FX Market Update 28-11

Market Briefs

• EUR/USD -0.08%, USD/JPY 0.2%, GBP/USD -0.08%, EUR/GBP 0.01%
• DXY 0.13%, DAX 0.33%, FTSE 0.55%, Brent -0.86%, Gold -0.06%
• DE Import Prices MM Oct, 0.6%, 0.6% f’cast, 0.9% prev
• DE Import Prices YY Oct, 2.6%, 2.6% f’cast, 3.0% prev
• FR Consumer Confidence Nov 102, 101 f’cast, 100 prev
• EZ Money-M3 Annual Growth Oct, 5.0%, 5.1% f’cast, 5.1% prev
• EZ Loans to Households Oct, 2.7%, 2.7% prev
• EZ Loans to Non-Fin Oct, 2.9%, 2.4% f’cast, 2.5% prev
• No more pain for UK banks in 2017 BoE tests, but Brexit risks ahead
• Japan govt keeps view that moderate economic recovery continuing
• Tough OPEC meeting looms amid spectre of oil deficit
• Oil falls on doubts over OPEC, pipeline restart
• Gold inches lower; Fed chair hearing, US tax reforms in focus

Looking Ahead – Economic Data (GMT)

• 12:00 US Revised Building Permits (Oct) (as reported 1.297 mn SAAR)
• 12:30 US Advance Goods Trade Balance (Oct) (prev -$64.1 bn)
• 12:30 US Advance Wholesale Inventories (Oct) (prev +0.3% m/m)
• 12:30 US Advance Retail Inventories (Oct) (prev -0.1% m/m)
• 12:55 US Redbook Same-Store Sales Index (weekly) (prev +4.1% y/y)
• 13:00 US FHFA House Price Index (Sep) (prev +6.6% y/y)
• 13:00 US S&P Corelogic Case-Shiller 20-City Home Price Index (Sep) (prev +5.9% y/y)
• 13:30 CA Producer Prices MM Oct, 0.5% f’cast, -0.3% prev
• 14:00 US Consumer Confidence Index (Nov) (mkt 124.0, prev 125.9)
• 14:00 US Richmond Fed Manufacturing Index (Nov) (prev 12)
• 14:00 US Richmond Fed Services Index (Nov) (prev 24)
• 14:30 US Texas Service Sector Outlook Survey (Nov) (prev 18.6)

Looking Ahead – Events, Other Releases (GMT)

• 13:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.645 bn)
• 14:15 Fed’s Dudley participates in a Q & A – New York
• 14:30 Treasury Sec’y Mnuchin speaks before conf. in New York
• 14:30 Ireland’s Lane to announce review of mortgage rules – Dublin
• 15:00 Senate hearing on Powell’s chairmanship – Washington
• 15:15 Fed’s Harker speaks at a conference – Philadelphia
• 16:30 BoC’s Poloz and Wilkins hold a press conference – Ottawa
• 20:00 RBNZ publishes Financial Stability Report – Wellington
• N/A ECB releases monthly data on lending and money supply

Currency Summaries

EUR/USD

• EUR/USD trades up to 1.1920 in early European dealing but then heads south
• Steady slide reaches 1.1875 following softer than expected EZ M3 data
• M3 5.0% in October vs expectation of no change from prior 5.1%
• Loans to non financial institutions improve 2.9% vs 2.4% f/c & prior 2.5%
• Daily Ichimoku cloud 1.1877-1.1826. 100-HMA 1.1875. 200-HMA 1.1819
• Softer yields one factor weighing. 10-yr bund 0.33% lowest since Nov 9

USD/JPY

• USD/JPY recovers from Monday’s 110.85 base, Asia’s 110.94 low
• USD/JPY bears hesitant after Monday’s 111.03 Fibo fail
• Japanese importers and some investors among the buyers below 111.00
• Note there is good tech support at the daily cloud base now at 110.71
• London on buying spree on EBS, but , but 111.38 caps so far
• Expect further supply at 111.46, an hourly high posted on Monday

