FX Market Update 13-2

Market Briefs

• EUR/USD 0.46 %, USD/JPY -0.98%, GBP/USD 0.48%, EUR/GBP -0.01%
• DXY -0.57%, DAX -0.49%, FTSE 0.01 %, Brent 0.21%, Gold 0.48%
• GB Core CPI MM Jan, -0.8%, f’cast -0.9%, prev 0.3%
• GB Core CPI YY Jan, 2.7%, f’cast 2.6%, prev 2.5%
• GB CPI MM Jan, -0.5%, f’cast -0.6%, prev 0.4%
• GB CPI YY Jan, 3.0%, f’cast 2.9%, prev 3.0%
• GB RPI MM Jan, -0.8%, f’cast -0.7%, prev 0.8%
• GB RPI YY Jan, 4.0%, f’cast 4.1%, prev 4.1%
• GB PPI Input Prices MM NSA Jan, 0.7%, f’cast 0.7%, prev 0.1%
• GB PPI Input Prices YY NSA Jan, 4.7%, f’cast 4.2%, prev 4.9%
• GB PPI Output Prices MM NSA Jan, 0.1%, f’cast 0.2%, prev 0.4%
• GB PPI Output Prices YY NSA Jan, 2.8%, f’cast 3.0%, prev 3.3%
• GB PPI Core Output MM NSA Jan, 0.3%, f’cast 0.3%, prev 0.3%
• GB PPI Core Output YY NSA Jan, 2.2%, f’cast 2.3%, prev 2.5%
• Trump budget seeks cuts to domestic programs, Medicare, favors military and wall
• U.S. to push for ‘reciprocal tax’ on trade partners -Trump
• China Jan outbound investment jumps, may tip relaxation in capital controls
• Oil prices pare gains on darker outlook for global balance
• Gold climbs as dollar weakens ahead of U.S. inflation data

Looking Ahead – Economic Data (GMT)

• 11:00 US NFIB Business Optimism Idx (Jan) (mkt 104.90, prev 106.90)
• 13:55 US Redbook YY (w/e) (prev 3.0%)

Looking Ahead – Events, Other Releases (GMT)

• 13:00 Feb’s Mester (voter, hawk) speaks on the economic outlook; Dayton, OH
• 15:00 OMB Director Mulvaney testifies to Senate Budget Committee on President Trump’s budget proposals
• 16:30 Treasury auctions $50 bn 55-day cash managment bill
• 16:30 Treasury auctions $50 bn 4-week bills (size increased $35 bn)
• 16:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.305 bn)x

Currency Summaries

EUR/USD

• EUR/USD buyers take their lead from a 1% USD/JPY drop
• EUR/USD rise (0.46%) weighed by simultaneous unwind EUR/JPY longs (-0.52%)
• Buying picks up pace after break over 21-DMA 1.2333, also 38.2% Jan/Feb drop
• EUR/USD meeting resistance around 200-0HMA @ 1.2350 (high 1.2351)
• Break opens 50%/61.8% Jan/Feb drop 1.2372/1.2411
• An top is likely a bigger move is unlikely to unfold ahead Feb 14 CPI data

USD/JPY

• USD/JPY steady mid 108’s in Asia but hit early Euope then London open
• Broke key 108.00 level, stops en-route to 107.42, recoveries limited to 107.60’s
• Broader USD weakness compounded by Nikkei losses to hurt USD/JPY
• EU/London traders talking about o/n comments from Japan PM Abe regarding BoJ Gov
• He said we have blank slate for choosing next BoJ gov. (Kuroda widely expected to stay)
• Maybe chance of less dovish gov getting the role perhaps?
• 107.32 l-t low 8 Sept, Short gamma below big 107 barrier could accelerate a break

