FX Market Update 18-1

Market Briefs

EUR/USD 0.38%, USD/JPY -0.04%, GBP/USD 0.22%, EUR/GBP 0.18%
DXY 0.09%, DAX 0.37%, FTSE -0.39%, Brent -0.1%, Gold 0.18%
Republicans in U.S. Congress rush to gain support to avoid shutdown
GB RICS Housing Survey Dec, 8, 0 f’cast, 0 prev
Republicans in U.S. Congress rush to gain support to avoid shutdown
China’s 2017 GDP growth accelerates for first time in 7 years
Euro zone bond yields head back towards multi-month highs, supply weighs
Oil holds near 2014 high, supported by threat of Nigeria attack
Gold inches higher as dollar pares gains

Looking Ahead – Economic Data (GMT)

13:30 Initial Jobless Claims (w/e Jan 13) (mkt 252k, prev 261k)
13:30 Continued Claims (w/e Jan 6) (prev 1.867 mn, a 44-year low)
13:30 Housing Starts (Dec) (mkt 1.275 mn SAAR, prev 1.297 mn SAAR)
13:30 Building Permits (Dec) (mkt 1.290 mn SAAR, prev 1.298 mn SAAR)
13:30 Philadelphia Fed (Jan) (mkt 25.0, prev 26.2)
16:00 EIA Weekly Petroleum Status Report
N/A Atlanta Fed GDPNow (Q4) (prev +3.3% q/q AR)

Looking Ahead – Events, Other Releases (GMT)

16:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $365 mn)
23:05 Fed’s Mester speaks on monetary policy; New York, NY
N/A IMF’s Lagarde speaks at a conference in Frankfurt

Currency Summaries


EUR/USD 1.2187-1.2223 in European session bereft of news or data
Worries about a U.S. Govt shutdown saw pair to 1.2287 in NA yesterday
Higher U.S. yields subsequently weigh as Asia trades down to 1.2165
U.S. Philly Fed data at 13.30GMT f/c 25.0 in Jan from 27.9 in December
Initial claims also 13.30GMT are f/c lower to 250k from 261k
EUR 2bln option expiries 1.2180-1.2220 may be anchoring spot ahead 15GMT cut


USD/JPY range has been 111.10-111.48 so far
Higher US yields and risk-on mood sees a higher USD/JPY than Wed
Model funds said to be major buyers, Japanese names took profit on longs
Further gains likely to be limited by 50% Fibo at 111.97
111.97 — 50% retrace of the 113.75 to 110.19 fall
Interim supply at calculated VWAP at 111.29 level and Thur’s 111.48 peak
Large NY cut expiries at 110.80 (1.5B), 110.00 (1.4B) may draw


Cable traded a 42 pip range through the European am, 1.3805-1.3847
1.3805 = pip under Asia low. 1.3847 = pip above high just after Ldn fix Weds
Hawkish shift in BoE expectations despite cable jump to 1.3942 Weds
25bp BoE hike in Sept close to being priced in (BOEWATCH/Eikon)
1.3942 = highest level for cable since Britain voted to leave EU
Reuters poll-20% chance of disorderly Brexit vs 25% in Dec and 30% in Oct


CHF a little firmer vs EUR and USD despite equity market rally
Cross hunkering down on the 10-DMA at 1.1750 from an indecisive Wed session
Fairly steady ebb and flow within the underlying updraft: 1.1833 key topside
SNB stance remains favourable for EUR/CHF bulls: 1.20 likely comfort level
Could afford a run to 1.1610 and still call a climb to the former SNB floor
USD/CHF engulfing line Wed but so far lacking any bullish confirmation Thurs
A new 2018 low at 0.9573 Wed and looked oversold but today’s close now key
Swiss Dec producer price data tomorrow, +1.8% previous
EUR/CHF Daily Chart: http://reut.rs/2DgscqX


USD/CAD traded a quarter-cent range thru European am, 1.2433-1.2458
1.2468 was Asia high, peak since Thursday’s NY afternoon low of 1.2372
Large 1.2460 option expiry for NY cut, USD 780mn strike


AUD/USD rose to 0.7988 during the European am, from 0.7942 Asia low
0.7942 was plumbed after profit-taking on long positions, from 0.8000
0.8000 was knee-jerk high after strong Aussie jobs data at 0030GMT
0.7941 = 38.2% of 0.7807 (Jan 9 low) to 0.8023 (Wednesday’s 17wk high)


NZD/USD rose to a high of 0.7304 during the European am
0.7246 was Asia low. 0.7331 was Wednesday’s 16-week high
AUD/NZD is holding below 1.10: 1.0990 was Asia high


EUR/USD consolidates, vol profits booked, but riskies hold firm topside bias

1-week expiry get ECB and EUR related vols opened higher as a result

GBP vols hold firm, 1mth GBP call bias record highs, 1.40 barriers eyed

USD/JPY vol setbacks limited despite 111.00 recovery, await BoJ Tues

AUD/USD vols remain firm with spot pushing new recent highs above 0.8000

USD/CAD vols settle lower after BoC risk premium priced out


EUR/USD rally has likely peaked for now as ECB eyed

Spot and option market pricing this week suggests that EUR/USD’s rally, which accelerated after key 1.2100 barriers were taken out, is likely to pause ahead of the ECB’s policy meeting next week . The market peaked at 1.2323 Wednesday before dropping back sharply to end under the previous day’s 1.2196 low at 1.2185. This key day reversal suggests that a top is in place. Option market pricing reinforces this view, with vol supply coming back to the market again as profits are booked on longs. The benchmark 1-month ATM implied vol sold good amounts at 7.2 and 7.1 today from 7.5 yesterday and a 7.85 high Monday (5.75 before 1.2100 barriers were erased). One-week option vols have stayed firm, however, with expiry rolling over the Jan 25 ECB meeting now . Risk reversals along the curve (implied vol premium for EUR calls over EUR puts) retain a strong topside bias (since 2009) to highlight option market fears of potential further EUR/USD gains over the near- to medium-term. EURUSD daily:


USD/JPY rebound should be stemmed by weekly cloud top

Despite USD/JPY’s strong recovery moves from Wednesday’s 110.19 low, last week’s bearish long black candlestick line still weighs heavily on the market and means the overall trajectory remains to the downside. Our expectation is for another test of the key 110.15 Fibonacci level — 61.8% retrace of the 107.32 to 114.73 (September to November) rise — which has so far managed to prevent a deeper decline this week. A break below 110.15 will expose 110.00 psychological level initially and then 109.07 — 76.4% of the same 107.32 to 114.73 gain. Our view is that traders should aim to get short close to the weekly cloud top, now at 111.74, in anticipation of an eventual drop. Our negative view holds while USD/JPY trades below the weekly cloud top. Only a close at the end of this week above the cloud will signal that the overall risk has shifted back to the upside


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