FX Market Update 8-11

Market Briefs

• EUR/USD 0.11%, USD/JPY -0.32%, GBP/USD -0.27%, EUR/GBP 0.38%
• DXY -0.09%, DAX -0.11%, FTSE 0.03%, Brent -0.19%, Gold 0.41%
• U.S. Commerce Secretary says Trump-Xi talks will address trade imbalances
• FR Sept Trade Balance, Eur, SA -4.67B vs -4.19B, f’cast -4.8B, r’vsd -4.19B
• SP Sept Ind Output Cal Adj YY 3.4% vs 1.8%, f’cast 3.2%, r’vsd 1.9%
• German advisers want tighter ECB policy, longer Brexit talks
• Further blow to Britain’s May as aid minister’s future in doubt
• IMF, BOJ member say Japan needs to keep stimulus running
• IMF’s Lagarde warns protectionism, now just words, may come to hurt Asia
• Oil steadies as Middle East tensions offset concern over China demand
• Gold up as dollar slips on possible delay in U.S. tax cut plan

Looking Ahead – Economic Data (GMT)

• 13:15 CA House Starts, Annualized (Oct) (mkt 210k, prev 217.1k)
• 13:30 CA Building Permits (Oct) (mkt -0.2% m/m, prev -5.5% m/m)
• 14:30 US EIA Weekly Petroleum Status Report
• 15:00 US TR Ipsos Primary Consumer Sentiment Index (Nov) (prev 59.83)
• 16:00 CA TR Ipsos PCSI (Nov) (prev 55)

Looking Ahead – Events, Other Releases (GMT)

• 11:50 BoE’s Kohn speaks at a conference – London
• 15:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.665 bn)
• 18:35 BoE’s Carney speaks at King’s College – London

Currency Summaries

EUR/USD

• EUR/USD in the grip of those defending 1.1550 barriers
• Success yesterday (1.1553 low leading to reloading/selling today
• 100/200-HMAs define resistance today 1.1615/1.1622, stops over 1.1630
• Barriers eyed each 50 ticks lower from 1.1550
• Many expiries EUR 1bln 1.1550-60. EUR 1bln 1.1600, EUR 842mln 1.1650
• Drop bund yields weighed euro/crosses but U.S. drop balancing EUR/USD

USD/JPY

• U.S. yields still soggy, 10-yr 2.308% having closed blow 200-DMA
• Stocks rebounded in Asia giving USD/JPY a boost but N-225 closed down
• Nikkei futs since shed a little more ground (40pips)
• Rates and stocks combined putting those long USD/JPY under pressure
• Support @ Nov 2 low 113.53. 21-DMA 113.30 & Oct 30/31 lows 113.02-112.96
• USD 2.5bln option expiries 113.50-114.00 working to compress the range

EUR/CHF

• Tech rebound underway in EUR/CHF. Plays 1.1580-1.1595 in Europe
• Supported by 30-DMA at 1.1552, upside risk to upper Bollinger at 1.1696
• Bolli band not far fm Oct 26 1.1713 high (highest since 0.85 low in Jan 2015)
• Close above the 21-DMA Tuesday despite break below was a bullish signal
• USD/CHF sidelined, tight 0.9998-0.9984 in Europe. 09981 was the base in Asia
• Little to get excited about until the Oct 27 1.0039 peak gives way

GBP/USD

• UK political concerns are helping weigh on the pound: Priti Patel in focus
• Aid minister Patel’s future in doubt, further blow to PM May
• Cable down to 1.3113 European am low vs 1.3176 Asia high
• Asia high notched on report of possible delay to US corporate tax cut
• EUR/GBP up to 0.8843 European am high vs 0.8798 early Asia low
• Next round of Brexit negotiations scheduled for ThursdayFriday

USD/CAD

• USD/CAD fell from 1.2773 to 1.2738 during the European am
• Bids expected near 1.2700 (1.2701 was Tuesday’s low)
• WTI 57 bucks/barrel at 6.10am ET, not far from Monday’s 28mth high

AUD/USD

• AUD/USD rose to an intra-day high of 0.7680 during the European am
• Offers expected near 0.77: 0.7699 = 200DMA, 0.7701 = Tuesday’s high
• 0.7680 option expiry for NY cut (closest-to-market), AUD 337mn strike
• RBA Statement on Monetary Policy Friday. Fed rate hike expected Dec 13

NZD/USD

• NZD/USD rose to an intra-day high of 0.6929 during the European am
• Offers expected near 0.6950-60 (0.6958 was Tuesday’s high)
• 0.6920/25 & 0.6950/60 expiries for NY cut, NZD 640mn & 755mn strikes
• RBNZ OCR announcement & Monetary Policy Statement 2000GMT

FX OPTIONS

• Minor support for G10 majors at long term lows amid value buying, but limited
• EUR/USD curve hit 3-year lows Tuesday. USD/JPY curve 2-year lows
• USD weight pressures USD/JPY, but still rangebound to limit vol/JPY call demand
• GBP/USD 1mth vol nearing 3-year lows at 6.5 from 8.0 pre MPC. 1wk gets CPI/Jobs
• NZD o/n vol break even of 46 pips is lowest pre RBNZ rate in the last year

COMMENT

UK political news is a concern for GBP bulls

Sterling bulls are keeping a wary eye on developments in UK PM May’s crisis-hit cabinet in case it destabilises the pound. Development minister Priti Patel, who is popular among Brexiteers in the ruling Tory Party, is under pressure to go for not fully disclosing meetings during a holiday to Israel. The fact Patel remains in her job (for now at least) is being widely interpreted as a sign of May’s lack of authority–as is Boris Johnson’s continued occupancy of the foreign secretary post despite his latest gaffe over Iran. Johnson was the highest profile advocate of Brexit during the 2016 referendum campaign, and is one of the names-in-the-frame to eventually succeed May as Tory leader. The political noise around Johnson and Patel comes after Michael Fallon, a May ally, exited the cabinet last week. It also precedes the latest round of Brexit negotiations–a key influence over the pound, which get underway Thursday

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