FX Market Update 1-2

Market Briefs

EUR/USD 0.08 %, USD/JPY 0.51%, GBP/USD 0.27%, EUR/GBP -0.17%
DXY -0.03%, DAX 0.04%, FTSE -0.02%, Brent 0.75%, Gold -0.52%
EU Markit Mfg Final PMI Jan, 59.6, 59.6 f’cast, 59.6 prev
DE Markit/ BME Mfg PMI Jan, 61.1, 61.2 f’cast, 61.2 prev
GB Markit/CIPS Mfg PMI 55.3, 56.5 f’cast, 56.3 prev
GB Nationwide House Price YY Jan, 3.2%, 2.5% f’cast, 2.6% prev
FR Markit Mfg MPI Jan, 58.4, 58.1 f’cast, 58.1 prev
IT markit/ADACI Mfg PMI 59.0, 57.5 f’cast, 57.4 prev
Oil rises as OPEC compliance eclipses boom in US output
UK trade minister urges mutinous lawmakers to lay off PM May
China Jan factory growth remains strong as output accelerates – Caixin PMI
Gold dips ahead of U.S. nonfarm payroll data

 

Looking Ahead – Economic Data (GMT)

N/A US Atlanta Fed GDPNow model forecast for real GDP growth (Q1) (prev +4.2% q/q AR)
N/A US Light Vehicle Sales (Jan) (mkt 17.40 mn SAAR, prev 17.85 mn SAAR)
N/A US Domestic Car Sales (Jan) (prev 4.40 mn SAAR)
N/A US Domestic Light Truck Sales (Jan) (prev 9.61 mn SAAR)
12:30 US Challenger Layoffs (Jan) (prev 32,423)
13:30 US Initial Jobless Claims (Jan 27 week) (mkt 238k, prev 233k)
13:30 US Continued Claims (Jan 20 week) (mkt 1.928 mn, prev 1.937 mn)
13:30 US Labor Productivity (Q4) (mkt +1.0% q/q AR, prev +3.0% q/q AR)
13:30 US Unit Labor Costs (Q4) (mkt +0.8% q/q AR, prev -0.2% q/q AR)
14:30 CA Markit Mfg PMI SA (54.7 prev)
14:45 US Markit Manufacturing PMI (final Jan) (flash 55.5, prev 55.1)
15:00 US ISM Manufacturing PMI (Jan) (mkt 58.8, prev 59.7)
15:00 US Construction Spending (Dec) (mkt +0.4% m/m, prev +0.8% m/m)

Looking Ahead – Events, Other Releases (GMT)

16:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $280 mn)

Currency Summaries

EUR/USD

EUR/USD 1.2387-1.2475 in NA after Fed holds but sees inflation rising
Today EUR/USD softer at the outset in Europe to 1.2385
Then a quick rise to 1.2440 area without any news or data trigger
Pair reaches 1.2451 high then 1.2430 area ahead NA open
PMI suggests EZ manufacturing boom has rolled on into 2017
As f/c Jan PMI 59.6. Forward looking indicators suggest momentum to continue

USD/JPY

USD/JPY remains elevated, some bears seeking hawkish BOJ exit positions
Thursday has seen a rise from 109.09 to 109.73 so far
Post-Fed USD bounce has halted against euro and pound, but not the yen
Still bears should be helped, at least in the short-term, by tech supply
109.88 Fibo — 50% retrace of the 111.48 to 108.28 fall
Talk decent offers 109.70-75 which could also limit USD/JPY’s rise

GBP

Cable was helped to 1.4275 (6-day high) by more fix-related buying of GBP
Subsequent drop to 1.4226 influenced by UK mfg PMI miss: 55.3 vs 56.5 f/c
1.4156 was early Ldn low–before GBP caught bid (1.4152 = post-Fed low)
Drop to 1.4156 was influenced by UK political concerns
British minister preparing to resign and denounce PM May-Sun newspaper
EUR/GBP fell to a 1wk low of 0.8718 on the fix-related demand for GBP

USD/CAD

USD/CAD elicited support a pip shy of 1.2295 after falling from 1.2327
1.2327 = early Europe high. 1.2295 was Asia low
USD/CAD back up to threaten 1.2327 ahead of the North American open

AUD/USD

AUD/USD has extended south to test 0.7994 ahead of the NY open
0.7994 was Jan 24 low–before Mnuchin welcomed weaker USD
Additional support 0.7986, 23.6% of 0.7501 (Dec 8 low) to 0.8136
0.8035 was Asia low (0.8035 was also Wednesday’s low, post-FOMC)

NZD/USD

NZD/USD has fallen to 0.7340 ahead of the North American open
0.7371 was European am high, to follow 0.7341 early Europe low
AUD/NZD fell to an 8-day low of 1.0890 during the European am

Option expiries for New York cut

Option expiries for New York cut
EUR/USD: 1.2400-15 (2.63BLN), 1.2420-25 (1.65BLN), 1.2435 (432M), 1.2470-80 (700M)
GBP/USD: 1.4000 (405M). USD/CHF: 0.9650 (1BLN)
USD/CAD: 1.2175 (400M), 1.2260 (320M), 1.2425 (315M). EUR/JPY: 135.20 (375M)
USD/JPY: 108.00 (575M), 108.70 (336M), 109.00 (561M), 109.25 (480M), 109.90-95 (425M)

COMMENT

AUD rally at risk pre-RBA if specs close long gap

Friday’s IMM data may cool the AUD rally ahead of the RBA policy meeting if it shows speculators raised their net AUD long position close to 40,000 contracts in the week ended Jan 30. This could raise the risk of a position adjustment-influenced fall through the RBA meeting. The IMM net AUD long position was approximately 40,000 contracts in the week ended Dec 12–before the largest positioning shift against the AUD since 2007. Speculators held the biggest net AUD short for 23 months at the start of January, before flipping back to a net AUD long in the week ended Jan 9. The net AUD long rose further in the subsequent fortnight, to 16,679 contracts. AUD/USD scaled a 32-month peak of 0.8136 Jan 26. The ensuing retreat extended to 0.8005 in early European trade Thursday, which was also the Jan 26 low after Trump talked up the USD. Stops on AUD/USD longs may be sheltering under 0.7994–the Jan 24 low before the USD fell after Mnuchin welcomed a weaker USD, and 0.7986. The latter level is 23.6% of 0.7501 (December low) to 0.8136. AUD IMM:

USD/JPY lofty post Fed at risk of a slump

While the pound and euro have shrugged off a mildly bullish Fed, the yen has continued to suffer against the dollar. This is being put down to some yen bulls looking for a more hawkish BOJ finally giving up on their view. This has led some to conclude that USD/JPY has turned the corner with sustained gains likely for the foreseeable future, with a major base left at January’s 108.28 low. That argument will be tested in coming days, however, as speculative accounts continue to sit on huge USD/JPY long positions which exacerbates the sizable downside risk. According to IMM data, yen shorts contracts were trimmed slightly from 119,350 to 122,870 in the week ending Jan 23, the equivalent of a hefty USD/JPY long cash position of 13.9 yards. The market remains a sell while below the important 110.37 Fibonacci level — 38.2% retrace of the 113.75 to 108.28 (December to January) slump — only a daily close above will signal a shift in the overall bias back to the upside.

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