EUR/CHF

• EUR/CHF holding below the 1.1723 Nov 17 peak. 1.1722 high Monday
• 1.1723 = highest since 0.8500 was hit after the SNB removed the 1.20 floor
• 1.20, the former SNB floor, remains a broader target for longs
• Cross offered in Europe, 1.1696-1.1673 but safely above 30-DMA at 1.1629
• Tenkan support is closer to market at 1.1655 and a potential prop
• USD/CHF continues to pivot the 200-DMA at 0.9806. Above there Tuesday
• 0.9835-0.9811 through Europe. Ichi cloud, 0.9779/0.9667, remains supportive
• Focus on Fed confirmation for Powell, U.S. tax reform plan into NY

EUR/GBP

• Cable fell to threaten 1.3285 during European am as the USD gained
• 1.3285 was Nov 23 low. 1.3278 = Nov 24 low (1.3279 = Nov 20 high)
• Cable traded at 1.3358 at 0611GMT when EUR/GBP was at 0.8919
• EUR/GBP met headwind pre-0.8957 (100DMA) after rising from 0.8919
• 0.8926-0.8978 was Monday’s range (0.8978 = 12-day high)
• IMM specs flipped to virtually neutral position on GBP in week to Nov 21

USD/CAD

• USD/CAD up half-a-cent to 1.2808 (1wk high) during the European am
• Ascent influenced by further decline in oil prices: WTI down 55c to 57.55
• Prior fall in oil prices helped inflate USD/CAD to 1.2769 Monday
• BoC Financial System Review 10.30am ET, press briefing 11.30am ET+

AUD/USD

• AUD/USD elicited support at 0.7589 after breaking below 0.7600 (Asia low)
• 0.7589 = 50% retracement of 0.7532 (Nov 21 low) to 0.7645 (Monday’s high)
• More bids are tipped at 0.7560 (0.7555 was Nov 22 low)
• AUD losses influenced by lower commodity prices: copper -1.85%
• Dalian iron ore closed down 1.2% Monday. Shanghai nickel fell 4%

NZD/USD

• NZD/USD scaled 18-day peak of 0.6945 late Asia after more kiwi buy-backs
• 0.6918 = subsequent low. 1.0990 is now an AUD/NZD resistance level
• Stops below 1.0990 tripped in Asia, en route to 1.0962 (six-week low)

FX OPTIONS

• Little event risk pre NFP, Fed, ECB, UK MPC, EU summit, leaving vols heavy ahead
• 1mth expiry post X-mas to weigh there. EUR/USD calls well bid however
• EUR/USD market short topside strikes above 1.2000 to prop vols if tested
• USD/JPY vols weak amid spot consolidation. Barriers start at 110.00
• ZAR short dated vols hit amid spot recovery. 16-20 Dec vols bid over ANC election

COMMENT

BoE – Countercyclical buffer raised again

The BoE has raised the countercyclical buffer from 0.5% to 1.0% that will force banks to hold an extra GBP6bn in capital. The buffer was raised from zero to 0.5% in June this year and the BoE is warning that the buffer might need to be raised again next year with a decision likely before June 2018. The 1% level on the countercyclical buffer will mean banks will need to hold just under GBP11.5bn in capital. The hike in the countercyclical buffer was expected but highlights that in additional to the traditional interest rate channel the BoE is also dealing with financial stability risks. This is a strategy that has been employed by other central banks in this post-GFC environment allowing banks to rely on the buffers should the environment deteriorate.
While the BoE is focused on the countercyclical buffer as related to risks beyond Brexit there is no reason why it can’t be relied upon in the event of a disorderly Brexit.

CHART FOCUS

EUR/SEK 10.00 break fading but not forgotten

Potential for a clearer break above the 10.00 level as a bid returns to EUR/SEK. Beginning to see bull pressure returning to EUR/SEK following a modest pullback from the significant 10.0165 Nov 21 high. The much touted breach of the 10.00 level proved disappointing as profit taking quickly reversed the market back to 9.8265. However, the pullback is unlikely to have dented the market’s appetite for a more significant break above 10.00. Key level above 10.0165 remains the 10.0855 2016 high and this likely to be pivotal. Above here and the air gets thin. A stand out high from February 2010 at 10.25 serves as a target should price accelerate above 10.0855. There is talk of option structures around the 10.10 level that might slow a break but with key resistance removed the way should open up for another climb.

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