FX Market Update 23-1

Market Briefs

EUR/USD -0.05%, USD/JPY -0.41%, GBP/USD -0.22%, EUR/GBP 0.18%
DXY -0.02%, DAX 0.53%, FTSE 0.11%, Brent 0.25%, Gold 0.31%
DE ZEW Economic Sentiment Jan, 20.4%, 17.8% f’cast, 17.4% prev
DE ZEW Current Conditions Jan, 95.2%, 89.8% f’cast, 89.3% prev
GB CBI Trends- Orders Jan, 14%, 12% f’cast, 17% prev
GB PSNB, MM GBP Dec, 0.979B, 4.4B f’cast, 8.118B prev
Asia fears U.S. tariffs on washing machines, solar panels just the start
Euro zone banks see rising loan demand in Q1: ECB survey
Japan’s cenbank keeps policy unchanged, talks down prospect of near-term stimulus end
Oil rises on IMF world growth outlook, OPEC-led supply curbs
Gold rises as dollar dips, stocks hit highs

Looking Ahead – Economic Data (GMT)

08:30 Philadelphia Fed Nonmanufacturing Business Outlook Survey (prev 18.1)
08:55 Redbook Same-Store Sales Index (weekly) (prev +2.6% y/y)
10:00 Richmond Fed Manufacturing Index (Jan) (prev 20)

Looking Ahead – Events, Other Releases (GMT)

N/A ECB Vice Pres Constancio attends a ECOFIN meeting
N/A EU Economic and Financial Affairs Council meeting
14:00 IMF releases updated outlook for the world economy
15:00 Senate Committee to decide on Marvin Goodfriend’s Fed membership
16:45 FedTrade operation 30-year Ginnie Mae (max $760 mn)
23:30 Fed’s Charles Evans to attend a conference in Chicago

Currency Summaries

EUR/USD

EUR/USD 1.2223 low when EUR/JPY plunges 136.21-135.32
EUR/JPY drop follows Kuroda comments and unchanged BOJ decision
Small rebound follows with 1.2254 high after strong ZEW survey
Asia range 1.2239-77. Europe 1.2223-70. NA 1.2224-63
ZEW 20.4 in Jan from 17.4 (20.6 2017 high)
Current conditions soar from 89.3 to all time high 95.2
EZ consumer confidence @ 15GMT f/c 0.6%. All-time high 2.4
EUR 920mln vanilla option expiries at 1.2200-10 today

USD/JPY

USD/JPY initial rise limited despite BoJ reaffirming easing
Limited reaction to Kuroda, overall USD/JPY trajectory remains on downside
USD/JPY peaked at 111.18, as large supply above caps gains, 110.39 the low
USD/JPY longs remain at risk of deeper squeeze
USD/JPY 110.00 option barriers vulnerable

CHF

EUR/CHF continues its gradual accent towards the key 1.20 level
Friday and Monday gains keeping the bull bias alive
Early Tuesday and a mild pullback from 1.1798 Monday high
German coalition hopes and frothy stock markets helping underpin
Support at 1.1717 and former SNB 1.20 floor the upside focus
USD/CHF bearish continuation on daily charts holding: range tightens
U.S government budget position, BoJ policy stance and SNB CHF view in play

GBP

Profit-taking on longs helped deflate cable to 1.3936 during the European am
1.4005 was Asia top, high since Brexit referendum day (23 June 2016)
UK regulator puts brake on Murdoch’s USD 15.7bln Sky deal
EUR/GBP rose from 0.8762 to 0.8785 during the European am
0.8762 = fractionally fresh 5wk low. 0.8763 was Monday’s low and Asia low
UK Dec public finance boosted by EU credit, surging VAT receipts

USD/CAD

USD/CAD rose to an intra-day high of 1.2490 during the European am
1.2520 and 1.2540 are resistance levels beyond 1.2490/1.2500
Latest NAFTA talks gets underway in Montreal today (Tuesday)

AUD/USD

AUD/USD extended south to a low of 0.7957 during the European am
0.7982 was Asia low after latest fail pre-0.8038 (Friday’s 4mth high)
Bids mooted around 0.7951 (10DMA), stops tipped sub-0.7937 (Jan 16 low)
More stops expected sub-0.7900. Huge 0.7900 option expiry next week

NZD/USD

NZD/USD retreated to a low of 0.7307 during the European am
0.7355 was four-month high in Asia (0.7331 was last week’s high)
AUD/NZD extended south to 11-day low of 1.0873 during the European am
NZ Q4 CPI due Wednesday 2145GMT. CPI f/c +1.9%, as per Q3

FX OPTIONS

Vols broadly softer as G10 spot markets hold to ranges near term

Some interest to cover downside EUR/USD shorts to 1.21, post ECB expiry

USD/JPY vol setbacks limited after BoJ with 110 barriers still vulnerable

GBP profit takes outweighed demand after 1.40 breach, options still biased higher

AUD 2.5bln 0.7900 expiry Monday a potential draw/support if setbacks persist

COMMENT

ECB speculation likely to support EUR/JPY post-BOJ

EUR/JPY should remain well supported ahead this week’s ECB decision after the BOJ left policy unchanged, dashing the hopes of those who believed a hawkish shift was in the air. Attention now turns to the ECB and although a strong EUR may throw a similar spanner in the works of anyone who expects ECB rhetoric to be less dovish, there is still certain to be speculation of such a shift going into Draghi’s press conference Thursday. This is likely to prop up EUR/JPY and dips like that which have followed today’s BOJ are likely to be seen as buying opportunities. The pair dropped 136.20-135.32 after the BOJ decision. With traders very long euro and the pair close to its 2018 peak at 136.52, that’s hardly a surprise. The pullback stopped close to the first meaningful techs, the 200-HMA at 135.37 and 21-DMA 135.15. Lows of the last seven days have fallen short of 135.00. A rebound to test the depth of option defence ahead of 137.00 may follow. EUR/JPY daily:

CHART FOCUS

EUR/GBP due reversal as big black candles weigh

Monday and last Wednesday saw the two longest black candlestick real bodies since EUR/GBP traded within the 0.8690-0.8927 (December to January) rise, marking a negative turn in the market. A black candlestick is where the market closes below the open, while the real body is the difference between the daily open and the daily close. The underlying bias is for an eventual test of the 0.8746 Fibonacci level — 61.8% retrace of the 0.8690 to 0.8927 gain — as the cross accelerates away from the daily cloud which currently spans the 0.8816-0.8862 region. The daily close below the 0.8781 Fibo level — 61.8% retrace of the 0.8690 to 0.8927 rise – highlights the underlying bearish market structure. If the market manages to close back above the 0.8781 Fibo, however, the break below it will be considered to be false and will signal that the bearish cycle is coming to an end

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