FX Market Update 15-1

Market Briefs

• EUR/USD 0.78%, USD/JPY -0.41%, GBP/USD 0.52%, EUR/GBP 0.18%
• DXY -0.67%, DAX -0.42%, FTSE -0.14%, Brent -0.09%, Gold 0.36%
• DXY working through tech suport, eyes 200MMA at 88.295
• Euro holds three-year highs as dollar weakens further
• EZ Eurostat Trade NSA, Eur Nov, 26.3B, 18.9B prev
• Berlin and Paris step up push for euro zone reform deal
• BOJ Kuroda’s optimism on economy, price outlook sends yen to 4-month high
• China c.bank injects 398 bln yuan via MLF, citing tight liquidity
• Oil hovers below $70 highs, clouded by rise in U.S. output
• Gold hits over 4-mth high as dollar index slumps to 3-yr lows

Looking Ahead – Economic Data (GMT)

• No data scheduled as markets are closed for Martin Luther King, Jr. Day

Looking Ahead – Events, Other Releases (GMT)

• 18:15 BoE’s Silvana Tenreyro speaks at Queen Mary University, London

Currency Summaries

EUR/USD

• EUR/USD’s rapid rise is maintained in Europe with pair up to 1.2296
• Europe opened 1.2224 after Asia traded 1.2188-1.2241 range
• NA traded 1.2218 peak Jan 12 (1.2110 low and 1.2125 open)
• Fast pace of move today in part due poor liquidity thanks US MLK holiday
• Option market thought to be short gamma and generating more EUR buying
• Rates move in opposition to EUR/USD rise today wider US/German yield spreads
• 2’s 3bp wider. 10’s 4 wider but i/rates ignored for time being
• EUR longs also grow net long EUR 18bln from 16bln
• Rise mainly due to paring of short bets, reduced by EUR 1.5bln

USD/JPY

• USD/JPY weak, scope for losses to 110.15 — 76.4% Fibo 107.32-114.73
• Stops below Nov 110.85 low triggered, spot falls from 111.18 to 110.52
• Talk more stops below 110.15 and 110.00 with Japan life insurers in wait below

CHF

• Slightly softer tone early Monday but higher levels calling
• EUR crosses generally holding a bid and likely to limit EUR/CHF decline
• Much talk of the cross closing the gap to former SNB 1.20 floor
• Little reason for the bull run to stop unless the ECB attempts to curb EUR gains
• EUR/CHF continues to respect a long-term support line, today at 1.1690
• SNB sight depo increase latest week for both domestic and total
• USD/CHF sharply lower in line with broad USD fall: 0.9565 Sept 15 low supp.

GBP

• Cable extended north to 1.3819 during European am on fresh USD selling
• 1.3819 = highest level since Britain voted to leave EU (on 23 June 2016)
• 1.3770 (Asia high) is now a support point. 1.3728 was Asia low
• Asia high was 3 pips shy of 23.6% of 2.1162 (2007 top) to 1.1491 (2016 low)
• Boris Johnson fears “waste of time” watered-down Brexit – report in The Sun
• Sun said Johnson told friends “I’d rather have us stay in than leave like that”

USD/CAD

• USD/CAD fell to a six-day low of 1.2405 during the European am
• Drop courtesy of fresh across-the-board selling of the greenback
• 1.2438-1.2472 was Asia range. 1.2459 was pre-weekend low
• BoC meeting Wedneday: 76% chance of hike-BOCWATCH/Eikon

AUD/USD

• AUD/USD rose to a fresh 16-week high of 0.7967 during the European am
• 0.7960 was Asia high. 0.7925 was Friday’s high. 0.7900 was Asia low
• IMM speculators flipped to net long AUD position in week to Jan 9
• Specs held biggest net AUD short for 23 months in week to Jan 2

NZD/USD

• NZD/USD extended north to threaten 0.73 during the European am
• 0.7298 = 16-week high. 0.7282 was Asia high. 0.7278 was Friday’s high
• IMM specs maintained net NZD short position in week to Jan 9
• 11th consecutive week for net NZD short (after 20 weeks net NZD long)

FX OPTIONS

• Vols up across the board, EUR/USD curve outpaces others in G10
• Market short topside, vols and EUR calls continue to gain with spot, 1.25 eyed
• GBP vols much higher too with 1.3700 and 1.3800 barriers erased. 1.40 targeted
• USD/JPY 110 barriers vulnerable. 1mth vol 1.5 above recent and 3-year lows
• Noted buyers for 23 Jan BoJ and 25 Jan ECB risk cover

COMMENT

Speculators turn net AUD position on its head, again

AUD/USD bulls may find the pair faces steeper hurdles to jump to get to 0.81 than it has during its one-and-a-half cent rise over the past week, given the latest positioning shifts by speculators. IMM gross AUD shorts were slashed by 18,312 contracts to 46,889 in the week ended January 9, with gross AUD longs simultaneously upped by 7,172 contracts to 52,347. This flipped the net position to long AUD from the biggest AUD short for 23 months. With AUD/USD having finally vaulted the key 0.7900 resistance level on Friday, the next IMM data may show a further decline in gross AUD shorts. The last time the market was net long AUD before January 9 was in the week ended December 12–ahead of the largest positioning shift against the AUD since 2007. AUD/USD has risen to a 16-week high of 0.7966 Monday: stops on residual shorts may be sheltering above 0.8000. AUD IMM:

CHART FOCUS

GBP/USD surge means another major Fibo now in view

Last week’s GBP/USD surge shows the overall bias has shifted decisively to the upside. Our view is that cable is still adjusting to a higher equilibrium which is likely to be near the 1.4000 psychological level. GBP/USD is trading above the 30-week upper bollinger-band, currently at 1.3723, meaning the market is outside usual parameters. There is a strong possibility that cable could actually overshoot an test the 1.4189 Fibonacci level — 76.4% retrace of the 1.5022 to 1.1491 (June to October 2016) collapse. The close at the end of trading on Friday Jan 12 above the 1.3673 Fibo — 61.8% retrace of the same 1.5022 to 1.1491 fall — was a very bullish signal. This is backed up by fourteen-week momentum which continues to issue positive readings. If the market fails to perform another weekly close above the aforementioned 1.3673 Fibonacci level, this might be an early warning that the bull run is coming to an end. Long-Term Fibonacci

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