CHF

• EUR/CHF hits a technical wall at 10DMA, second session running
• Two-session adjustment from 1.1640 Feb 5 high to 1.1.1448 Feb 8 low runs its course
• Cross retreats from a 1.1551 Tues high, average is at 1.1548
• A suggestion of calmer cross flow early Tuesday as the mkt looks to key U.S CPI data Wed
• USD/CHF breaks under short term range base at 0.9349 to reach 0.9331
• Close under 10DMA, 0.9348, could open up a run back to early Feb lows around 0.9257

GBP

• Cable rose to 1.3924 after higher than expected UK CPI data at 0930GMT
• Annualized CPI came in at 3.0% compared to the 2.9% consensus forecast
• 1.3924 = high for cable since last Friday’s three-week low of 1.3764
• EUR/GBP fell to 0.8859 on the UK data having threatened 0.89 early Europe
• Above f/c CPI latest boost for hawks advocating BoE rate hike in May
• May hike probability rose to 2 in 3 from 1 in 2 after BoE’s “hawkish hold”

USD/CAD

• USD/CAD traded 23 pip range during European am, 1.2567-1.2590
• Spot also held below 1.2600 in Asia, when 1.2593 was traded high

AUD/USD

• AUD/USD held below 0.7879 (200HMA) during the European am
• 0.7877 was European am high. 0.7874 was Asia high
• IMM speculators upped gross AUD position for third week in row to Feb 6
• Total number of AUD contacts up 35% since mid-January

NZD/USD

• NZD/USD rose to a six-day high of 0.7315 during the European am
• 0.7247 was Asia low. AUD/NZD fell to 1.0764 during the European am
• 1.0839 = cross high in Asia. NZD/USD 0.73 expiry Wednesday, NZD 241mn

FX OPTIONS

• USD/JPY broke 108.00 for 107.42. Barriers 107.00 vulnerable, short gamma below
• Buyers 1-week 107.00 JPY call hedges. Vol curve recovers from early Asian sales
• EUR/USD up but still contained, vols weaker and premium gathering options favoured
• GBP higher after sticky inflation data, vols weaker as range looks set to hold n-term
• AUD options repriced lower. AUD puts stay bid. 2.6bln 0.7850 expiry due Friday
• Short dated options underpinned in to Wed’s key US CPI data

COMMENT

Brexit angst may spoil GBP’s CPI-inspired rally

Sterling bulls hoping for a BoE rate hike in May–and one if not two more hikes in H2 2018, received a fresh boost from January’s higher than expected UK CPI inflation data released Tuesday but persistent Brexit concerns may dampen their euphoria. The data came in at 3.0% versus the 2.9% consensus forecast, backing the Bank of England’s “hawkish hold” last Thursday. But not everything in the BoE’s garden is rosy, however, with MPC member McCafferty highlighting on Monday that the BoE rate outlook could be tested by Brexit. The next round of Brexit negotiations is due to start on Feb 26, three-and-a-half weeks before a two-day meeting of EU leaders. That meeting starts on the day of the next BoE monetary policy announcement (March 22). GBP/USD pushed its recovery envelope from Friday’s three-week low of 1.3764 to a high of 1.3924 on the back of the higher than expected UK CPI number. GBP/USD:

CHART

USD/ZAR targets 2018 low but limited scope beyond

Daily chart risks settling back into a range, albeit with higher 11.84-12.20 parameters. Sharp 3.0% decline from February 8 12.20 top and despite a blip into bullish territory for 14-day momentum the near-term potential is for a test of the 11.7975 2018 low. However, a look a the weekly chart highlights the likely limit for losses. Lower weekly bollinger is at 11.6565 and a line off the early March 2015 11.6550 low held the market on three further tests in 2015 and could present a significant speed bump for bears. Weekly bear side momentum records its fifth lower low reinforcing the bearish outlook but is also at extreme levels. Weekly RSI is bumping along the 30 line, which also suggests the market could do with an adjustment. A sell on strength strategy favoured while below 12.20 looking for 11.66 and at a push 11.50

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