FX Market Update 9-11

Market Briefs

• EUR/USD 0.16%, USD/JPY -0.29%, GBP/USD -0.11%, EUR/GBP 0.29%
• DXY -0.13%, DAX -0.26%, FTSE -0.04%, Brent 0.43%, Gold 0.31%
• Significant price chop in Nikkei 225 but importantly closes in the red
• In Beijing, Trump presses China on North Korea and trade
• Trump’s $250 bln China ‘miracle’ adds gloss to ‘off-kilter’ trade
• EZ to grow fastest in decade in 2017, to slow slightly in 2018, 2019
• DE Sept Exports MM SA -0.40% vs 3.10%, f’cast -1.10%, r’vsd 2%
• DE Sept Imports MM SA -1% vs 1.2%, f’cast 0.3%, r’vsd 0.8%

• DE Sept Trade Balance, EUR SA 21.8B vs 21.6B, f’cast 21.1B, r’vsd 21.3B
• British growth to slow in 2018, 2019 as Brexit uncertainty hits investment -EU
• GB Oct RICS Housing Survey 1 vs 6, f’cast 4
• Oil prices stabilise just below two-year highs

Looking Ahead – Economic Data (GMT)

• 12:30 US Initial Jobless Claims (w/e Nov 4) (mkt 232k, prev 229k)
• 12:30 US Continued Claims (w/e Oct 28) (prev 1.884 mn)
• 13:30 CA New Housing Price Index (Sept) (mkt 0.2%, prev 0.1%)
• 14:00 US Wholesale Inventories (Sept) (mkt +0.3% m/m, adv +0.3% m/m, prev +0.9% m/m)
• 14:00 US Wholesale Sales (Sept) (mkt +1.5% m/m, prev +1.7% m/m)

Looking Ahead – Events, Other Releases (GMT)

• 13:00 ECB’s Coeure participates in a discussion – Lyon
• 13:15 ECB’s Mersch speaks at a forum – Vienna
• 13:45 ECB’s Constancio speaks in a conference – Rome
• 13:45 FedTrade Operation 30-year Ginnie Mae (max $1.225 bn)
• 16:30 SNB’s Jordan speaks at Frankfurt
• 18:20 ECB’s Lautenschlager speaks in a conference – Washington

Currency Summaries

EUR/USD

• EUR/USD 1.1586-1.16 Asia and 1.1592-1.1616 in Europe
• EUR 1.7bln 1.1600 options expiries seen anchoring spot
• Both U.S. & German benchmark yields slightly above recent lows
• No major data this week. Senate U.S. cut bill to be unveiled today
• 1.1550 barriers underpin. 100-DMA key above @ 1.1718

USD/JPY

• USD/JPY trades a little lower on the day in Europe
• Rare down day for Nikkei, futures since down 1401 pips
• USD/JPY 113.38 low just shy 21-DMA 113.36
• Europe’s range 113.38-66. Asia 113.45-114.07 as Asia chased stocks
• USD 672mln expiries @ 113.50. USD 1.7bln 113.00 & USD 500mn 114.00

EUR/CHF

• EUR/CHF bid in the European AM. 1.1580-1.1620 after tech reversal
• Higher high/close Wed confirmed Tues hammer reversal signal on candles
• Bigger picture favors a rebound to Oct 1.1713 peak. Upper Bolli @ 1.1698
• USD/CHF remains centered around parity. 0.9977-1.0017 range Thurs
• Repeated failed attempts to rise to threaten the 1.0039 Oct 27 peak
• Swiss headline jobless rate unchanged at 3.0% in Oct
• SNB Jordan speaks later Thurs, unlikely to shake franc out of recent ranges

GBP/USD

• Cable fell more than half-a-cent to test 1.3087 during the European am
• Drop influenced by Brexit concerns before Brexit talks today-tomorrow
• 1.3153 = early Europe intra-day high. 1.3087 was Wednesday’s low
• EUR/GBP rose nearly half-a-penny to 0.8870 during the European am
• 0.8870 = three-day high. 0.8886 & 0.8900 are resistance levels
• May to appoint new aid minister, seeking to maintain delicate Brexit balance

USD/CAD

• USD/CAD eased to an intra-day low of 1.2712 during the European am
• Stops are tipped below 1.2700 (1.2701 was Monday’s low)
• 1.2740 (Asia high) & 1.2773 (Wednesday’s Ldn am high) resistance
• Powell’s Senate Banking Committee confirmation hearing Nov 28

AUD/USD

• Mooted offers near 0.7700 are helping to keep a lid on AUD/USD
• 0.7699 = 200DMA. 0.7701 = Tuesday high. 0.7692 = European am high
• Quarter-yard 0.7650 option expiry for 10am ET NY cut
• Another 0.7650 expiry Friday, AUD 318mn strike. 0.7700 expiry Friday too

NZD/USD

• 0.6977 = early Europe high for NZD/USD as continent digested RBNZ
• Asia high was 0.6974 on hawkish RBNZ. 0.6945 = subsequent low
• Offers tipped near 0.70 (former support level). 0.7005 = Oct 24 high
• AUD/NZD fell to 3wk low of 1.1017 in Asia on hawkish RBNZ

FX OPTIONS

• G10 vols sit on recent and long term lows but some support emerging
• Size buyers 2mth EUR/USD vol, 1mth risk reversal bias turns back to topside
• 1.7bln 1.1600 EUR/USD expiry holding spot. 3bln USD/JPY 113.00 today/Friday
• USD/JPY vols and JPY calls firmer after Nikkei plunge pressures spot market
• NZD vols lower after RBNZ risk priced out, 1mth NZD and AUD vols eye 3yr lows

COMMENT

EZ/UK growth divergence, despite status quo assumption
The EU Commission’s latest forecasts show a widening divergence for the euro zone and UK growth outlooks. While euro zone growth has been revised higher to 2.2% this year (vs 1.7% previously) the forecast for the UK has been revised lower to 1.5% (vs 1.8% previously). For 2018 and 2019 this growth divergence is also evident with the EU Commission seeing growth of 2.1% (1.8% prev) for 2018 and 1.9% in 2019 while the UK is seen growing at 1.3% in 2018 and 1.1% in 2019. The forecasts are based on an assumption that the UK/EU will maintain the existing status quo on trade. The above forecasts support existing market expectations that 1) the Eurozone recovery is broad based, strong and gaining momentum while 2) the UK faced with Brexit risks is starting to see a negative impact even if this lacks a shock factor. The above growth divergence suggests that the medium-term trend remains toward a higher EUR/GBP.

CHART FOCUS

USD/JPY weekly charts beginning to point south

Daily chart already inflicting damage to USD/JPY longs and weeklies also beginning to suggest lower levels are calling. Recent weekly Doji candles, including a hanging man, point to demand fade and with a day to go the potential for a shooting star Doji this week. Weekly action also contained by the 30WMA upper Bollinger line at 114.63. Failure to close above the 61.8% Fibo, 114.33, off the mid-Dec 118.66 high to 107.32 early Sept low would add further to the bear call. Bearish pointers into the weekly close and if goes to plan would initially target the weekly cloud top at 112.32. A band of weekly moving averages between 110.52 and 112.23 could slow if not reject a deeper drop near term. For today a close below the 113.36 21-DMA would strengthen the bear move from Monday’s 114.73 high

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