FX Market Update 4-12

Market Briefs

• EUR/USD -0.33%, USD/JPY 0.74%, GBP/USD -0.31%, EUR/GBP 0.01%
• DXY 0.39%, DAX 1.14%, FTSE 0.7%, Brent -0.66%, Gold -0.54%
• DXY techs: breaks back inside daily cloud but capped at 93.355 100DMA
• EZ Sentix Index Dec, 31.1, 33.6 f’cast, 34.0 prev
• EZ Producer Prices MM Oct, 0.4%, 0.3% f’cast, 0.6% prev
• EZ Producer Prices YY Oct, 2.5%, 2.6% f’cast, 2.9% prev
• GB Markit/CIPS Cons PMI Nov, 53.1, 51.0 f’cast, 50.8 prev
• Japan consumer confidence at 4-year high on stocks, job market
• BOJ is resolved to keep ultra-easy policy, says Kuroda
• China says 2018 growth target to reflect new changes in economy
• Oil falls after US drilling picks up
• Gold price slides towards four-week lows, at risk from higher dollar

Looking Ahead – Economic Data (GMT)

• 13:45 ISM-New York Report on Business (Nov) (prev 51.6)
• 14:00 Factory Orders (Oct) (mkt -0.4% m/m, prev +1.4% m/m)
• 14:00 Factory Orders ex-Trans (Oct) (prev +0.7% m/m)
• 14:00 Core Capital Goods Orders (Oct) (prev -0.5% m/m)

Looking Ahead – Events, Other Releases (GMT)

• 11:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.510 bn)
• 12:00 Riksbank executive board meeting – Stockholm
• N/A ECB’s Draghi and Coeure participate in a Eurogroup meeting – Brussels

Currency Summaries

EUR/USD

• EUR/USD reversed early London 1.1865-37 dip, peaked 1.1878, settles 1.1850’s
• Seemingly lacking direction, awaits NY open. Daily cloud top supports 1.1833
• Bull bias remains intact whilst 30 Nov 1.1809 low holds, bids surround here
• DXY supported by US Tax plan advancement, but pinned to 92.50-93.50 range
• 100DMA caps DXY today 93.36. US/DE 10yr yield spread 206 vs early 209 wide
• Market looking ahead to data/risk events, props related vols leading to NFP, FED, ECB
• Risk reversals hold a clear topside bias, curve by multi year highs for EUR calls

USD/JPY

• Monday’s USD/JPY range has been 112.36-113.07 so far
• Capped by 113.13 cloud top & 113.25 Fibo — 61.8% of 114.73 to 110.85 fall
• USD/JPY knife edge, longs are exiting at lofty levels
• Spot collapsed to 111.40 on Friday Trump-Flynn headlines, before recovering
• There was a big spike in volume on EBS the hour USD/JPY collapsed to 111.40
• The sustained recovery since has been on meagre EBS volume Fri & Mon
• This highlights the fact that the recovery on Fri & Mon are not confirmed

EUR/CHF

• USD/CHF rose Monday from Friday’s 0.9736 low in line with a firmer dollar
• USD up across the board after U.S Senate tax plan approval over the weekend
• USD/CHF plays 0.9822-45 in Europe. 0.9780-0.9849 has been the day’s range
• Base of the daily Ichi cloud at 0.9731 lends support, propped Friday
• Top of the cloud is at 0.9865, could see a retest there
• EUR/CHF is higher after Friday’s massive drop fm 1.1737 to 1.1601
• Bidding interest naturally seen at fig & tech support from daily cloud
• The cloud is rising and spans 1.1486-1.1581 Monday. Break inside is unlikely
• 1.1615-1.16700 Mon, 30-D Bolli top @ 1.1710 is resist, then Fri 1.1737 peak
• 1.1737 = highest since 0.8500 was hit after the SNB removed the 1.20 floor
• Domestic sight depos fall w/e Dec 1, no need for SNB action

EUR/GBP

• Cable slid to 1.3418 in early London trade, before rallying to 1.3458
• 1.3432-1.3514 was Asia range (low before high)
• Bids expected near 1.3400 (1.3406 was Nov 30 low)
• GBP could drop sharply if no Brexit talks breakthrough Monday
• IMM specs flipped to net long GBP for 1st time in 4wks in week to Nov 28
• UK Nov construction PMI 53.1 vs 51.0 f/c. Follows UK mfg beat Friday

USD/CAD

• USD/CAD fell from 1.2726 to threaten 1.2683 during the European am
• 1.2683 was Friday’s low. 1.2673 was Nov 23 low. 1.2666 = Nov low
• BoC is expected to keep interest rates unchanged this week

AUD/USD

• AUD/USD met fresh headwind pre-0.7610 after rising from 0.7580
• 0.7580 = early Europe low. 0.7609 = European am high
• Offers ahead of 0.7610 also kept lid on pair in Asia
• More offers tipped pre-0.7650 (0.7645 was last week’s high)
• Large 0.7645 option expiry Tuesday, AUD 622mn strike

NZD/USD

• NZD/USD based at 0.6840 after extending south from 0.6913
• 0.6913 was Friday’s high after USD hurt by Flynn news
• RBNZ Governor Spencer to speak on Tuesday at 1.15pm local time
• “Low inflation and its implications for monetary policy”

FX OPTIONS

• Event risk a prop for shorter dated vols, NFP Friday, FED, ECB, BOE next week
• 2-week the favoured long as gets all risk events and EU leaders summit
• Brexit at the fore, PM May meets EU Barnier and Junker today, GBP vols bid
• EUR/USD risk reversals still firmly biased to EUR strength
• USD/JPY holds broader range to cap vol demand but JPY call bias pressured of late

COMMENT

USD/JPY bulls maybe stymied by decent supply above 113

While USD/JPY bulls are looking to seize control, there are still significant obstacles above which may lead to a reversal back below 112.00. There seems to be plenty of supply ahead of the daily cloud top at 113.13 and the important 113.25 Fibonacci level — 61.8% retrace of the 114.73 to 110.85 November fall. These technical offers are intermingled with those USD/JPY longs seeking to exit positions at these relatively elevated levels. While IMM net short yen positions as of November 28 fell from 122,602 to 110,640 contracts, this still represents a rather large equivalent cash position of US 12.4 billion. This has been mitigated to some extent by the net USD/JPY selling seen on EBS throughout last week and Monday, there are likely to be further significant sell offers and stops associated with these oversized longs which will likely limit further gains. Only a daily close above the 113.25 level will provide fuel bulls for the next leg higher. Mon’s EBS Flow Chart:

CHART FOCUS

USD/ZAR a story of two clouds

Slight conflict on weekly and daily clouds but on balance fading the daily cloud top with a modest objective and a stop and reverse tight above is the favoured strategy. Big down candle and break into the falling weekly cloud last week. Mild recoveries from a 13.5575 Nov 29 low weakened the bear candle but still have downside conclusions from weekly chart. Dailies contained and also have bearish pointers but with some caution. Price is within the 13.5483-13.8115 daily cloud but the cloud is thickening and rising and USD/ZAR is tracking the cloud top closely. There is room for the market to reach 14.0950, where the cloud starts to decline and thin on Dec 21. However, a couple of close to market hurdles in the form of 10 and 55DMAs at 13.8055 and 13.7985 respectively add to the bear potential

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