FX Market Update 17-11

Market Briefs

• EUR/USD 0.34%, USD/JPY -0.5%, GBP/USD 0.02%, EUR/GBP 0.3%
• DXY -0.29%, DAX 0.01%, FTSE -0.02%, Brent 0.92%, Gold 0.42%
• Cheap ECB cash still key for euro zone economy: Draghi
• Ireland says not ready to let Brexit talks move on to trade
• Under pressure, Britain’s May tries to reassure EU on money
• Britain’s government to push ahead with plan on specific Brexit date
• Entrenched positions keep German party deal out of reach
• EZ Sept Current Account NSA, EUR 41.8B vs 29.6B, r’vsd 30.8B
• EZ Sept Current Account SA, EUR 37.8B vs 34.5B
• BOJ stimulus exit made hard by Abe’s election win – former policymaker
• China sets sweeping new rules to regulate asset management products
• Oil set for first weekly fall in six on oversupply
• Gold gains on jitters over probe into Trump’s campaign

Looking Ahead – Economic Data (GMT)

• 13:30 US Housing Starts (Oct) (mkt 1.185 mn SAAR, prev 1.127 mn SAAR)
• 13:30 US Building Permits (Oct) (mkt 1.247 mn SAAR, prev 1.215 mn SAAR)
• 13:30 CA CPI Inflation (Oct) (mkt 0.1% m/m, prev 0.2% m/m)
• 13:30 CA CPI BoC Core (Oct) (mkt 0.3% m/m, prev 0.2% m/m)
• 13:30 CA CPI (Oct) (prev 0.2% m/m SA)
• 13:30 CA Core CPI (Oct) (prev 0.1% m/m SA)
• 16:00 US KC Fed Manufacturing Composite Index (Nov) (prev 23)

Looking Ahead – Events, Other Releases (GMT)

• 13:00 Bank of Norway’s Oystein Olsen speaks at KPMG’s Executive Conference – Oslo
• 14:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.650 bn)

Currency Summaries

EUR/USD

• Plays 1.1766 to 1.1821 in Asia: Europe 1.1816 to 1.1784
• Early Europe and rebound fm 1.1784 to 1.1803, hrly cloud top 1.1800
• WSJ rpt Mueller to subpoena Trump campaign docs hit ylds
• Trump campaign story a factor but unlikely to maintain FX focus
• U.S. Hse of Reps tax package approval should carry more weight
• UST 10s towards middle of week’s 2.4140-2.3190 range @ 2.3648%
• Bunds tight and steady, 10s at 0.3790, and little changed
• E949 mln expiries 1.1790-1.1800, more above help limit EUR strength

USD/JPY

• USD/JPY bulls bailed further on WSJ Mueller subpoena report
• There was sustained selling of spot on the EBS throughout Asia
• Spot fell 113.14 to 112.40, but has halted ahead of 112.33 weekly cloud top
• Outlook negative, but weekly cloud a stiff challenge for bears
• Due to the heavy selling in Asia, risk of a short squeeze to 113
• BoJ trims amount of 1-3 JGBs buys to Y250 bn from Y280 bn at reg ops
• Fitch – Japan regional banks face weak outlook and consolidation

EUR/CHF

• EUR/CHF rose to a fresh trend high at 1.1723 in Asia, eclipsing that of Oct 26
• 1.1723 = highest since 0.8500 was hit after the SNB removed the 1.20 floor
• The spike above the 30-D Bollinger at 1/1712 may concern some tech players
• Historically the band limit price action so could see some pullback risk
• 1.1722-1.1685 easing in Europe, but above Thurs 1.1642 base
• USD/CHF lower, 0.9927-0.9908 Europe, 0.9942 was Asia high
• SNB Maechler (Late Thurs) SNB not ready to normalise policy, CHF highly valued

EUR/GBP

• Cable extended north to a fresh 15-day high of 1.3260 during European am
• 1.3245 was Asia high after stops tripped above 1.3215 (Tuesday’s high)
• Offers expected near 1.33 (large option expiry) if cable continues higher
• EUR/GBP eased to a three-day low of 0.8899 during the European am
• 0.8898 = early Europe low Tuesday–before German GDP beat boosted EUR
• May tries to reassure EU on Brexit divorce money during Gothenburg trip

USD/CAD

• USD/CAD rose to 1.2767 during the European am as NZD & AUD fell
• 1.2714 was Asia low. 1.2729-1.2785 was Thursday’s range
• Canada Oct inflation data due 8.30am ET: CPI f/c 1.4% y/y vs 1.6% Sept

AUD/USD

• AUD/USD slid to a five-month low of 0.7542 during the European am
• Slide influenced by NZD/USD losses: AUD/NZD reclaims 1.11 handle
• 0.7608 was AUD/USD high in Asia (0300GMT). 0.7609 = Thursday high

NZD/USD

• NZD/USD extended south to 17mth low of 0.6781 during European am
• Stops below 0.6818 (May/Oct lows) were tripped en route to that low
• 0.6883 was Asia high (0230GMT). 0.6761 wsa June 2016 low
• AUD/NZD rose to threaten 1.1138 (Tuesday high) as NZD/USD slumped

FX OPTIONS

• Larger Option Expiries for Friday, Nov 17 New York Cut:
• USD/JPY: 112.50 (241M), 112.25 (230M), 113.25 (375), 113.45-50 (410M)
• EUR/USD: 1.1750 (459M), 1.1790-1.18 (951M), 1.1825 (694M), 1.1840-50 (645M)
• GBP/USD: 1.3000 (311M), 1.3300 (639M) AUD/JPY: 85.50 (940M)
• USD/CAD: 1.2600 (519M), 1.2700 (410M), 1.2800-10 (710M)

COMMENT

Volatility stirs among some unusual G10 FX suspects

Volatility stirred among some unusual G10 FX suspects this week, with the NOK and SEK leading the way before a NZD cameo Friday. EUR/NOK soared to a 35-month high of 9.80 Wednesday, having started the week below 9.50, before recouping approximately half of that rise. Norges Bank deputy governor Nicolaisen told Reuters on Thursday that the large NOK swings were “probably tied to a whole range of other moves that don’t necessarily have anything to do with Norwegian factors” EUR/SEK also surged from 9.75 to a one-year high, a fraction shy of 10.00 this week, before a 50% retracement of that ascent.

Another unusual G10 suspect, NZD, muscled into the FX volatility fun as the weekend loomed large. NZD/USD fell a cent to a 17-month low of 0.6781 Friday, with stops below 0.6818 (May and September low) tripped en route to that low. The kiwi-specific nature of the move was highlighted by AUD/NZD simultaneously rallying from 1.1044 to 1.1130.

USD/TRY offers dip buying opportunities as bulls flag

It’s tough to call a USD/TRY breakout despite today’s outperformance in USD/EM, but buying into weakness remains the favoured strategy. Daily charts have been moving sideways since Nov 3’s price acceleration with 3.8225 and 3.9099 the bounds. A series of doji candles highlight market indecision and possible USD/TRY bull fatigue. However, the consolidation may open the path up to fresh demand. Note the converging 100/200-DMAs and likely bull cross next week. Weekly action remains above the 30-WMA upper Bollinger but a thick cloud is supporting and the underlying bull trend continues to watch the 3.9223 spike high from Oct 9 and 3.9417 significant all-time high from January 2017. Near-term bull bets will be off should USD/TRY drop under 3.8200 but dip buying to 3.8400 for new highs is the favoured objective. The rising 30-DMA upper Bollinger which currently stands at 3.9547 is a potential new higher watermark

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