FX Market Update 10-11

Market Briefs

• EUR/USD 0.06%, USD/JPY -0.03%, GBP/USD 0.02%, EUR/GBP 0.02%
• DXY 0.02%, DAX 0.03%, FTSE -0.23%, Brent 0.06%, Gold -0.05%
• Trump brings tough trade message in vision for Asia
• Countering Trump, China’s Xi touts cooperation in Asia-Pacific
• China widens foreign access to its giant financial sector
• Brexit never? Britain can still change its mind, says Article 50 author
• GB Sept Manufacturing Output YY 2.7% vs 2.8%, f’cast 2.4%
• GB Sept Industrial Output YY 2.5% vs 1.6%, f’cast 1.9%, r’vsd 1.8%
• GB Sept Goods Trade Balance GBP -11.25B vs -14.25B, f’cast -12.8B, r’vsd -12.35B
• GB Sept Construction O/P Vol YY -1.1% vs 3.5%, f’cast 2.2%, r’vsd 3.9%
• TPP leaders’ meeting fails to materialise amid disputes

Looking Ahead – Economic Data (GMT)

• 14:00 U of Michigan Consumer Sentiment Index (prel Nov) (mkt 98.0, prev 100.7)
• 14:00 U of Michigan Current Conditions Index (prel Nov) (prev 116.5)
• 14:00 U of Michigan Expectations Index (prel Nov) (prev 90.5)
• 17:00 Baker-Hughes Weekly Oil Rig Count (prev 728; -8 w/w, +279 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 12:30 ECB’s Mersch speaks at European Policy Forum – Windsor

Currency Summaries

EUR/USD

• EUR/USD creeps to this week’s high at 1.1662 (Europe 1.1623-62)
• Resurgent German bond yields broadly underpin the single currency
• Soft stocks (DAX -0.3%/Nikkei futs -0.6) also helping perceived safer assets
• Nowotny says ECB should have signalled intent to end asset buys
• EUR 900mln vanilla option expiries 1.1650-80 today (15GMT cut)

USD/JPY

• USD/JPY range this session has been 113.27-63
• Gotobi demand Fri saw USD/JPY recover, bids said to remain below 113.20
• Recovery attempts likely to be stymied by layers of supply
• Likely NY will try to push spot lower, large NY cut strike could attract
• There are 1.9B worth of 113 strikes set to expire at the NY cut
• Bulls would need to force break above Thu’s 114.07 to give bears a scare

USD/CHF

• USD/CHF set for a bearish weekly close in line with a weaker dollar
• 0.9956-0.9926 range in Europe. 0.9922 was Thurs base on U.S tax concerns
• 30-DMA continues to provide rough support for EUR/CHF
• The cross traded 1.1584-1.1558 then up again in European AM
• Long side favored while no close below the average @ 1.1562 today
• Risk to upper Bolli/Oct high despite Thurs bear close
• 1.1693 = upper 30-D Bolli, 1.1716 = Oct peak (highest since 0.85 in Jan 2015)
• SNB’s prior 1.20 floor remains ultimate target for the bulls

GBP/USD

• Cable rose to 1.3169 after UK Sept industrial/mfg output data beat
• Both +0.7% vs +0.3% f/c. Goods trade deficit smaller than expected too
• GBP 11.25bln vs GBP 12.8bln f/c. Construction output -1.6% vs -0.3% f/c
• 1.3148 was pre-data high following 45 pip early Ldn drop to 1.3113
• Quarter-penny range for EUR/GBP thru European am, 0.8846-0.8871
• Newswire says Barnier/Davis to brief press on Brexit at 1130GMT

USD/CAD

• USD/CAD has traded a meagre 19 pip range thus far Friday, 1.2667-1.2686
• Range peak two pips shy of Thursday’s early North American session high
• Recent CAD strength influenced by higher oil prices
• WTI scaled two-year peak just under USD 58/bucks barrel earlier this week

AUD/USD

• AUD/USD met headwind pre-0.7699 after vaulting 0.7690 (Asia high)
• 0.7699 = 200DMA. Offers ahead of 200DMA also capped AUD Thursday
• Retreat from 0.7695 early Europe top based 4 pips pre-0.7665 (Asia low)

NZD/USD

• NZD/USD pivoted 0.6940 through the European am: 0.6930-0.6948 range
• There is a quarter-yard 0.6940 option expiry for Friday’s 10am ET NY cut
• Asia base was 0.6921, low water-mark since Thursday’s 0.6980 high
• Huge AUD/NZD 1.1100 expiry next week (Nov 16), AUD 2.25bln strike

FX OPTIONS

• Vols recover marginally after testing long term lows in many G10 pairs
• Weaker USD, stock slide, helping demand outweigh supply, tho gains limited
• EUR/USD regains mid 1.16’s, EUR call bias recovered in risk reversals
• USD/JPY 1mth vol 7.8 from 2yr low 7.0, 1mth risk reversal 0.85 from 0.5 JPY calls
• USD/JPY downside most vulnerable, tho flow interest remains mixed. Big 1.13 expiry
• AUD and NZD vols marginally higher, but USD calls still near longer term lows here

COMMENT

Pound could chop and change on UK data next week
Sterling could be in for a choppy time next week with three high-profile sets of UK economic data due for release, beginning with October inflation figures on Tuesday at 0930GMT. The consensus forecast from a Reuters poll of 18 economists is for the annualized CPI number to rise to 3.1%, from a five-year high of 3.0% in September. If it comes in higher than 3.0% it will prompt a letter from BoE Governor Carney to UK Chancellor Hammond to explain why CPI inflation is over one percentage point above the BoE’s 2.0% target. If a letter is necessary, it will be published on Dec 14–the date of the next BoE monetary policy announcement. The BoE last week hiked the Bank Rate for the first time in 10 years (Full Story). UK earnings and jobs data will be published 24 hours after the inflation figures, followed by ONS Oct retail sales figures on Thursday. The key UK event risk in the week after next is Hammond’s annual budget.

CHART FOCUS

USD/JPY close sub 112.98/113.00 could cause free fall
USD/JPY ultimate downside target is 111.90 — 38.2% retrace of the 107.32 to 114.73. Other objectives close to the 111.90 Fibonacci level include the 30-day lower bollinger-band at 111.86 and the 200-DMA at 111.75. Before there is a collapse there are a number of technical support points that need to be overcome first. While USD/JPY bears managed to briefly break below the 30-DMA on Thursday, currently at 113.18, a daily close below the 30-DMA and 112.98 Fibonacci level — 23.6% retrace of the same 107.32 to 114.73 rise is needed in order to weaken the underlying structure significantly. There are decent technical resistance levels above which should stem recovery attempts, including 114.11/114.35 — 61.8%/76.4% retraces of the 114.73 to 113.09 fall. If USD/JPY bulls manage to force a break above Monday’s 114.73 peak, this will confirm that bears have lost control and the underlying sentiment will shift back to the upside

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