FX Market Update 22-1

Market Briefs

EUR/USD 0.37%, USD/JPY -0.06%, GBP/USD 0.43%, EUR/GBP -0.07%
DXY -0.17%, DAX flat, FTSE 0.06%, Brent 0.01%, Gold 0.18%
U.S. government workers awake to shutdown, Senate vote looms
UK economy will cope with Brexit hit as global economy grows-O’Neill
In Tokyo meeting, officials seek to forge ahead with TPP even as Canada wavers
German economy ends 2017 in “excellent” form: BuBa
Germany’s SPD wants Merkel to sweeten coalition deal
Catalonia’s ex-leader Puigdemont named candidate to lead region
Oil rises as Saudi Arabia says producers will cooperate beyond 2018
Gold inches down as dollar recovers after U.S. govt shutdown

Looking Ahead – Economic Data (GMT)

13:30 US Chicago Fed National Activity Index (Dec) (prev 0.15)
13:30 CA Wholesale Trade MM (Nov) (prev 1.5%)

Looking Ahead – Events, Other Releases (GMT)

N/A Draghi and Coeure participate in Eurogroup meeting
N/A Eurogroup finance minister’s meeting
14:00 IMF releases updated outlook for the world economy
16:45 FedTrade operation 30-year Ginnie Mae (max $760 mn)

Currency Summaries

EUR/USD

Dollar surprisingly little changed after U.S. Government shutdown
Senate set to vote at 17.00GMT
EUR/USD 1.2214-67 range in Europe, initially soft before recovering
EUR/USD opens higher at 1.2275 in Asia after closing 1.2215 last week
U.S. rate rise sees spreads to bunds widen further, (weigh EUR/USD)
Recent shift in spec positions reflects top-picking. Net long little changed
EUR 700mln @ 1.2200. No noteworthy data today. ZEW tomorrow
Support 1.2150. Resistance 1.2350. Consolidation continues. Trend firmly up

USD/JPY

USD/JPY holds own, steadies after push to 110.49 Fri on U.S. govt shutdown
BOJ to disappoint those eyeing policy shift on Jan 23
US yields rise support spot, some USD/JPY shorts squeezed
Support at 110.51 in early Asia, USD/JPY rises to hit 110.92 in early Ldn
USD/JPY a fade on rallies into tech supply above 111.00
Talk USD/JPY offers are thick from the 111.00 level upwards

CHF

EUR/CHF staged a decent recovery into the Friday close
Not out of the woods yet but a small reprieve for bull positioning
Test of longs met with Friday slide to 1.1715 before strong 1.1780 rebound
Easier from 1.1795 early Monday high: initial resistance at 1.18 Jan 17 high
Below 1.1672, Dec 29 low, and pain for bulls to intensify
SNB sight depo data shows domestic depos down but total higher nEONI1G0RW
SNB still sees CHF over valued, recent rhetoric: EUR/CHF above 1.20 likely to ease concern
USD/CHF also coming off a late Friday rally as U.S shut down impacts the Dollar
Friday low 0.9536, close 0.9647 and 0.9594-0.9635 Monday range

GBP

Cable rose to an intra-day high of 1.3915 during the European am
1.3857-1.3899 was Asia range (high before low). 1.3837 was Friday’s low
Offers expected ahead of 1.3950 (mooted option barrier level)
1.3942/45 was 19mth double-day highs last week (Jan 17/19)
Last week’s ascent to threaten 1.3950 was fuelled by US political concerns
US government still shut down Monday as Senate fails to clinch deal

USD/CAD

USD/CAD eased to a low of 1.2464 during the European am
1.2470-1.2520 was Asia range: 1.2520 = five-day high
1.2540 was Jan 17 high (day of BoC’s dovish hike)

AUD/USD

AUD/USD rose to an intra-day high of 0.8018 during the European am
0.7979-0.8003 was Asia range (high before low)
Offers expected near 0.8038 (Friday’s four-month high)

NZD/USD

NZD/USD rose to an intra-day high of 0.7308 during the European am
0.7268-0.7289 was Asia range. 0.7323 and 0.7331 are resistance levels
0.7323 was Friday’s high. 0.7331 was 17-week peak last week (Jan 17)

FX OPTIONS

Spot markets consolidates in to BoJ and ECB, little reaction to US Gov shutdown

Some short dated vol setbacks from Fridays highs, but limited buy by CB risk

Fears of further EUR gains apparent when looking at high EUR/USD call strike bias

JPY still wary of 110.00, at least over BoJ, favors low delta cheap JPY calls to cover

GBP wary of a 1.40 break, 1mth risk reversals multi year highs for GBP calls

COMMENT

Calm market should heed warning from 2013 US shutdown

The USD is relatively steady despite the U.S. government shutdown with its resilience likely linked to positioning . However, sanguine markets should take heed of what happened with the previous U.S shutdown five years ago. A lengthy 16-day shutdown in October 2013 saw the focus shift from a USD positive resolution to the potential longer-term damage to the U.S. economy. Interestingly the dollar traded higher through the 16-day shut down, the damage only coming on the day the shutdown was resolved. The index traded 79.627 Oct 3 to 80.754 on Oct 16. Reuters ran a story on Oct 17 highlighting the shift in focus from a budget deal to the effect of the shutdown on the economy and the prospects of a re-run in early 2014. That day the index fell 1.15% and lost another 0.75% in the following days to Oct 25, where the tide eventually changed. The key is the length of the shutdown and if the current impasse remains unresolved and becomes protracted, we may see a repeat of 2013. DXY Oct 2013 Chart

CHART FOCUS

GBP/USD bulls still have major Fibo in their sights

GBP/USD bulls maintain the upper hand as the market pulls away from the 1.3673 Fibo — 61.8% retrace of the (June to October 2016) 1.5022 to 1.1491 collapse — highlighting the upside scope for the 1.4000 psychological level. There is a strong possibility that cable could actually overshoot and test the 1.4189 Fibonacci level — 76.4% retrace of the same 1.5022 to 1.1491 collapse. The surge since the start of 2018 shows the overall bias has shifted decisively to the upside. GBP/USD is trading above the 30-week upper bollinger-band, currently at 1.3818, meaning the market is outside usual parameters. This is backed up by fourteen-week momentum which continues to issue positive readings. Only a weekly close back below the aforementioned 1.3673 Fibonacci level, will signal that the bull run is coming to an end.

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