FX Market Update 12-2

Market Briefs

• EUR/USD 0.31 %, USD/JPY -0.08%, GBP/USD 0.25%, EUR/GBP -0.11%
• DXY -0.28%, DAX 1.86%, FTSE 1.26%, Brent 1.54%, Gold 0.27%
• Trump budget plan to seek funds for border wall, infrastructure, opioid treatment
• China Jan new loans surge to record 2.9 trln yuan, blow past forecasts
• China ramps up pressure on local governments with new bond rules
• BoE’s Vlieghe: further rise in UK rates likely to be appropriate
• UK consumer spending stays in the doldrums in January – Visa
• Oil gains 2 pct as global markets stabilise, dollar dips
• Gold rises, but gains capped before U.S. price data

Looking Ahead – Economic Data (GMT)

• 19:00 US Federal Budget,$ (Jan) (mkt 51.00 bln, prev -23.00 bln)
• 19:00 US Treasury Budget (Jan) (prev -$23.2 bn)

Looking Ahead – Events, Other Releases (GMT)

• No major events are scheduled for the day

Currency Summaries


• EUR/USD steadily higher from a 1.2242 low to 1.2298 in Asia
• Opens 1.2283 in Europe and trades 1.2296 before dipping to 1.2259
• Highs coming close to the 100-HMA which is falling and now 1.2290
• 21-DMA 1.2330 and Feb 6 low at 1.2314 offer further resistance
• U.S. yields up strongly again ahead key CPI data Wednesday
• Support @ Feb 8/9 lows 1.2212/06. 38.2% retrace Nov/Jan rise 1.2162


• USD/JPY capped by decent supply, momentum tilts negative
• Options market wary of downside, focus is on US CPI out Wednesday
• Fall on Friday hit 108.05 before rebounding, 108.00 option barriers intact
• Offers remain in size near to the 109.00 level, should cap near-term
• Range has been 108.51-94, 108.98 is 38.2% of 110.48-108.05 fall
• Tokyo holiday meant there was limited flows USD/JPY in Asia, Nikkei shut


• CHF marginally weaker today as risk recovers slightly
• EUR/CHF regains 1.1533 from 1.1450 Friday
• USD/CHF struggling to hold a 0.9400 handle from 0.9349 Friday


• Cable met fresh headwind pre-1.3879 during the European morning
• 1.3879 = 38.2% of 1.4067 (Feb 8 high) to 1.3764 (Friday’s 6wk low)
• Cable first topped out at 1.3879 after rising from 1.3809 in Asia
• 1.3825 was early Europe low (before 1.3879 was threatened again)
• MPC’s Vlieghe says UK wage pick-up bolsters case for rate rise
• IMM speculators reduced gross GBP positions by 15% in week to Feb 6


• USD/CAD held below 1.2600 in Asia and through the European am
• 1.2556 was Asia low. 1.2558 was European am low. 1.2561 = Friday’s low
• Friday’s low followed jump to threaten 1.27 after Canada jobs data miss


• AUD/USD respected its 0.7807-0.7839 Asia range thru the European am
• Offers expected near 0.7850: huge 0.7850 expiry Friday, AUD 2.36bln strike
• 0.7843 was last Thursday’s high (before drop to 2018 low of 0.7759 Friday)


• NZD/USD retreated to a low of 0.7237 during the European am
• 0.7276 was five-day high in Asia, cent above last Thursday’s 2018 low
• Jan 30 low was 0.7280. Resistance beyond 0.7300 (10DMA/21DMA nearby)


• Implied vol setbacks minimal with key event risk looming
• US CPI Weds could reignite volatility. Dealers look for validation of inflation expectations
• UK CPI up first Tuesday. US and UK retail sales also due this week
• 1mth EUR propped by German SPD ballot and Italy election 4 March and ECB 8 March
• USD/JPY downside fears keep a high JPY call bias in 1-month risk reversal
• Zuma fate could be decided by ANC today and keeps short dated vols bid and ZAR firm


Higher US yields may trigger big change in FX bets

Rising U.S. bond yields may trigger a big adjustment of JPY and euro positions. The yields have now reached big levels, breaks of which should pressure stocks and threaten the low for long U.S. rate view that has been a major influence for FX markets. The U.S. rate view and low volatility allowed specs to hold huge FX positions. Higher yields have boosted vols but EUR longs at 17.75 billon are still only just below the record level of bullish bets achieved earlier this year while JPY shorts at USD 12.9 billion have not changed for over three months. With the benchmark U.S. 10-year yield on the cusp of 3% and the yield on the long bond close to its highest level since 2014 (and possible break/close over 100-MMA), that may soon change. Higher yields will put more pressure on stocks fuelling demand for safer assets such as euro and JPY. That would amplify the pace of a JPY rise but slow euro declines.

Road to Brexit littered with hurdles for pound

Sterling remains at the mercy of sentiment from Brexit negotiations between the EU and UK, with hopes of a smooth Brexit being positive for the pound and fears of a disorderly exit negative for GBP. Friday provided the most recent example of the latter. The next round of Brexit talks are due to start on Feb 26, by which time the British government’s Brexit vision may be a little clearer. PM May and other senior ministers including Boris Johnson and Liam Fox are due to give six speeches on “The Road to Brexit” in the next few weeks. The best possible outcome for sterling would be if Britain eventually does a Brexit u-turn–which is the aim of campaign group Best for Britain. On Sunday, the group told Reuters that billionaire investor George Soros will match any further donations given to it up to 100,000 pounds. Soros has already donated 400,000 pounds to Best for Britain

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