FX Market Update 11-12

Market Briefs

• EUR/USD 0.27%, USD/JPY -0.08%, GBP/USD -0.09%, EUR/GBP 0.33%
• DXY -0.14%, DAX 0.17%, FTSE 0.66%, Brent 0.17%, Gold 0.26%
• FR Retail Sales SA MM Oct, -1.00%, 0.90% prev
• FR Retail Sales NSA YY Oct, -2.10%, 3.40% prev
• Germany-US yield gap near 8-month high as central bank meetings loom
• Powell faces early test of policy view as tax cuts near approval
• Britain’s May hails new optimism in Brexit talks after deal
• Oil prices slip under shadow of US drilling
• Gold edges up; looming US rate hike weighs on momentum

Looking Ahead – Economic Data (GMT)

• 14:00 JOLTS (Oct) (prev job openings level 6.093 mn)
• 14:00 Employment Trends Index (Nov) (prev 135.6)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.405 bn)

Currency Summaries

EUR/USD

• EUR/USD gets a small boost to 1.1801 in Europe after opening 1.1780
• Asia range 1.1761-1.1791. Europe 1.1775-1.1801. Bullish signs in derivatives
• Euro cross ccy basis swaps reverse lower. 5 yr 5 yr inflation swaps higher
• EUR/USD capped close site EUR 1bln vanilla option expiries @ 1.1800
• One-mth sinks below 6. Nov low 5.3 may encourage eur shorts to fund carry
• Closing break from daily cloud needed to excite. Cloud 1.1716-1.1833

USD/JPY

• Market heavy and is trading near the base of Mon’s 113.33-69 narrow range
• Struggling to make headway above cloud top, now @113.52, after Fri’s break
• If there is break above 113.69, might be limited to 113.81 Fibo
• 113.81 — 76.4% retrace of the 114.73-110.85 fall
• Could see dips to 113.00-20 region, USD 1.5B worth of NY cut expiries
• EBS sales seen last week has extended into Mon’s trading

CHF

• Spot fail (0.9978) ahead of parity and 61.8% of 1.0343-0.9421 drop @ 0.9991
• Profit taking a theme given decent run up from 0.9736 Dec 1 low
• EUR/CHF still pretty much sideways abv day cloud and short to med-term avgs
• Loss of upside momentum ahead of 1.20 former SNB floor
• USD/CHF hanging man/shooing star candle Frid: Set up bearish Monday start

EUR/GBP

• Cable up to 1.3432 then down to 1.3342 in early European trade
• 1.3432 was also Friday’s post-US jobs data high
• More EUR/GBP shorts squeezed during European am climb to 0.8840
• 0.8774 = early Europe low. 0.8806 = Friday’s high after prior short-covering
• IMM gross GBP positions upped by a third in week to Dec 5
• Gross GBP longs & shorts both upped by more than 20k contracts

USD/CAD

• USD/CAD has traded 32 pip range thus far Monday: 1.2832-1.2864
• 1.2880 (Friday’s high) & 1.29 are resistance levels beyond 1.2864
• Large 1.2900 option expiry for 10am ET NY cut, USD 580mn strike

AUD/USD

• 0.7536 = high water-mark for AUD/USD since 0.7500 threatened in Asia
• 0.7500 is an option barrier level (option-related demand ahead)
• AUD/NZD down to 1.0865 (10wk low) after Orr named new RBNZ chief
• 1.0985 was Asia high, before Orr news boosted NZD

NZD/USD

• NZD/USD extended north to test 0.6930 (Nov 29 high) early Europe
• 0.6930 tested as continent digested Orr to be new RBNZ Governor news
• 0.6836 was Asia low, before NZD rose on Orr news
• 0.6945 (Nov 28), 0.6980 & 0.70 are additional resistance levels

FX OPTIONS

• Limited risk premiums priced over this weeks plethora of CB events
• Spot market mostly rangebound, with little expectations of a break-out
• Leaves vols heavy as markets wind down in to X-mas holidays
• EUR/USD and USD/JPY 1-month expiry vols just 0.5 above multi year lows

COMMENT

Bitcoin – Low volume/strong gains for bitcoin futures

CBOE bitcoin futures trading helps to open speculation to a wider range of players while also proving the ability to lower the frictions in shorting the digital currency. So far the shorts have stayed away. We already have a very volatile and illiquid underlying market and this is now joined by a futures contract that is equally volatile and illiquid. On the latter the front month bitcoin future saw trading volume of 2,700 contracts with Feb (12 contracts) and Mar (47 contracts) having limited volumes.

In terms of price action, the front month contract opened at $15,400 and after a brief dip went all the way to $18,140. While we talk of bitcoin it is important to realise that in addition to the daily volatility, its price on different exchanges and the futures contracts from CBOE and CME are cash settled and cannot settle bitcoin. The availability of futures contracts thus allows increased speculation as opposed to the use of bitcoin for transactions.

These are early days and speculative interest remains strong with more and more mom/pop type of investors still looking to get a slice of the action. The CME will make its offering next week on Dec 17 and there is much focus on how long before a bitcoin ETF is introduced. The spread between the Jan and the Feb/Mar contracts is around $1,500 with the premium of the Jan contract over spot at $1,200. Volumes might be low initially but most will want to see how the futures trade over the first few days before dipping their toes into the waters.

CHART FOCUS

EUR/USD bulls tighten grip and aim for cloud top

EUR/USD scope is for eventual gains for another test of November’s 1.1961 peak, which is just below 1.1965 — 76.4% retrace of the 1.2092 to 1.1553 (September to November) fall. Bulls are in control after a dragonfly doji formed on Friday’s candlestick line, its long tail signaling a rejection of the downside. Tenkan and kijun lines are positively aligned, further reinforcing the upside bias. There is interim supply at the daily cloud top now at 1.1833, which might disrupt gains, but this is likely to be temporary. Support has swelled ahead of 1.1709 — 61.8% retrace of the 1.1553 to 1.1961 November gain. The market failed to register a daily close below 1.1757 — 50% of the same 1.1553 to 1.1961 rise — despite the break on Friday. Only a daily close below the 1.1757 Fibonacci level will weaken the scope for a break of the cloud top

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