FX Market Update 27-11

Market Briefs

• Rand shrugs off Friday’s S&P downgrade: USD/ZAR off 3.15% at 13.7350
• EUR/USD 0.03%, USD/JPY -0.24%, GBP/USD 0.07%, EUR/GBP -0.07%
• DXY -0.09%, DAX 0.27%, FTSE 0.35%, Brent -0.39%, Gold 0.46%
• Euro rally, German politics bolster bloc’s bond markets
• German government talks likely a month away, Merkel ally says
• IT Consumer Confidence Nov, 114.3, 116.4 f’cast, 116.1 prev
• IT MFG Business Confidence Nov, 110.8, 111 prev
• Oil slips on US drilling but OPEC cuts support market
• Gold edges higher as dollar hits 2-month low vs euro

Looking Ahead – Economic Data (GMT)

• 14:00 New Home Sales (Oct) (mkt 620k SAAR, prev 667k SAAR)
• 14:30 Dallas Fed Texas Manufacturing Outlook Survey (Nov) (prev 27.6)

Looking Ahead – Events, Other Releases (GMT)

• 11:15 ECB’s Constancio participates in a discussion – Frankfurt
• 14:30 BoE’s Haldane speaks in Brimingham
• 15:45 FedTrade Operation 30-year Ginnie Mae (max $1.280 bn)
• 23:00 FRB New York’s Dudley speaks on “The U.S. Economy: 10 Years after the Crisis”; New York
• 22:30 FRB Minneapolis’s Kashkari (2017 voter, dove) participate in moderated Q&A; Winona, MN
• N/A EU Foreign Affairs Council meeting

Currency Summaries

EUR/USD

• EUR/USD up early in Europe to 1.1956, Nov 24 high 1.1944. Asia today 1.1946
• Shallow dips are encouraging specs to buy and add to core longs
• Resistance @ 76.4% retr 1.2092-1.1553 decline @ 1.1965, then 1.20 options
• 1.20 traded quite recently so major option defence is unlikely
• Expected data this week may add impetus to the rally
• EZ M3, PMI and biz climate all seen strong, US cons conf & ISM seen softer

USD/JPY

• Ldn session saw 111.46-111.16 drop, despite EBS decent buying initially
• There has been decent bouts of buying on EBS at other points in Ldn session
• Solid USD/JPY buys since hit 111.16, but spot bounded by 111.34 supply
• Soft, but semi-official bid supports ahead of 111.00
• Only a sustained break above 111.46 Ldn high will unmask Asia’s 111.69 peak
• 200-DMA caps @111.71, 111.03 buoys — 50% Fibo 107.32-114.73

EUR/CHF

• EUR/CHF bid again after last wk’s fall, regained 30-DMA, 1.1680-1.1712 Europe
• Eyeing Nov 17 1.1723 trend high. 1.20 a realistic trgt for EUR/CHF bulls
• 1.1723 = highest since 0.8500 was hit after the SNB removed the 1.20 floor
• Swiss domestic sight depos rise, 477.945bln vs 475.147 w/e Nov 24
• USD/CHF found sppt from close by Ichi cloud after a bearish wk last week
• Cloud top at 0.9762, session low at 0.9780. Recovery to 0.9815 in Europe
• US Tax plan, Fed speakers/replacements & ISM main events for dollar this week

EUR/GBP

• Cable rose from 1.3311 to threaten 1.3360 during the European am
• 1.3360 was Friday’s eight-week peak. 1.34 among bull targets
• EUR/GBP pivoted 0.8950 through the European am
• Large 0.8950 option expiry for 10am ET NY cut, GBP 501mn strike
• BoE chief economist Haldane due to speak in Birmingham at 1430GMT
• Sunday Times-Brexit divorce bill to be kept secret

USD/CAD

• USD/CAD slid through 1.2700 to a low of 1.2682 during the European am
• 1.2673 was US Thanksgiving Day low (before Canada retail sales miss)
• 1.2666 = Nov low-to-date. BoC is expected to keep rates on hold next week

AUD/USD

• AUD/USD rose from 0.7604 to threaten 0.7638 during the European am
• 0.7638 was US Thanksgiving Day high. 0.7650/65 resistance beyond
• 0.7650 = Nov 14 high. 0.7665 = Nov 13 high. 0.7593 was Asia low
• Shanghai steel rose to a six-week high on Monday, AUD-positive
• RBA is expected to keep its cash rate at 1.5% next week (Dec 5)

NZD/USD

• NZD/USD rose from 0.6859 to threaten 0.6905 during the European am
• 0.6905 = Nov 23 high. 0.6919 (Nov 15 high) & 0.6936 resistance beyond
• Large AUD/NZD 1.11 option expiry for 10am ET NY cut, AUD 1.58bln strike
• RBNZ Financial Stability Report due Wednesday

FX OPTIONS

• 3-week vols get FED, ECB, MPC, EU summit to underpin. 1mth post X-mas weighs
• EUR/USD vols up, risk reversals multi year highs EUR calls as topside beckons
• GBP focus on EU summit and hope for Brexit trade talks to move on, 3wk vol 200 pips
• USD/JPY vols and JPY call bias heavy, market not pricing any imminent spot break-out
• AUD vols heavy as ranges hold. ZAR gamma sold from Fri’s peaks after ratings d-grade

COMMENT

Data may add impetus to the tech driven EUR/USD rally

Data may add impetus to the tech driven EUR/USD rally. EUR/USD closed above its daily Ichimoku cloud top at 1.1877 and a 61.8% retracement of the 1.2092-1.1553 correction at 1.1886. The last similar close over the cloud in April was the launch pad for big gains from around 1.0600. EUR/USD has reached 1.1956, just shy 76.4% 1.2092-1.1553 at 1.1965. Potential is eyed to 1.2167, 50% retracement of the major ECB inspired drop from 1.3995 that reached 1.0340 in January. Trading data is not fashionable but specs often seize on news that suits their cause. EZ M3 is f/c 5.1% over ECB’s 4.5% reference rate and headline EZ CPI is eyed 1.6% y from 1.4%. EZ Nov PMI may beat October which was the highest in almost 7 years. U.S ISM is f/c softer. A big improvement is f/c for the eurozone’ s business climate, U.S consumer confidence seen lower. The potential for market stopping options is slight as too little time has passed since 1.20 and 1.21 last dealt. EURUSD weekly chart:

CHART FOCUS

USD/JPY stymied by 200-DMA, bears eye 110.25 Fibo

USD/JPY bias remains on the downside as bears gear up for an eventual break below 111.03 — 50% retracement of the 107.32 to 114.73 (Sept to Nov) rise — which will unmask 110.25 — 61.8% of the same rise. The 10 and 30-DMAs are increasingly bearish aligned and fourteen-day momentum is persistently issuing negative readings, highlighting the underlying bearish market structure. The big drop last Wednesday from 112.50 to 111.14 continues to weigh heavily on the market. The 30-day lower and upper bollinger-bands are diverging, meaning the scope for heightened actual volatility continues with the directional risk skewed to the downside. Recent USD/JPY recovery attempts have been stymied by the 200-DMA, which is currently at 111.71. Only a daily close back above the 200-DMA, will hint that the anticipated next leg lower will be delayed

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