FX Market Update 26-1

Market Briefs

EUR/USD 0.52%, USD/JPY -0.32%, GBP/USD 0.72%, EUR/GBP -0.22%
DXY -0.58%, DAX 0.01%, FTSE 0.5%, Brent 0.2%, Gold 0.47%
Consumers, businesses seen buoying U.S. economic growth in Q4
UK economy unexpectedly picks up speed but Brexit effect felt
Trump to pitch America First to Davos elites
FR Business Climate Jan, 113, 112 f’cast, 112 prev
FR Consumer Confidence Jan, 104, 106 f’cast, 105 prev
GB GDP Prelim YY Q4, 1.5%, 1.4% f’cast, 1.7% prev
EU Money-M3 Annual Grwth Dec, 4.6%, 4.9% f’cast, 4.9% prev
EU Loans to Households Dec, 2.8%, 2.8% prev
EU Loans to Non-Fin Dec, 2.9%, 3.1% prev
ECB survey sees higher inflation in years ahead
Japan’s central bank in uneasy spot as inflation lags robust economy
Leaders promise swift end to Germany’s four-month limbo
Currency war is last thing world needs: ECB’s Coeure
Oil boosted by dollar weakness, but headwinds loom
Gold climbs back towards 17-month peak as dollar slides

Looking Ahead – Economic Data (GMT)

13:30 US Real GDP (Q4 advance) (mkt +3.0% q/q AR, prev +3.2% q/q AR)
13:30 US Real Final Sales (Q4 advance) (mkt +3.2% q/q AR, prev +2.4% q/q AR)
13:30 US Core PCE Price Index (Q4 advance) (mkt +1.7% q/q AR, prev +1.3% q/q AR)
13:30 US Durable Goods Orders (Dec) (mkt +0.9% m/m, prev +1.3% m/m)
13:30 US Core Capital Goods Orders (Dec) (mkt +0.3% m/m, prev 0.2% m/m)
13:30 US Advance Goods Trade Balance (Dec) (prev -$70.9 bn)
13:30 US Advance Wholesale Inventories (Dec) (prev +1.5% m/m)
13:30 US Advance Retail Inventories (Dec) (prev +0.9% m/m)
13:30 CA CPI Inflation YY (prev 2.1%)
13:30 CA CPI BoC Core YY (prev 1.3%)
16:00 CA Budget Balance, C$ (prev -035B)
16:30 CA Budget, Year-to-Date, C$ (prev-6.28B)
16:15 US New York Fed Staff Nowcast for Real GDP (Q1’18) (prev +3.07% q/q AR)
18:00 US Baker-Hughes Weekly Oil Rig Count (prev 747; -5 w/w, +196 y/y)

Looking Ahead – Events, Other Releases (GMT)

13:00 Trump speaks at World Economic Forum
16:00 Lagarde, Carney and Kuroda speak at World Economic Forum
16:45 FedTrade operation 30-year Ginnie Mae (max $760 mn)

Currency Summaries

EUR/USD

EUR/USD 1.2429-93 in Europe after wild 1.2364-1.2538 range Thursday
1.2538 peak follows ECB (stronger growth view, limited ref EUR)
1.2364 low after Trump pours cold water on the weak dollar story
Europe the calm after the storm ahead 1st release U.S. Q4 GDP
U.S. GDP 13.30GMT seen 3.0% but notable that all measures for pries are f/c higher
100-HMA @ 1.2347 looking pivotal below yest’s low
Dec 2014 high @ 1.2570 and 61.8% 1.3995-1.0340 drop at 1.2599 key above

USD/JPY

USD/JPY based 108.50 Thurs, recovery to 109.77 later in New York
Trump comments – Ultimately i want to see a strong dollar – fuelling rise
Recovery short lived, 109.17 in Asia, 108.92 early London
Falling hourly cloud resistance, base to 108.91 later before mild upturn
Decent Japan name bids remain from 108.50, resistance/offers from 109.70
Close below 100 week moving average 109.90 looking likely, bearish
Near term focus Trump Davos speech at 13GMT – Options pricing some volatility

