FX Market Update 30-1

Market Briefs

EUR/USD 0.27%, USD/JPY -0.35%, GBP/USD 0.09%, EUR/GBP 0.19%
DXY -0.17%, DAX -0.48%, FTSE -0.5%, Brent -0.19%, Gold 0.34%
EU Consumer Confid. Final Jan, 1.3, 1.3 f’cast, 1.3 prev
EU Business Climate Jan, 1.54, 1.69 f’cast, 1.66 prev
EU Services Sentiment Jan, 16.7, 18.6 f’cast, 18.4 prev
EU Industrial Sentiment Jan, 8.8, 9.0 f’cast, 9.1 prev
EU Economic Sentiment Jan, 114.7, 116.3 f’cast, 116.0 prev
EU GDP Flash Prelim YY, 2.7%, 2.7% f’cast, 2.6% prev
EU Cons Infl Expec Jan, 19.6, 13.6 prev
FR GDP Preliminary QQ Q4, 0.6%, 0.6% f’cast, 0.6% prev
FR Consumer Spending MM Dec, -1.2%, 0.3% f’cast, 2.2% prev
IT Consumer Confidence Jan, 115.5, 116.3 f’cast, 116.6 prev
IT MFG Business Confidence Jan, 109.9, 110.3 f’csat, 110.5 f’cast
Japan’s robust labour demand bolsters outlook for wage hikes, inflation
China’s factory growth seen fading slightly in January
Oil buckles as stronger dollar bites into risk-linked assets
Gold drops on firmer dollar, higher bond yields

Looking Ahead – Economic Data (GMT)

13:55 Redbook Same-Store Sales Index (weekly) (prev +3.8% y/y)
14:00 S&P CoreLogic Case-Shiller 20-City HPI (Nov) (mkt +6.4% y/y, prev +6.4% y/y)
15:00 Consumer Confidence (Jan) (mkt 123.0, prev 122.1)
15:00 Homeownership Rate (Q4) (prev 63.9%)

Looking Ahead – Events, Other Releases (GMT)

15:30 Carney appears before House of Lords Economic Affairs Committee
16:30 ECB’s Mersch speaks at Frankfurt
16:45 FedTrade operation 30-year Ginnie Mae (max $840 mn)
18:00 FOMC begins two-day policy meeting

Currency Summaries


EUR/USD lower initially to 1.2335 after stock dump inspires profit taking
1.2335 lowest for correction from 1.2538 but shy 38.2% Jan rise at 1.2300
Pair based just ahead 200-HMA at 1.2333 then rebounds to 1.2408
EZ Q4 GDP a super strong 2.7% but that was expected
Data miss was EZ business climate, 1.54 vs 1.69 f/c. Dec rev 1.6 from 1.66
German Sate CPI were mixed. Saxony/Hesse surprisingly weak. BB/Bavaria up yy
EUR/USD meets resistance around 100/55-HMAS 1.2410/1.2405


Underlying bias bearish, 30-day BBs highlight volatile mkt
USD/JPY faces deeper fall, Sept 2017 low beckons
USD/JPY is being held up by bids that have reemerged at the 108.50 level
Monday’s 108.51 low propped up the market, upside offers at 109.20/30
Market nervous, note option vols are still gaining
Session range has been 108.59-109.20 so far this session


EUR/CHF recovered some composure into the Monday close but pressure returns
Chart watchers point to a hammer candle, bullish, but so far Tues signal lacks confirmation
Monday low at 1.1540 and close up at 1.1636 and a 1.1614-1.1568 Tues range
No sign of SNB at these relatively elevated levels but a deeper decline might cause concern
USD/CHF loss consolidation as the Dollar licks its wounds but spot looks heavy
Last week’s low at 0.9290 key support and Jan 26 0.9430 high the topside hurdle


Cable tripped stops sub-1.4025 & 1.4000 en route to 1.3980 early Europe
1.3980 = eight-day low. Simultaneous EUR/GBP rise to 0.8833 (8-day high)
GBP weakness influenced by Brexit and UK political concerns
UK will be worse off in every Brexit scenario, govt analysis says-BuzzFeed
Cable ascent from 1.3980 to 1.4105 influenced by EUR/USD gains
Sun-Fox tells eurosceptics to live with disappointment/accept softer Brexit


USD/CAD 1.2323-1.2378 today. Support Mon/Fri lows 1.2306, 1.2294 lows
Resistance Fri/Thurs highs 1.2391. NAFTA talks slow and ongoing, weigh on CAD
CAD weakness countered by broader month end USD sales


AUD/USD 0.8043-0.8101 Tues, helped by month end USD sales
Resistance Mon/Fri highs 0.8118/36. May 2015 high is 0.8164
Support daily Tenkan 0.8039, 10dma 0.8035, Fri daily low 0.8005
Focus Weds Aus CPI data, options demand high risk premium 60 pips


NZD/USD rose from 0.7280 to test 0.7337 during the European am
Ascent fuelled by across-the-board USD selling. 0.7337 was Asia high
0.7280 = eight-day low. 0.7363 was Monday’s high


Risk aversion and month end USD sales help to keep G10 vols bid today
AUD/USD O/n vol highest since Sep/July FOMC meets in to Wed’s CPI data
EUR/USD topside risk reversal bias erased amid recent spot setback
Huge 3.5bln 1.2500 EURUSD vanilla expiry Wednesday, talk of digitals too
GBP/USD spot setback has seen GBP call bias erased. Vols at cycle highs
USD/JPY vols and JPY calls highs since October amid downside fears


EUR/USD options market fearful of deeper declines

EUR/USD trade flows and positioning in options point to a market fearful of deeper spot declines, or at least a pause in the recent rally. The most obvious sign is a big turn in the risk reversal bias (implied vol premium for EUR calls over EUR puts). This has flipped back to a downside bias in the 1-week expiry, trading 0.2 EUR puts Monday from a 0.8 bias for EUR calls last week. The benchmark 1-month 25 delta risk reversals were sold 0.2 EUR calls Monday from a 0.75 high last week. Dealers also noted decent demand for EUR call RKO options last week, that took advantage of the high EUR call skew to cheapen bets on any further EUR/USD spot gains being limited. Implied vols have found renewed bids overnight after a short lived dip late Friday and Monday. A risk averse tone is clearly back in play and market is wary going in to Yellen’s final state of the Union later, as well as FOMC, although no change f.cast for this meeting. Next day expiry vol trades high at 13.5 or 70 pips break-even


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