FX Market Update 24-1

Market Briefs

EUR/USD 0.29%, USD/JPY -0.69%, GBP/USD 0.69%, EUR/GBP -0.41%
DXY -0.47%, DAX -0.02%, FTSE -0.21%, Brent -0.21%, Gold 0.65%
Mnuchin welcomes weaker dollar as U.S. makes Davos investment push
Euro moves a side effect, not the objective of ECB policy: Draghi
EU Markit MFG Flash PMI Jan, 59.6%, 60.3% f’cast, 60.6% prev
EU Markit Serv Flash PMI Jan, 57.6%, 56.4% f’cast, 56.6% prev
EU Markit Comp Flash PMI Jan, 58.6%, 57.9% f’cast, 58.1% prev
DE Markit Mfg Flash PMI Jan, 61.2%, 63.0% f’cast, 63.3% prev
DE Markit Serv Flash PMI Jan, 57.0%, 55.6% f’cast, 55.8% prev
DE Markit Comp Flash PMI Jan, 58.8%, 58.6% f’cast, 58.9% prev
FR Markit Mfg Flash PMI Jan, 58.1%, 58.7% f’cast, 58.8% prev
FR Markit Serv Flash PMI Jan, 59.3%, 58.9% f’cast, 59.1% prev
FR Markit Comp Flash PMI Jan, 59.7%, 59.4% f’cast, 59.6% prev
GB Claimant Count Unem Chng Dec, 8.6K, 5.4k f’cast, 5.9k prev
GB ILO Unemployment Rate Nov, 4.3%, 4.3% f’cast, 4.3% prev
Euro zone deficit drops to lowest level in Q3 2017
Gold hits 5-month peak after U.S. welcomes weaker dollar

Looking Ahead – Economic Data (GMT)

12:00 MBA Mortgage Application Indices (weekly)
14:00 FHFA House Price Index (Nov) (prev +0.5% m/m, +6.6% y/y)
14:45 Markit Manufacturing PMI (flash Jan) (mkt 55.0, prev 55.1)
14:45 Markit Services PMI (flash Jan) (mkt 54.0, prev 53.7)
15:00 Existing Home Sales (Dec) (mkt 5.70 mn SAAR, -1.9%, prev 5.81 mn SAAR, +5.6% m/m)
15:00 ISM issues annual revisions for PMI data
15:30 EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

16:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $295 mn)

Currency Summaries

EUR/USD

EUR/USD opens 1.2325 then trades 1.2304-56 in Europe
Early lows followed by new trend high after PMIs and Mnuchin comment
U.S. Treasury’s Mnuchin said weak USD good for trade [nL8N1PJ1EG]
EZ manufacturing PMI pulls back for record high but service sector up
EZ composite PMI at decade high 58.6 in Jan (F/c 57.9 last 58.1)
Sights turn to U.S. existing home sales and PMI data 15/14.45GMT

USD/JPY

Deeper losses likely to 30-wk lower BB at 108.60 eventually
Wed’s 110.33 to 109.39 fall significant so far as decent volume seen
Broad dollar weakness saw spot drop through 110.00 major option barrier
Stops below 110.00 were tripped, corporate bids slowed decline
Japanese corporate 109.50/80 bids have been filled

CHF

Broad Dollar decline has seen the CHF benefit significantly
EUR/CHF dives back towards the key January 19 1.1715 low
A two-day tumble from 1.1796 to 1.1728 and easy bias holding into New york
Former SNB 1.20 floor still a viable target but possibly not while the USD has its demons
USD/CHF raced through its 30DMA lower Bollinger at 0.9532 to reach 0.9504 4-mth low
September 0.9422 lows a viable target as bears tighten their grip on the Dollar
A break and close above 0.9705 needed to reverse the downtrend

GBP

Cable extended north to new 19mth high of 1.4118 during the European am
Stops above 1.4050 and 1.4100 (option barrier levels) tripped en route
Ascent aided by Mnuchin and unexpected UK employment surge
US Treasury Secretary welcomes weaker USD (Mnuchin spoke in Davos)
UK employment up 102k in 3 months to Nov vs -13k Reuters poll forecast
EUR/GBP down to 0.8750 (lowest level since Dec 8) after UK jobs data

USD/CAD

USD/CAD fell to a 17wk low of 1.2342 during the European am
Losses influenced by US Treasury Secretary welcoming weaker USD
Mnuchin spoke in Davos. 1.2398-1.2428 was USD/CAD range in Asia
1.2345/50 option expiries for NY cut, USD 672mn strikes

AUD/USD

AUD/USD rose to an 18-week high of 0.8072 during the European am
Stops above 0.8050 were tripped en route to that high
Ascent influenced by US Treasury Secretary welcoming weaker USD
0.8031 was early Europe high, before Mnuchin spoke in Davos
LME copper back up to 7k during European am after sliding through Tuesday

NZD/USD

NZD/USD rose to an 18-week high of 0.7404 during the European am
0.7349-0.7378 was Asia range. Rise to 0.7404 influenced by Mnuchin
US Treasury Secretary welcomes weaker USD (Mnuchin spoke in Davos)
0.7435 (Sept high) and 0.7500 are NZD/USD resistance levels

FX OPTIONS

Weaker USD driving volatility as more key levels erased
EUR/USD next target 1.24 barriers, short cover demand for vol early London
Cable vols ramped to new Jan highs as 1.4100 barriers erased, GBP calls at 9yr highs
USD/JPY grinds lower after 110 breach keeping vols and USD puts supported
Focus on ECB to keep EUR related vols high, O/n EUR/USD break-even 92 pips

COMMENT

Weak USD, Brexit hopes favour cable rise to 1.50

The stars are aligning for a GBP/USD rise to 1.50 this year, helped by the beaten-down dollar and easing Brexit concerns. Cable was last at 1.50 on Brexit referendum day (June 23 2016), before the pound slumped on Britain’s vote to leave the EU. It scaled a new 19-month peak for the fourth trading day in a row Wednesday, 1.4118, as negative sentiment towards the USD continues. U.S. Treasury Secretary Mnuchin welcomed the weaker dollar when he spoke in Davos on Wednesday, and this bodes well for cable bulls hoping that the remaining 6% gap between 1.4118 and the Brexit referendum day high will soon be closed. Hopes of a relatively smooth Brexit are also helping sterling, with Brexit minister Davis saying he expects Britain and the EU will agree to a transition deal by end-March. The unexpected surge in UK employment to a record high in the three months to November is also GBP-positive, as it increases the probability of another BoE rate hike as early as May. GBPUSD: http://reut.rs/2DvoPMO

CHART FOCUS

Dollar decline opens up resistance levels on Gold

The bullish resumption could have legs for a return to the 1374 July high as the current exodus from the dollar has thrown up some interesting technical developments in the gold price. December price action recorded a bull signal in the form of a hammer candle and the required bullish confirmation is well underway in January. Monthly charts also show another run through the 100MMA, currently 1342, having failed to hold a break back in September. A January close above the average would bring the upper 30MMA Bollinger into play, currently 1394 and the monthly cloud top at 1424. Weekly action already at its upper Bollinger, 1351, and just shy of the last significant peak at 1357 from August. Weekly charts suggest scope for better buy levels but pull backs likely to be limited. On dailies the underlying bull trend off the December 12 hammer candle reversal is now exploiting the period of consolidation seen between January 15 and 22, which supports the trend continuation argument.

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