs trimmed to EUR 10.4bln down 4bln from their Oct peak

USD/JPY

• US Pres Trump: To push Japan for reciprocal trade, ties better than ever
• Spot sold well ahead of 115.00 option barriers as bulls ran into supply
• But market remains a buy on dips for an eventual 115.00 test
• Bulls likely to regroup ahead of 113.38 — 76.4% of 112.96-114.73 rise
• Spot hit 114.73 in Asia as buy stops were triggered, before setback
• Decent sized 114.50 expiry worth 1.1B, set to expire at the NY cut
• Kuroda: To stick to policy, CPI to rise, no need to tweak ETF buys

USD/CHF

• USD/CHF is off its best but up on the day. Plays 1.0029 to 1.0009 in Europe
• Spot was supported by the 10-DMA Fri after NFP, avg at 0.9973 today
• Several attempts to break the 1.0039 Oct 27 high last week failed
• EUR/CHF lower in line with the euro and euro crosses. 1.1638-10 Europe range
• Techs are bearish. Fri lower low/close confirmed hanging man reversal
• 21-DMA is close to market support for the cross at 1.1584
• Swiss CPI rises 0.1% m/m, 0.7% y/y in Oct vs 0.2%/0.8% f/c
• Swiss domestic sight deposits fall to 468.761bln in w/e Nov 3

GBP/USD

• GBP caught a bid in early European trade on cautious Brexit optimism
• Sunday Times-UK PM May ‘kickstarts taks by accepting GBP 53bln bill’
• GBP 53bln = EUR 60bln. UK’s EU divorce bill must be paid in euros
• EUR/GBP fell to 0.8842 during European am with cable rising to 1.3122
• 0.8842 = low water-mark since Nov 2 high of 0.8938 on BoE’s dovish hike
• Cable range in Asia was 1.3059-1.3080. Resistance 1.3134 & 1.3147

USD/CAD

• USD/CAD threatened 1.2777 early Europe before easing to 1.2743
• 1.2745-1.2777 was Asia range (1.2781 = pre-weekend high)
• Bids expected near 1.2700 (1.2716 was post-NFP low)

AUD/USD

• AUD/USD firmed to an intra-day high of 0.7664 late in the European am
• 0.7639-0.7659 was Asia range (0.7639 was also Friday’s low)
• Offers expected near 0.77 if AUD/USD extends north: 0.7698 = 200DMA
• 0.7695 was post-NFP high Friday (before drop to 0.7639)

NZD/USD

• NZD/USD met headwind pre-0.69 after firming from 0.6875
• 0.6875 = early Europe intra-day low. 0.6898 was Friday’s low
• RBNZ meets this week for first time since new NZ govt formed
• NZ central bank is expected to keep OCR at 1.75%

FX OPTIONS

• Many G10 vols at long term lows across the board, EUR/USD curve 3yr lows
• GBP/USD 1mth vol potential to post Brexit lows from June at 6.5
• EUR/GBP 1mth vol already posting 3 year lows at 6.7
• USD/JPY broke 114.50 barriers but more 115.00-50 remain. 1mth vol 7.4 vs 2yr low 7.0
• OIS pricing no change from RBA and RBNZ this week, more downside vol potential there

COMMENT

EUR/USD is set to rebound

EUR/USD is set to rebound. EUR/USD has been weighed since traders decided the ECB’s last monetary policy decision, to taper bond buying, was a dovish event. Aside from its value versus the dollar, the euro’s robust performance since this supposedly dovish event is bullish nL2N1N90GG. Yet traders have definitely pared longs with the net positions shrinking to EUR 10.4bln from EUR 14.4bln by Oct 31. With EUR/USD treading water near the lowest since the Oct 26 ECB meeting (1.1574) longs may well have been pared further. At the same time longer-dated interest rates have move quite sharply in favour of a EUR/USD move up. Since Oct 26 the 10-year spread between U.S. and Germany has narrowed 7bp, the 30-year spread has narrowed 12bp. In this period Eurozone manufacturing PMI has risen to its highest in 7 years, unemployment to a 9-year low and today November Eurozone Sentix suggests a boom, surging to the highest since 2007 & Germany’s Sentix an all-time high. Chart 1)

CHART FOCUS

NOK/SEK uptrend looks ripe for a reversal

NOK/SEK has accelerated again on Monday but historically the cross does not stray for far of for long outside the 30-DMA Bollingers and the pair looks ripe for a reversal lower on the charts. Fresh short plays can target 1.0257, which is a 61.8% Fibo retracement level of the October to November climb. NOK/SEK popped above the upper 30-D Bollinger Friday but is yet to close above the line, today at 1.0338. 1.0342 is the new trend high on Monday but the slow stochs are heavily overbought and due to turn thus reinforcing the idea of a correction. NOK/SEK has come a long way since the bounce on October 27 and a retracement of that 1.0204 to 1.0342 move is likely. The 38.2%, 50% and 61.8% Fibo retracements are at 1.0289, 1.0273 and 1.0257 respectively. The thin daily cloud and a twist on November 24 by 1.0220 could also help fuel the bears. Note that a close above the 200-DMA, at 1.0339, today would negate the reversal theory. Last time the cross closed above the average was in March so any such action would open the cross up for further gains.

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