FX Market Update 29-11

Market Briefs

• EUR/USD -0.03%, USD/JPY 0.09%, GBP/USD 0.49%, EUR/GBP -0.52%
• DXY 0.01%, DAX 0.97%, FTSE -0.56%, Brent -0.86%, Gold 0.06%
• EZ Business Climate Nov, 1.49, 1.53 f’cast, 1.44 prev
• EZ Economic Sentiment Nov, 114.6, 114.6 f’cast, 114.0 prev
• EZ Industrial Sentiment Nov, 8.2, 8.7 f’cast, 7.9 prev
• EZ Services Sentiment Nov, 16.3, 16.8 f’cast, 16.2 prev
• EZ Consumer Confid. Final Nov, 0.1, 0.1 f’cast, -1.1 prev
• EZ Cons Infl Expec Nov, 16.0, 14.7 prev
• EZ Selling Price Expec Nov, 11.1, 8.6 prev
• German inflation accelerates in November, state data suggest
• Euro zone stability risks contained but remain aplenty: ECB
• FR Consumer Spending MM Oct, -1.9%, -0.1% f’cast, 0.9% prev
• FR GDP Detailed QQ Q3, 0.50%, 0.50% f’cast, 0.50% prev
• GB BOE Consumer Credit Oct, 1.451B, 1.500B f’cast, 1.606B prev
• GB Mortgage Lending Oct, 3.392B, 3.600B f’cast, 3.848B prev
• GB Mortgage Approvals Oct, 64.575k, 65.000k f’cast, 66.232k prev
• GB M4 Money Supply Oct, 0.6%, -0.2% prev
• BOJ’s Nakaso says c.bank has tools, expertise to exit easy policy
• Oil falls on uncertainty over OPEC deal, rise in US inventories
• Gold price firms on softer dollar but narrow range holds

Looking Ahead – Economic Data (GMT)

• 12:30 Real GDP (Q3 preliminary) (mkt +3.2% q/q AR, advance +3.0% q/q AR)
• 12:30 Real Final Sales (Q3 preliminary) (mkt +2.4% q/q AR, advance +2.3% q/q AR)
• 12:30 Core PCE Deflator (Q3 preliminary) (mkt +1.4% q/q AR, advance +1.3% q/q AR)
• 13:00 DE CPI Prelim (Nov) (0.3%MM, 1.7% YY f’cast; 0.0%, 1.6% prev)
• 13:00 DE HICP Prelim (Nov) (0.2%MM, 1.7%YY f’cast; -0.1%, 1.5% prev)
• 14:00 Pending Home Sales Index (Oct) (mkt 107.1, +1.0% m/m; prev 106.0, 0.0% m/m)
• 14:30 EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

• 13:30 Fed’s Dudley participates in a discussion – New Brunswick
• 14:00 BoE’s Carney speaks at a discussion – London
• 14:45 BoE’s Ramsden speaks at a dicsussion – London
• 15:00 Fed’s Yellen speaks at Congressional committee – Washington
• 17:00 Bundesbank’s Weidmann speaks at an event – Essen
• 18:50 Fed’s Williams speaks at Arizona State University – Phoenix
• 19:00 Fed issues Beige book on economic condition – Washington
• 20:00 Dutch cen bank’s Knot speaks at a conference – London

Currency Summaries

EUR/USD

• Slightly better than f-cast EU sentiment data, Nov cons conf in line 0.1
• ECB stability report – risk contained but remain aplenty
• Minimal change to EUR/USD in 1.1860’s vs early Europe recovery high 1.1882
• Sppt daily tenkan 1.1837 (clsd above Tue), Asia low 1.1839, Tue low 1.1725
• 10dma underpins 1.1824. Initial resistance Tue 1.1920 high before Mon 1.1961
• A rack of US data today, stand out is Q3 GDP 13.30GMT, 3.2% fc vs 3.0% prior

USD/JPY

• Risk not off despite NK missile test, USD/JPY trades tight 111.38-67 range
• There was net selling of USD/JPY on the EBS in Asia, London more neutral
• Japanese importer and investor bids in recent days have propped USD/JPY
• But recovery stymied by 200-DMA and recent high at 111.69
• There are 1.3 yards of 111.00 NY cut expiries which may attract later
• If a break above 111.69 occurs, there are buy stops clustered above 111.75

