FX Market Update 30-11

Market Briefs

• EUR/USD -0.14%, USD/JPY 0.4%, GBP/USD 0.35%, EUR/GBP -0.49%
• DXY 0.25%, DAX 0.78%, FTSE 0.25%, Brent 1.46%, Gold -0.17%
• GBP/USD recovery from Nov 28 1.3221 low reaches 1.3480
• EZ Inflation, Flash YY Nov, 1.5%, 1.6% f’cast, 1.4% prev
• EZ Infl Ex Food & Enr Flash Nov, 1.1%, 1.0% f’cast, 1.1% prev
• EZ Unemployment Rate Oct, 8.8%, 8.9% f’cast, 8.9% prev
• DE Unemployment Chg SA Nov, -18k, -10k f’cast, -11k prev
• DE Unemployment Total NSA Nov, 2.368M, 2.389M prev
• DE Unemployment Rate SA Nov, 5.6%, 5.6% f’cast, 5.6% prev
• DE Unemployment Total SA Nov, 2.476M, 2.495M prev
• DE Retail Sales YY Real Oct, -1.4%, 2.8% f’cast, 4.1% prev
• GB Nationwide House Prices Nov, 0.1, 0.2% f’cast, 0.2% prev
• GB Nationwide House Prices YY Nov, 2.5%, 2.7% f’cast, 2.5% prev
• FR CPI (EU Norm) Prelim YY Nov, 1.3%, 1.3% f’cast, 1.2% prev
• Swiss Q3 GDP growth picks up to 0.6 q/q, 1.2% y/y, above f/c
• Swiss KOF indicator rises to 110.3 in November vs rvsd 109.8
• OPEC, allies set to agree oil cut extension to end of 2018
• UK consumer sentiment sinks to 16-month low, house prices weak
• Oil edges up as OPEC signals deal extension
• Gold hits one-week low as positive US data weighs

Looking Ahead – Economic Data (GMT)

• 12:30 US Initial Jobless Claims (w/e Nov 25) (mkt 240k, prev 239k)
• 12:30 US Continued Claims (w/e Nov 18) (mkt 1.904 mn, prev 1.904 mn)
• 12:30 US Personal Income (Oct) (mkt +0.3% m/m, prev +0.4% m/m)
• 12:30 US Personal Consumption Expenditures (Oct) (mkt +0.3% m/m, prev +1.0% m/m)
• 12:30 US Core PCE Price Index (Oct) (mkt +0.2% m/m, prev +0.1% m/m)
• 13:00 CA Current Account C$ (Q3) (-19.50B f’cast, -16.32B prev)
• 13:45 US Chicago PMI (Nov) (mkt 63.0, prev 66.2)
• N/A US Dallas Fed Trimmed Mean PCE (Oct) (prev +1.8% y/y)
• N/A US Atlanta Fed GDPNow (Q4) (prev +3.4% q/q AR)

Looking Ahead – Events, Other Releases (GMT)

• 13:30 Fed’s Mester to chair panel at conf. – Washington
• 15:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.510 bn)
• 17:30 Fed’s Randal Quarles speaks at conf. – Washington
• 17:30 Eurogroup’ Dijsselbloem and Luxembourg’s Gaston Reinesch attend a conf. in Luxembourg
• 18:00 Fed’s Dallas President Kaplan participates in Q&A in Dallas

Currency Summaries

EUR/USD

• EUR/USD off from early London 1.1876 peak to 1.1831 ahead of EZ inflation data
• Data below f/c at 1.5 vs 1.6%, EUR briefly touched 1.1809, recovers 1.1830 since
• Draw from 2.8bln 1.1840-45 expiries NY cut. Pivots 10dma/daily Tenkan 1.1823/37
• Next supports 1.0805 (38.2% retrace of 1.1553-1.1961 rise). 100/55 DMA 1.1783/77
• Daily cloud spans 1.1786-1.1866. Options still buying topside cover above 1.2000
• Personal income, consumption key from US today, also core PCE 13.30GMT

USD/JPY

• USD/JPY range has been 111.89-112.48 so far, Ldn sold ahead of 112.50
• No talk of downside sell stops, some speculation long liquidation over
• Market has made a decent recovery from 111.88 to reach 112.44 so far
• Near-term bias is on upside, but solid tech resistance above
• Japanese importers and some investors countinue to buy on dip
• Daily close above 112.90 cloud top will signal that bulls are in control

