FX Market Update 22-11

Market Briefs

• EUR/USD 0.11%, USD/JPY -0.33%, GBP/USD 0.01%, EUR/GBP 0.09%
• DXY -0.12%, DAX -0.39%, FTSE 0.29%, Brent 1.02%, Gold 0.29%
• Boxed in by slow growth, UK’s Hammond readies budget
• UK service sector’s profitability drops to lowest since 2013
• Regulation should not hinder cross-border bank deals -ECB’s Villeroy
• Germany’s bond yield curve flattest in more than two months
• Oil jumps, U.S. light crude at 2-1/2-year high on Canada pipeline woe
• Gold rises as dollar dips ahead of Fed minutes

Looking Ahead – Economic Data (GMT)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:30 Initial Jobless Claims (w/e Nov 18) (mkt 240k, prev 249k)
• 12:30 Continued Claims (w/e Nov 11) (mkt 1.882 mn, prev 1.860 mn)
• 12:30 Durable Goods Orders (Oct) (mkt +0.3% m/m, prev +2.0% m/m)
• 12:30 Durable Goods Orders ex-Trans (Oct) (mkt +0.5% m/m, prev +0.7% m/m)
• 12:30 Durable Goods Orders ex-Defense (Oct) (mkt +0.9% m/m, prev +1.9% m/m)
• 12:30 Non-Def Capital Goods Orders ex-Aircraft (Oct) (mkt +0.5% m/m, prev +1.7% m/m)
• 14:00 U of Michigan Consumer Sentiment Index (final Nov) (mkt 98.0, prelim 97.8)
• 14:00 U of Michigan Current Conditions Index (final Nov) (mkt 113.3, prelim 113.6)
• 14:00 U of Michigan Expectations Index (final Nov) (mkt 87.6, prelim 87.6)
• 14:30 EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

• 13:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.645 bn)
• 14:00 Freddie Mac releases weekly report on U.S. mortgage rates
• 18:00 FOMC Minutes (of the Oct 31-Nov 1 meeting)
• 15:30 BOE’s Victoria Cleland will participate in the Active City Network event

Currency Summaries

EUR/USD

• Flurry of EUR/USD short-covering on Europe’s open
• Asia traded 1.1732-61. Europe 1.1743-1.1773 opened 1.1745
• Activity dies off shortly after the 1.1773 and pair drifts back down
• EUR/USD vols are sinking again, pair giving appearance traders done for 2017
• Major data first week Dec or surprise of U.S. tax deal could change that
• That said, rough 1.16-1.18 ranges looking a good punt for the rest of 2017

USD/JPY

• USD/JPY was sold throughout Asia and first thing in London on the EBS
• London neutral since as bears encounter cloud, large 112 strike
• USD/JPY falls from 112.50 to hit 111.95, daily cloud spans 110.38-111.95
• The large 112.00 NY cut expiry, worth 1.4B, could be a magnet in early NY
• NY might try to squeeze intra-day shorts on their arrival
• Heading into Thanksgiving break, however, US players might lack motivation

EUR/CHF

• EUR/CHF lower 1.1645-1.1628, but holds above key tech support
• 30-DMA been a dside prop recently, at 1.1609 Wed and likely to underpin
• While above risk remains to upper Bolli at 1.1706 and last wk’s 1.1723 peak
• 1.1723 = highest since 0.8500 was hit after the SNB removed the 1.20 floor
• Daily Ichi cloud is rising and supportive, 1.1512 is the top of the cloud
• Note of caution for the bulls: potential for inside week on weekly charts
• USD/CHF lower, tracking broader dollar movements, extends beyond Tues low
• 0.9887 Wed vs 0.9900 Tues. Kijun support threatened at 0.9888
• 10-DMA at 0.9922 initial resist, 21-DMA remains main hurdle for bulls

EUR/GBP

• EUR/GBP met headwind circa 0.8884 after quarter-penny rise early Europe
• 0.8884 was Tuesday’s high. More offers expected near 0.69
• Decent size 0.6900 option expiry for NY cut, EUR 385mn strike
• 21 pip range for GBP/USD since European open, 1.3240-1.3261
• Hammond will deliver UK budget speech from 1230GMT
• His speech is set to last 53 minutes, according to Sporting Index

USD/CAD

• USD/CAD elicited fresh support circa 1.2750 during the European am
• Drop to threaten 1.2750 fuelled by higher oil prices. 1.2749 = Tuesday low
• Large 1.2780 option expiry for NY cut, USD 980mn strike

AUD/USD

• AUD/USD eased from 0.7577 to 0.7555 during the European am
• 0.7555 = low water-mark since 0.7600 was threatened in Asia
• Large 0.7600 option expiry for NY cut, AUD 555mn strike
• 0.7591 was Tuesday’s high, after short-covering on Lowe speech
• Key support 0.7532 (Tuesday’s five-month low, before Lowe spoke)

NZD/USD

• NZD/USD eased by a quarter-cent to 0.6820 during the European am
• 0.6854 was intra-week peak in Asia & high since recent 17mth low of 0.6781
• 0.6850 & 0.6785 option expiries Thursday, NZD 551mn & 403mn strikes

FX OPTIONS

• Flows limited, vols suffer ahead of Thursdays US and Tokyo holiday
• Downside risk in USD/JPY abates, vols and JPY calls sold. 1.4bln 112 expiry
• Demand for EUR/USD topside, short covering rather than sentiment change
• December FED, ECB and EU summit risk limit declines in post event vols
• USD/CAD 1bln 1.2780 expiry. Cable 408mln 1.3240-50 expiries NY cut today

COMMENT

Sentiment towards Hammond may impact GBP after budget

Sentiment towards UK Chancellor Hammond within the Tory party after his budget may impact sterling more than the budget speech itself on Wednesday. If the budget underwhelms Tory expectations, it could spur fresh speculation that Hammond’s days as Chancellor are numbered. Hammond is viewed as one of the leading members of the cabinet lobbying for a relatively soft Brexit, so his exit from the second most important job in the government could weigh on GBP by raising fears of a harder Brexit. Michael Gove–one of the leading pro-Brexit voices in last year’s referendum campaign, is 4/1 favourite to be the next Chancellor if/when a vacancy arises, according to Ladbrokes. Hammond will deliver his budget speech from 1230GMT, after Prime Minister’s Question Time. MPs might quiz May about a front page article in Wednesday’sDaily Telegraph headlined “May’s Budget war with Hammond” before her Chancellor takes his turn at the despatch box.

CHART FOCUS

USD/JPY bears gear up for a slump, eye 110.15 Fibo

USD/JPY bears remain firmly in control as the weakness from November’s 114.73 peak persists. This puts the pair on course for a fall to the 110.15 Fibonacci level — 61.8% retrace of the 107.32 to 114.73 (September to November) peak though medium-term bears need a weekly close below three major downside levels to signal that a deeper collapse is on the horizon. These levels are the 200-WMA at 112.11, 111.90 — 38.2% of the same 107.32 to 114.73 Fibo rise — and the 30-WMA at 111.58. The 10-WMA at 112.79 has capped trading this week which has seen a range of 111.90-112.71 so far and this will likely continue to be the case. Bulls need to force a weekly close above the 10-WMA in order to reverse the current underlying bearish sentiment and lower the risk of a disorderly decline

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