FX Market Update 2-2

Market Briefs

EUR/USD -0.17%, USD/JPY 0.46%, GBP/USD -0.34%, EUR/GBP 0.22%
DXY 0.22%, DAX -1.21%, FTSE -0.25%, Brent -0.17%, Gold -0.27%
U.S. employers likely boosted hiring in January
Europe’s next crisis may test ECB limits, push rates lower: Coeure
GB Markit/CIPS Cons PMI Jan, 50.2, 52.0 f’cast, 52.2 prev
EU Producer Prices YY Dec, 2.2%, 2.3% f’cast, 2.8% prev
UK PM May says Brexit transition deal will be agreed in seven weeks
IT CPI (EU Norm) Prelim YY Jan, 1.1%, 0.9% f’cast, 1.0% prev
IT Consumer Price Prelim YY Jan, 0.8%, 0.8% f’cast, 0.9% prev
Euro zone bailout fund could handle future debt restructuring -ESM
Brent oil supported near $70 a barrel on OPEC cuts, strong demand
Gold flat ahead of U.S. jobs data

Looking Ahead – Economic Data (GMT)

13:30 Nonfarm Payrolls (Jan) (mkt +180k, prev +148k)
13:30 Private Payrolls (Jan) (mkt +180k, prev +146k)
13:30 Manufacturing Payrolls (Jan) (mkt +20k, prev +25k)
13:30 Unemployment Rate (Jan) (mkt 4.1%, prev 4.1%)
13:30 Average Hourly Earnings (Jan) (mkt +0.3% m/m, +2.6% y/y; prev +0.3% m/m, +2.5% y/y)
13:30 Workweek Hours (Jan) (mkt 34.5, prev 34.5)
14:45 ISM-New York Business Conditions Index (Jan) (prev 56.3)
15:00 U of Mich Consumer Sentiment Index (final Jan) (mkt 95.0, prelim 94.4)
15:00 U of Mich Present Situation (final Jan) (prelim 109.2)
15:00 U of Mich Expectations Index (final Jan) (prelim 84.8)
15:00 Factory Orders (Dec) (mkt +1.5% m/m, prev +1.3% m/m)
15:00 Factory Orders ex-Trans (Dec) (prev +0.8% m/m)
16:15 New York Fed Staff Nowcast for real GDP growth (Q1) (+3.09% q/q AR)
18:00 Baker-Hughes Weekly Oil Rig Count (prev 759, +12 w/w, +193 y/y)

Looking Ahead – Events, Other Releases (GMT)

16:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $790 mn)
18:30 FRB Dallas’s Kaplan participate speaks Austin, TX
20:30 FRB San Francisco’s Williams speaks at San Francisco, CA

Currency Summaries


EUR/USD slightly lower in Europe within 1.2476-1.2518 range
Asia traded 1.2487-15 after rally reached 1.2523 in the U.S. yesterday
Drift lower hints at minor profit taking ahead today’s big event
U.S. non-farm payrolls 180k with U/R seen unchanged at 4.1%
Bullish techs and momentum and big gains for EZ yields underpin EUR/USD
EUR longs and proximity to major tech resistance (1.2570/99) weighs
Over 1.26 opens 1.30-1.31 potential. 2nd failure ahead may see 1.21 return


USD/JPY better bid on higher US yields, after BoJ special ops
Spot has seen a rise from 109.29 to 109.93 as U.S NFP loom
Slight stops above 109.75 were tripped, there was offers ahead of 110.00
BOJ leave USD/JPY at risk to dire NFP jolt
110.37 Fibo — 38.2% of 113.75 to 108.28 — will likely keep a lid on USD/JPY
Sustained break of 110.37 Fibo on a strong jobs report will cut downside risk


USD/CHF turning higher through early Europe ahead of U.S payrolls
A lift out of 0.9258 lows and just ahead of converging support points
Two 161.8% Fibos off Oct and Dec highs are at 0.9249/45
The falling channel base from Jan 2017 is at 0.9250
Oversold conditions had warned of a rebound: 0.9311 the high so far
EUR/CHF made for a bull turn Thurs and early Frid sees follow through to 1.1621
Resistance close by at 1.1626 100DMA and 1.1631 daily cloud base


GBP/USD lower in Europe largely on the back of weak data
GBP/USD opened 1.4252 traded 1.4277 high but hit 1.4202 after PMI
UK construction sector is teetering on the brink of contraction
Jan construction PMI falls to 50.2, lowest since Sep 2017 @ 48.1
Bargain hunters then drawn to short-term tech support 1.4160-1.4200
Rises for UK yields are outstripping US rate moves as BOE hike spike builds

Option expiries for New York cut

EUR/USD: 1.2500 (837M), 1.2495 (286M), 1.2525 (202M)
GBP/USD: 1.4200 (560M), 1.4250 (222M), 1.4350 (348M), 1.4400 (350M)
AUD/USD:0.8050 (349M), 0.8100 (317M), 0.8125 (200M). AUD/NZD: 1.1000 (381M)
USD/JPY: 108.50 (675M), 109.00 (1.495BLN), 109.20-35 (800M)


US yield surge spells danger for EM FX versus dollar

Surging U.S. bond yields have lent the dollar no support against the majors, but they raise risks for emerging markets currencies. EM currencies benefited from low volatility and a hunt for yield in a way that majors didn’t on the belief that U.S. yields couldn’t rise too high, especially with doubts about the amount of rate hiking the Fed would accomplish. However, the U.S. 30-year yield topped the major 3% mark today while expectations for Fed tightening in the next 2 years have risen above the major psychological mark of 100bps. With the 30 year below major peaks of 2015/2016 and Fed funds pricing fewer hikes than the Fed has pencilled in, traders are clinging to low-rate hopes. But, the gap is narrowing, and volatility is rising across markets. Yields are up for other major markets on taper speculation that blunts the impact of U.S. rates, but yields for popular EM currencies like ZAR, RUB and TRY and CNY — Asia’s benchmark — are lower since Nov. US 30 yr and EM 10 yr yields:


USD/ZAR could make break higher, Jan 30 high eyed

USD/ZAR has been trading sideways since January’s 1.65% drop and there are plenty of reasons to expect the bearish trend to resume but today’s price action and technical charts suggest potential for a rebound. The last decent bullish adjustment on Jan 30 reached 12.0525 and this level is now pivotal for near-term direction. The 10-DMA has been defining the recent bear bias but USD/ZAR is now above that 11.9295 line and a close on the week above it could open up a run through 12.0525 and on to levels around 12.0850. A 38.2% Fibo, off the 12.5500 Jan 10 high and 11.7975 Jan 25 low, comes at 12.0850. The weekly chart shows USD/ZAR bouncing off the 30-WMA lower Bollinger at 11.8580, but the longer-term chart highlights the work to be done if the bulls are to maintain today’s advantage. It will take a break above the Dec 29 12.24 low to severely damage the weekly bear trend.


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