EUR/CHF

• EUR/CHF offered through London, in line with a falling EUR/USD
• Plays 1.1694 to 1.1652 last. The 21-DMA is close support at 1.1639
• 30-DMA at 1.1634 remains key for the underlying uptrend. Close above required
• USD/CHF was up initially to 0.9882 but lower ahead of NY to 0.9849
• Expect the rising daily cloud top at 0.9833 to provide some support

EUR/GBP

• Further GBP gains Thursday on more Brexit optimism re: Times article
• Britain nears deal with EU in Irish border Brexit talks – The Times
• EUR/GBP down to four-week low of 0.8777 during the European am
• Low first plumbed after stops tripped on break below 0.8795 (200DMA)
• 0.8777 revisited after softer than expected EZ Nov inflation data
• GBP/USD up to new 2mth high of 1.3480 in Asia. 1.3448 = European am low

USD/CAD

• USD/CAD gushed to a 4wk high of 1.2900 during the European am
• CAD weakness precedes OPEC meeting in Vienna (starts 1100GMT)
• 1.2875 was Wednesday’s high as oil prices fell for a third day
• Above-figure resistance 1.2910-15 (late Oct/early Nov highs)
• Big 1.2850 expiry for NY cut, USD 1.4bln strike. 1.2857 = early Europe low

AUD/USD

• AUD/USD dropped to threaten 0.7557 (Asia low) during the European am
• 0.7592 was Asia high. 0.7552 was Wednesday’s eight-day low
• Additional supports 0.7532 (recent 5mth low) & 0.7500 (option barrier level)
• RBA is expected to keep its cash rate at 1.5% next week (Dec 5)

NZD/USD

• NZD/USD revisited 0.6833 (Asia 8-day low) during the European am
• AUD/NZD topped out just shy of 1.11 in Asia after rallying from 1.0990
• Kiwi losses influenced by big slide in ANZ business confidence index

FX OPTIONS

• 1mth expiry weighed by post X-mas and New Year holidays
• Near term event risk/vol support from NFP, FED, ECB, MPC, EU summit
• GBP call demand at the fore on Brexit optimism, 1.45 strikes seen
• EUR/USD calls remain bid, despite spot setback. JPY calls sold vs USD
• Big EUR/USD expiry at 1.1840-45 (2.8bln) and USD/CAD 1.4bln at 1.2850

COMMENT

Brexit sentiment will keep pound volatile in December

Brexit sentiment will keep GBP traders on their toes in December, beginning with Monday’s deadline for Britain to make an acceptable “divorce bill” offer to the EU, agree on the rights of EU citizens in Britain and ensure no hard border is set up with Ireland nL8N1NZ4QE. An EU summit follows on Dec 14-15, when the EU will decide if “sufficient progress” has been made on those “phase one” Brexit issues to open talks on a future EU/UK trade deal. The pound has risen in the past 48 hours on hopes Britain’s divorce bill offer will be acceptable and a hard border in Ireland can be avoided, with GBP/USD rising two-and-a-half cents to a two-month high of 1.3480 and EUR/GBP falling two pence to a four-week low of 0.8777. If the pound continues to rise against the euro, it would reduce the amount of euros the UK government needs to buy to settle its EU divorce bill (0.7743 = mid-point of EUR/GBP lifetime range).
GBP index:

CHART FOCUS

GBP/USD bulls have the 2017 peak in sight

GBP/USD continues to storm higher and there is potential for a full retracement to the 2017 peak from September 20 at 1.3659. The 61.8% Fibo of the September 1.3659 to 1.3027 drop at 1.3418 was breached Wednesday but did not manage to close above. The price has sailed through that level again today and bulls are hopeful of a close above 1.3418 on Thursday to open the path for a full retracement to the aforementioned 1.3659 peak. The 76.4% Fibo of the same 1.3659-1.307 fall is the next resistance level at 1.3510 for the bulls to overcome. On a note of caution cable has rallied above the upper Bollinger, around the 30-DMA. Historically price does not stray far or for too long outside the band and some corrective action could be seen ahead of a fresh leg north. The 30-DMA is support at 1.3219 and only a break back below there will deter the bears. Until then buying dips to rejoin the bull trend is the favored strategy.

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