FX Market Update 15-11

Market Briefs

• EUR/USD 0.38%, USD/JPY -0.64%, GBP/USD 0.02%, EUR/GBP 0.32%
• DXY -0.32%, DAX -1.33%, FTSE -0.6%, Brent -1.32%, Gold 0.39%
• Fed’s Evans says will go into December meeting with open mind
• Fed should signal tolerance for higher U.S. inflation – Evans
• Waiting too long to stop stimulus could be disruptive – ECB’s Hansson
• ECB’s rate guidance to gain prominence in stimulus – Praet
• Global forex code bans ‘last look’ trading tactic
• GB Sept ILO Unemployment Rate 4.3% vs 4.3%, f’cast 4.3%
• GB Oct Claimant Count Unemployment SA 1.1k vs 1.7k, f’cast 2.3k, r’vsd 2.6k
• GB Sept Avg Wk Earnings 3M YY 2.2% vs 2.2%, f’cast 2.1%. r’vsd 2.3%
• GB Sept Avg Earnings (Ex-bonus) 2.2% vs 2.1%, f’cast 2.2%, r’vsd 2.2%
• EZ Sept Eurostat Trade NSA, Eur 26.4B vs 16.1B
• China says Venezuela can ‘appropriately’ handle debt load
• Oil prices slide after IEA casts doubt over demand outlook

Looking Ahead – Economic Data (GMT)

• 13:30 Retail Sales (Oct) (mkt 0.0% m/m, prev +1.0% m/m)
• 13:30 Retail Sales ex-Autos (Oct) (mkt 0.2% m/m, prev +1.6% m/m)
• 13:30 Retail Control (Oct) (mkt 0.4% m/m, prev +0.4% m/m)
• 13:30 New York Fed Empire State Manufacturing Survey (Nov) (mkt 26.0, prev 30.2)
• 13:30 CPI (Oct) (mkt +0.1% m/m, +2.0% y/y; prev +0.5% m/m, +2.2% y/y)
• 13:30 CPI ex-Food and Energy (Oct) (mkt +0.2% m/m, +1.7% y/y; prev +0.1% m/m, +1.7% y/y)
• 13:30 Real Average Weekly Earnings (Oct) (prev -0.1% m/m)
• 15:00 Atlanta Fed Business Inflation Expectations (Nov) (prev +1.8% y/y)
• 15:00 Business Inventories (Sep) (mkt 0.0% m/m, prev +0.7% m/m)
• 15:30 EIA Weekly Petroleum Status Report
• 16:00 Cleveland Fed Median CPI (Oct) (prev +0.2% m/m)
• 21:00 Treasury International Capital Statistics (Sep) (prev LT-ex-swaps +$67.2 bn)

Looking Ahead – Events, Other Releases (GMT)

• 13:00 BoE’s Braodbent speaks at LSE – London
• 15:05 Riksbank’s Skingsley participates at a discussion – Stockholm
• 16:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.905 bn)
• 21:00 Fed’s Rosengren remarks on the economy; Boston, MA
• 23:45 BoC’s Wilkins speaks before Money Marketeers of New York University, NY

Currency Summaries

EUR/USD

• EUR/USD higher 1.1785-1.1853 in Europe today
• Pair breezing through supposedly tough resistance last 24 hours
• Rally extends over Oct ECB day peak at 1.1837
• Daily cloud top 1.1870 & Oct 11/13 highs 1.1869/80/65 next resistance
• 1.1861 is 61.8% retrace 1.2092-1.1553 decline. 76.4% 1.1965
• ECB’s Hansson (hawk) scope for prudent but obvious recalibration policy

USD/JPY

• Risk-off mood sees Nikkei close down -1.57% at 22,028
• USD/JPY collapsed through 113.00 as expected, model funds blamed
• Range has been 112.65-113.49
• There has been solid and steady net selling of spot on EBS in Asia & Ldn
• Japanese importer and some speculative bids have limited further losses
• Scope for a drop down below 112.00 to 111.90 Fibonacci level
• Build up of IMM USD/JPY longs last wk was dangerous for bulls
• USD/JPY options set up for deeper spot decline