CHF

EUR/CHF dropped heavily for three consecutive sessions
Large spec short CHF positions squeezed hard in NY and after steady ECB Thrs
SNB, through Jordan, again pointed to intervention if necessary
Into Europe Frid and cross maintains bear path just above the 1.1626 Thrs low
Daily chart buidling for 30DMA bolli, 100DMA and cloud base break
USD/CHF also trades off its Thrs low but remains heavy for Aug 2015 0.9260 low
More of an oversold look to the spot market but CHF path higher looks easier vs EUR
EUR/CHF Chart:

Cable extended north from 1.4084 to 1.4289 after UK Q4 GDP beat
Up 0.5% vs 0.4% f/c. 1.4084 was Thursday low after Trump talked up USD
1.4346 was Thursday’s 19mth high before Trump weighed in on USD
EUR/GBP fell to 0.8726 intra-day low after UK Q4 GDP beat
UK Q4 GDP is boost for hawks advocating BoE rate hike in May
BoE rate hike in Nov is consensus expectation

USD/CAD

USD/CAD extended south from 1.2391 to 1.2307 during the European am
1.2391 was Asia high. It was also Thursday high after Trump talked up USD
1.2283 = Thursday’s 18wk low, before Trump weighed in on USD
Canada Dec inflation data due 1330GMT. CPI f/c 1.9% y/y vs 2.1% in Nov
Few signs of progress during sixth round of NAFTA negotiations

AUD/USD

AUD extended north from 0.8005 to threaten 0.8100 during European am
0.8005 was Asia low after Trump talked up USD in Davos Thursday
0.8125 (Sept high) key resistance beyond figure. 0.8119 = Thursday high

NZD/USD

NZD/USD extended north from 0.7289 to 0.7374 during European am
0.7289 was Asia low after Trump talked up USD in Davos Wednesday
Offers expected near 0.7400 and 0.7435 (Sept high) if kiwi extends north
0.7392 was rally high after 0.7326 low on NZ CPI miss

FX OPTIONS

FX volatility is back for now as reflected in FX option markets

Big gains for implied vols in all the G10 majors, especially EUR/USD and GBP/USD
Coming from a very low base after months of spot inactivity and low realised
Low vols/short gamma also helping to drive the USD losses in major pairs of late
Implied vol setbacks have so far been limited, with markets remaining cautious

COMMENT

FX volatility genie is out the bottle

Higher foreign exchange volatility could persist through the month-end FOMC meeting after the USD was shaken and stirred by the U.S. Treasury Secretary and U.S. President this week. ECB chief Draghi took a swipe at Washington on Thursday for talking down the dollar–a few hours before U.S. President Trump talked up the dollar nL8N1PK1VF and nL2N1PK0AG. Draghi’s swipe at Washington during the ECB press conference came after Mnuchin welcomed a weaker dollar on Wednesday nL8N1PJ32N. On Friday, a senior U.S. administration official said “I don’t think there’s any daylight between the President and Mnuchin” on the USD nW1N1LZ00G. This week’s FX flux could result in more ‘short-term’ position taking on the USD into the Fed meeting, with ensuing position adjustments from profitable and losing trades helping feed volatility. IMM data due around 2100GMT Friday may show speculators increased their net short USD bets before Mnuchin spurred heavy selling of the greenback nL1N1PE1QX. Related comment: nL2N1PL0AT. USD index:

CHART FOCUS

EUR/CHF longer-term charts breaking to the downside

EUR/CHF longer-term charts breaking to the downside
Daily action points to the potential for extended losses but the weekly charts are already making a break for the downside. A breach of the 10WMA at 1.1700 and drop under a trend support line off Aug 18 w/e at 1.1685 set up the potential for a weak close on the week. Cross is within striking distance of the 21WMA at 1.1615 and 1.1614 38.2% Fibo off the 1.1259-1.1833 move, which was underpinned by the above mentioned trend line. The 50% retrace level at 1.1546 makes for a viable short-term target. Close to month-end and a potential hanging man candle could add further weight to the bear argument. Bear potential building on the dailies too with the market lining up a break of the 1.1620 lower Bollinger, 1.1618 100DMA and 1.1611 daily cloud base.

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