FX Market Update 7-11

Market Briefs

• EUR/USD -0.44%, USD/JPY 0.39%, GBP/USD -0.23%, EUR/GBP -0.19%
• DXY 0.36, DAX -0.01%, FTSE -0.23%, Brent -0.37%, Gold -0.39%
• DE Sept Industrial Output MM -1.6% vs 2.6%, f’cast -0.8%
• GB Oct Halifax House Prices MM 0.3% vs 0.8%, f’cast 0.2%
• GB Oct Halifax house Prices 3M/YY 4.5% vs 4%, f’cast 4.5%
• EZ Sept Retail Sales MM 0.7% vs -0.5%, f’cast 0.6%
• EZ Sept Retail Sales YY 3.7% vs 1.2%, f’cast 2.7%
• GB Oct BRC Retail Sales YY -1% vs 1.90%
• GB Oct BBA Mortgage Rate 4.31% vs 4.31%
• Britain introduces law seeking to help post-Brexit trade
• Catalonia’s ex-leader urges unity as deadline for secessionist pact nears
• Bank of Italy sees economic growth close to 1.5 pct in 2019
• Oil eases but Saudi tensions keep 2-1/2 year highs in sight

Looking Ahead – Economic Data (GMT)

• 12:55 Redbook Same-Store Sales Index (weekly) (prev +3.5% y/y)
• 14:00 JOLTS (Sept) (prev job openings level 6.082 mn)
• 19:00 Consumer Credit (Sept) (mkt +18.50 bn, prev +$13.06 bn)

Looking Ahead – Events, Other Releases (GMT)

• 17:15 Fed Governor Quarles participates in fin reg discussion; New York, NY
• 17:55 BoC’s Poloz speaks at CFA Montreal
• 18:30 BoE’s Taylor speaks at RAC Club, London
• 18:30 FedTrade Operation 15-year Fannie Mae / Freddie Mac (max $485 mn)
• 18:30 Fed’s Yellen accepts Paul H. Douglas Award for Ethics in Government; Washington

Currency Summaries


• EUR/USD sinks to its lowest point since perceived ECB “dovish taper”
• EUR/USD trades 1.1553 just short of mulled 1.1550 option barriers
• European EUR/USD range 1.1553-09, Asia 1.1586-1.1616. NA 1.1580-1.1616
• EZ data continues to impress, Sep retail sales 3.7% yy vs 2.7% f/c
• Today’s slide largely led by a Nikkei boosted USD/JPY
• No noteworthy U.S. data today. No expiries in close proximity


• USD/JPY has seen a range of 113.70-114.34
• Underlying bias remains to the upside, risk upside buy stops could be hit
• Asia were net sellers of USD/JPY on EBS, but the market rose steadily risen
• Japanese investors continued buying USD/JPY on dips
• Large strikes set to expire at the NY cut. 114.50 (905M), 115.00 (1.2B)
• Technically spot remains a buy on dips ahead of 113.64 Fibo


• Despite the bid tone USD/CHF is in a relatively tight range centered on parity
• A break of the Oct 27 1.0039 peak is required to get the bulls excited again
• Upper 30-D Bolli is rising, at 1.0058 Tues, and an initial upside objective
• USD/CHF tracking EUR/USD Tues, rebound to 1.0017. 10-DMA continues to underpin
• 0.9975 low in Asia and 0.9983 in early European trade. MA @ 0.9979 last
• EUR/CHF sharply lower in line with the euro. 1.1598-1.1564 the range in Europe
• Break of 21-DMA at 1,1585 key, close below would be significant for the bears
• 1.15 figure support and 1.1499 daily cloud top are downside objectives
• Swiss forex reserves up in October


• Large 1.3150 option expiry for NY cut is helping to anchor cable
• 1.3138 = European am low to follow 1.3178 high in Asia
• European am low = four pips shy of last Friday’s post-NFP data high
• Offers expected near 1.32 (55DMA) if cable ascends through 1.3178
• EUR/GBP slid from 0.8821 to 0.8792 during the European am
• Slide influenced by German industrial output miss, -1.6% vs -0.8% f/c


• USD/CAD extended north from 1.2701 to 1.2764 during the European am
• 1.2701 was Monday’s low after oil prices rose to 28-month highs
• Poloz last week said oil prices biggest long-term impact on CAD
• BoC Governor to speak about CB’s ability to understand inflation 1755GMT
• Subsequent Poloz press conference due to begin at 1900GMT


• AUD/USD extended south from 0.7701 to 0.7652 during the European am
• Bids expected near 0.7639 (Friday/Monday low) if AUD/USD drops further
• 0.7701 was post-RBA high (three pips beyond 200DMA)
• Dalian iron ore closed up 3.2% Tuesday after 6.1% rise Monday


• NZD/USD retreated to a low of 0.6915 during the European am
• 0.6954 was Asia high (0.6958 was late North America high Monday)
• Large 0.6950 option expiries today & Wednesday, NZD 981mn strikes


• G10 implied vols remain at long term lows with little to inspire longs as yet
• USD/JPY curve at 2-year lows, pick up could pre-empt range break out
• EUR/USD curve at 3-year lows, 1-month risk reversals neutral bias
• Huge 829mln 1.3150 Cable expiry contains. 1-month vol eyes post Brexit 6.5 base
• USD/CAD 1-month vol just off its low as expiry now rolls over December BoC
• 1.1Bln 0.6920-50 NZD/USD expiries should help contain in to Thurs’ RBNZ


ECB- Draghi still sings no negative effects from NIRP

Comments from ECB President Draghi this morning highlight that the condition for a deposit rate hike have not yet been met. Draghi said that the ECB has seen little evidence that “negative interest rates are undermining bank profitability”. If and when the ECB decide to focus on the more detrimental aspects of negative interest rates, then we can expect the ECB to be preparing markets for a rate hike.This is currently not the case as the ECB does not want to muddy the waters and create a tantrum on bond markets by playing around with rate expectations. Financial markets have reacted favourably to the prospect that rate hikes will not likely happen until 2019 despite the ECB reducing QE purchases from the beginning of 2018.It is likely that the ECB will stick to sequencing of policy at least until it has managed to end QE. As long as interest rates remain negative and expectations of ECB tightening are contained it is going to be difficult for Eurozone bond yields to move higher.


EUR/USD bears gear up for attack on multiple levels

EUR/USD has been edging lower as expected, a large head and shoulders pattern which formed on October 27 points to very deep falls. The measured objective of the head and shoulders pattern is very close to the 1.1216 Fibonacci level — 50% retrace of the 1.3040 to 1.2092 2017 rise — therefore this is both a plausible and significant target for medium-term bears. Fourteen-week momentum is increasingly turning negative, reinforcing the continuing bearish shift to the downside. Nearer-term bears need to overcome the rising 30-WMA at 1.1517, a weekly close below which will initially unmask 1.1423 — 38.2% of the same 1.3040 to 1.2092 rise. Only a weekly close back above the 200-WMA, which is currently at 1.1616, will signal that the bearish push is faltering. The best approach to this market is to short EUR/USD on rallies ahead of 200-WMA with buy stops placed significantly above

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