USD/CHF

• CHF dragged around by the broader market. UP vs USD. Down vs EUR
• USD/CHF plays 0.9893-0.9855 in Europe, the 200-DMA is next sppt at 0.9813
• EUR/CHF up to test 1.1688 from early Ldn 1.1652 low
• Closing in on key tech levels incl the upper 30-D Bollinger at 1.1704 Wed
• That is not far from the Oct 1.1713 peak
• 1.1713 = highest level for the cross since 0.8500 low after SNB removed floor
• Swiss govt: CHF remained “highly valued” despite recent weakening vs euro
• Echos those views of the SNB of late
• SNB’s prior 1.20 floor remains ultimate target for the bulls

EUR/GBP

• EUR/GBP rose to 26-day peak of 0.9014 during European am
• Peak scaled after 0.9000 option barriers successfully targeted
• 0.8980 was Asia high, revisited before UK earnings/jobs data
• Earnings 2.2% vs 2.1% f/c but biggest fall employment in Q3 since 2015
• EUR/GBP gains influenced 80 pip cable fall from 1.3215 earnings high
• Bids at 1.3135 based the drop (1.3135 = Monday’s Ldn/NY high)

USD/CAD

• USD/CAD eased to an intra-day low of 1.2714 during the European am
• 1.2751 = Asia high. 1.2701-1.2773 was Tuesday range (low before high)
• 1.2730 option expiry for NY cut (closest-to-market), USD 265mn strike

AUD/USD

• AUD/USD rose by a quarter-cent after threatening 0.7576 early Europe
• 0.7576 = 4mth low in Asia after Aussie wage data weaker than expected
• AUD/NZD extended south to a 27-day low of 1.0990 during Ldn am
• 1.1011 was Asia low. 1.1103 was Asia high, pre-Aussie wage data

NZD/USD

• Kiwi shorts squeezed during NZD/USD climb from 0.6862 to 0.6915
• 0.6862 was early Europe low. 0.6844 = 13-day low Tuesday
• AUD/NZD trading below 1.10 for first time since Oct 20
• 1.1138 was 11-day high Tuesday. Huge 1.11 option expiry Thursday

FX OPTIONS

• Solid vol gains extend, many from very low base levels
• Souring risk sentiment, USD weakness and short covering drive demand
• 1-month expiry options captured Dec FED, ECB and MPC to boost Tuesday
• EUR/USD short topside strikes. EUR calls bid. 5bln 1.1800-25 expiries today/Thur
• Brexit and UK political woes drive GBP vols. EUR/GBP breaks 0.90 barriers
• Asian stocks and poor Aus wage growth hurt AUD and boost vols there

COMMENT

EUR/USD reverse could cue move to new 2017 highs
EUR/USD’s rapid rebound suggests the pair could be on course for new 2017 highs. The strength of euro/crosses in the aftermath of the ECB meeting were a sign that EUR/USD traders were wrong to bet on a perceived dovish taper. Euro zone data has come thick and fast to suggest a taper needs to be anything but dovish in effect. It looks like this has come home to roost for those betting on EUR/USD topping with a widespread capitulation of short positions driving a fast recovery. There has been a series of easy breaks through supposedly tough resistance areas suggesting that those short EUR/USD had been inspired by bearish techs and are now reversing to longs. There is little resistance left with a thin daily Ichimoku cloud at 1.1828-70 easier to break (was 200pts+ Oct). A close above 55-DMA 1.1796 or break of Oct ECB day high at 1.1837 are sure to add to an already bullish picture. Chart 1)

CHART FOCUS

EUR/GBP on the cusp of a significant break
EUR/GBP looks poised to break higher as it probes key technical levels including the upper 30-D Bollinger and the daily Ichi cloud top at 0.9019 and 0.9027 respectively. A break and close above these levels is likely to push the cross towards the Aug 29 0.9307 peak next. Previous attempts higher on Oct 12 and 20 were rejected from the cloud preventing a further climb but the break of psychological resistance at 0.9000 could see the gains accelerate. The 50% Fibo of the 0.9307 to 0.8734 August to October drop is also in the key resistance region at 0.9020 adding significance to any break. The key Fibo of that drop is the 61.8% at 0.9088 where a breach would open the way for a full retracement. Should the cross fail and revert lower once more then a break back under the cloud (0.8928 base) is needed to deter the bulls.

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