EUR/CHF

• EUR/CHF up from Thurs NY 1.1648 low. Plays 1.1680-1.1656 in Europe
• Above the 30-DMA at 1.1631 is bullish for the cross. Dble top now at 1.1722/23
• 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
• USD/CHF off from Tues 0.9853 high, 0.9850-0.9820 Wednesday range
• Price action is above the 200-DMa at 0.9804 which has been a pivot recently
• Rising daily Ichi cloud also supportive, top at 0.9793
• CH investor sentiment rises to 7-year high of 40.7 pts in Nov

EUR/GBP

• GBP continues to benefit from hopes of imminent Brexit divorce bill deal
• Cable extended north to 1.3431 (two-month high) during the European am
• Retreat from 1.3431 based two pips shy of 1.3388 (Tuesday’s high)
• 1.3221 was Tuesday’s low–before GBP boosted by Brexit-related optimism
• EUR/GBP fell to a 19-day low of 0.8837 during the European am
• UK Oct consumer credit growth cooled to 18mth low. GBP 1.45bn vs 1.5 f/c

USD/CAD

• USD/CAD helped to 1.2845 European am 27-day high by lower oil prices
• WTI 57.50/barrel, 50 cents lower on day (at 6am ET)
• 1.2825 (Tuesday’s high) is now a support point. 1.2808 = early Europe low
• Large 1.2850 option expiry Thursday, USD 1.26bln strike

AUD/USD

• AUD/USD fell to 1wk low of 0.7576 during European am as copper price fell
• Copper down to nine-day low of USD 6,761/tonne during the European am
• AUD/USD bids tipped at 0.7560 (0.7555 was Nov 22 low)
• More bids expected near 0.7532 (last week’s five-month low, Nov 21)

NZD/USD

• NZD/USD met headwind at 0.6930 after extending north from 0.6885
• 0.6885 = Asia base/low since Tuesday’s 18-day high of 0.6945
• AUD/NZD extended south to 6wk low of 1.0948 during European am
• 1.1035 was Asia high. 1.0962 was Tuesday’s low

FX OPTIONS

• Cable call options at the fore as sentiment turns to Brexit optimism
• Cable vols up, while the GBP put bias on risk reversals takes a hit
• EUR/USD risk reversals hold stong topside bias, market short above 1.2000
• USD/JPY option activity suggests more spot ranging expected near term
• Antipodean and CAD vols heavy with little to excite as spot ranges hold

COMMENT

Cable bulls’ dreams of 1.40 test might come true

Cable could extend north towards 1.40 into Q1 if the positive mood music over Brexit keeps playing through next month’s EU summit (Dec 14-15). GBP/USD rose two cents to a two-month high of 1.3431 in less than 24 hours on the back of Tuesday’s reports that Britain and the EU are close to a deal on the Brexit “divorce bill”. Positioning should be no barrier to further GBP gains: IMM specs held a virtually neutral position on the pound in the week to Nov 21. By way of comparison, the IMM net spec EUR long position was at a six-week high of 95,437 contracts in the week to Nov 21. GBP/USD was last at 1.40 shortly after Britain’s vote to leave the EU on 23 June 2016 (1.5022 was the high before the referendum result). 1.3980 was the recovery rally high from the 1.3228 low plumbed on 24 June 2016. 1.3659 marks the peak since that day (20 Sept 2017).

CHART FOCUS

USD/ZAR technical picture hints at supply fade

Still a case for a test of the 13.4313 daily cloud base but daily candles are beginning to highlight some market uncertainty and the some of the upside supply is fading away. Tuesday’s long lower wick candle and potential confirmation from a hammer today are likely to set a more bullish tone. Still much wood to chop this session but close could be pivotal. A close above the daily cloud and the 55DMA, 13.6694/13.7705 respectively, could shake up the short-term technical picture. Can’t ignore the heavily bearish weekly chart however, so fading rebounds is the favoured strategy. Price is deep inside the weekly Ichimoku cloud and eyes a band of support between 13.3470 30WMA and 13.4770 21WMA. Key resistance at 13.9963 weekly cloud top and 14.0395 100WMA line. ZAR Weekly

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