FX Market Update 13-11

Market Briefs

• EUR/USD -0.11%, USD/JPY -0.22%, GBP/USD 0.74%, EUR/GBP 0.63%
• DXY 0.15%, DAX -0.58%, FTSE 0.07%, Brent -0.24%, Gold 0.22%
• IMF says Europe’s growth more durable, warns of ‘disruptive’ Brexit threat
• PM May wants to agree outline Brexit transition in next few months
• Trump vaunts trade progress, red carpets on “fruitful” Asia trip
• Fed’s Harker stands by call for rate hike next month
• Over half of Spaniards want early national election -poll
• DE Oct Wholesale Price Index YY 3% vs 3.4%
• Venezuela to meet creditors in bid to dodge default
• EU markets agency warns new crypto coins could prove worthless
• OPEC, allies unlikely to delay decision on oil cut extension
• Oil steadies near two-year highs as geopolitics offset U.S. supply

Looking Ahead – Economic Data (GMT)

• 18:00 Treasury Budget (Oct) (prev Oct $45.831 bn deficit)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.665 bn)
• 16:30 France’s Le Maire speaks at a conference – Paris

Currency Summaries

EUR/USD

• EUR/USD range tightens just 1.1639-1.1658 in Europe
• No market moving data on tap today. Few expiries EUR 500mln 1.1630-70
• Few flows EUR/JPY pressured by risk-off feel to stocks
• EUR/GBP underpinned by political uncertainty
• Big day tomorrow. EZ GDP/IP German ZEW & inflation & U.S. PPI
• Support @ option 1.1550 barriers. Resistance 21-DMA 1.1690/Oct 3 high 1.1691

USD/JPY

• USD/JPY remains heavy after being capped by 113.72 Fibo level
• 113.72 — 38.2% retracement 114.73 to 113.09
• Market has fallen from 113.71 to 113.27 so far, focus on 113.30 pivot level
• There are said to be decent bids ahead of kijun line currently @113.19
• More bids ahead of 113.00, 1.35 yards of 112.95-113.15 Mon NY cut strikes
• An eventual daily close sub 112.98/113.00 could see free fall
• Bulls would have to squeeze spot above last Thu’s 114.07 pk to worry bears

EUR/CHF

• EUR/CHF supported along the 30-DMA line, rising to 1.1569 Monday
• Last wk’s pullback attempts stalled at this line: look for the same again
• Sharp sell off, 1.1622 to 1.1590 in Europe
• CH domestic sight depos rise, 472.652bln vs 468.761 w/e Nov 10
• SNB may not have been happy with the drop from the Oct 26 1.1713 peak
• 0.9987 rejects USD/CHF lower through the hourly cloud. 0.9949 the low
• Bearish weekly close last week. Weekly cloud twist helps pull prices lower
• Sellers noted above parity last 3 weeks. 1.0039 Oct 27 peak

GBP/USD

• Cable fell to 1wk low of 1.3063 during European am on Brexit concerns
• On Sunday, Davis said UK won’t offer new figure on Brexit to unblock talks
• EUR/GBP up to 10-day high of 0.8918 during European am
• Sunday Times tip that 40 Tory MPs ready to oust May also GBP-negative
• Letters from 48 Tory MPs needed to trigger Tory leadership contest
• GBP/USD stops tipped below 1.3040 (Nov 3 low) & 1.3000

USD/CAD

• USD/CAD rose from 1.2680 to 1.2710 during the Ldn am
• Spot traded sub-1.27 in Asia, when 1.2671 was the early session low
• 1.2666 was Friday’s low. 1.2668 was last Thursday’s low

AUD/USD

• AUD/USD elicited support pre-0.7640 after falling from 0.7665
• 0.7665 = early Europe high. 0.7640 was Asia low
• More bids expected near 0.7625 (Oct low). 0.7628 was Nov 7 low
• Large 0.7650 option expiry Tuesday, AUD 437mn strike

NZD/USD

• NZD/USD threatened 0.6900 after falling from 0.6936 (early Europe high)
• 0.6900 approximates to Nov 8 low. 0.6916 was Asia low
• Huge AUD/NZD 1.1100 option expiry Friday, AUD 2.25bln strike

FX OPTIONS

• UK political and Brexit woes fuel demand for GBP vols, regain pre MPC highs
• EUR/USD consolidation leaves vols near last weeks 3-year lows
• EUR/USD 2.2bln 1.1650 expiry Wednesday helps contain pair ahead
• USD/JPY downside fears apparent, firmer JPY call bias on risk reversals
• USD/JPY options interest mixed however – buyers of strikes both sides of spot

COMMENT

Norway house prices may pull rug from under NOK

Economic performance has underpinned the NOK in the face of a dovishly cautious Norges bank but this prop may be pulled if the housing market slowdown becomes more entrenched. October house prices actually surprised with a 0.7% gain on the year but Real Estate Norway expects more negative price developments. Though a further significant downturn in house prices is unlikely given falling jobless, rising wages and low interest rates, a sluggish house price recovery poses risks to the broader economy. Recent kroner consolidation has allowed traders time to reflect on new likely trends and themes for the NOK. Established drivers–oil (albeit with a current lack of correlation) and Norges bank policy–have been joined by ECB QE rhetoric, and potential housing market woes. So, EUR/NOK could be a cheap buy at current levels, 9.4850, but with the Saudi political situation hanging over the oil market a tight stop necessary at 9.3800 looking for 9.75.

CHART FOCUS

NOK/SEK set to deteriorate further

NOK/SEK rebounds capped circa 1.03 and a fresh run south for the Viking cross is on the cards. NOK/SEK bears have set their sights on last week’s 1.0247 low. The break of the 1.0260 61.8% Fibo of the October 26 to November 6 1.0204 to 1.0350 rise failed to hold a first attempt. A break and close under there should open the way for a full retracement to 1.0204 in favor of short plays. The thin Ichimoku cloud, spanning 1.0223/1.0213, could help fuel the bears as thin clouds generally attract and note the pull of the twist on November 26 by 1.0220. Further support lies at the 1.0246 30-DMA, which coincides very close to the aforementioned November 8 1.0247 low. Given that the reversal came from close to the upper Bollinger around the 30-DMA then a test of the average looks likely. Any break risks a drop to the lower Bolli at 1.0147. Only a break back above the 200-DMA at 1.0330 would deter the bears.

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