FX Market Update 14-2

Market Briefs

• EUR/USD -0.03 %, USD/JPY -0.35%, GBP/USD -0.28%, EUR/GBP 0.27%
• DXY 0.01%, DAX 0.65%, FTSE 0.66 %, Brent -0.43%, Gold 0.09%
• EZ GDP Flash Estimate QQ Q4, 0.6%, f’cast 0.6%, prev 0.6%
• EZ GDP Flash Estimate YY Q4, 2.7%, f’cast 2.7%, prev 2.7%
• EZ Industrial Production MM Dec, 0.4%, f’cast 0.2%, prev 1.0%
• EZ Industrial Production YY Dec, 5.2%, f’cast 4.2%, prev 3.2%
• DE GDP Flash QQ SA Q4, 0.6%, f’cast 0.6%, prev 0.8%
• DE GDP Flash YY NSA Q4, 2.3%, f’cast 2.3%, prev 2.2%
• DE GDP Flash YY SA Q4, 2.9%, f’cast 3.0%, prev 2.8%
• DE CPI Final MM Jan, -0.7%, f’cast -0.7%, prev -0.7%
• DE CPI Final YY Jan, 1.6%, f’cast 1.6%, prev 1.6%
• DE HICP Final MM Jan, -1.0%, f’cast -1.0%, prev -1.0%
• DE HICP Final YY Jan, 1.4%, f’cast 1.4%, prev 1.4%
• Gasoline, rents seen lifting U.S. monthly CPI; annual rates to slow
• Japan posts longest growth streak since 1980s bubble economy
• Rising U.S. supply knocks oil prices for a third day
• Gold firms as dollar wilts ahead of U.S. inflation data

Looking Ahead – Economic Data (GMT)

• 12:00 US MBA Mortgage Applications (w/e) (prev 0.7%)
• 12:00 US MBA Purchase Index (w/e) (prev 255.4)
• 12:00 US MBA 30-Yr Mortgage Rate (w/e) (prev 4.50%)
• 13:30 US Core CPI MM, SA (Jan) (mkt 0.2%, prev 0.3%)
• 13:30 US Core CPI YY, NSA (Jan) (mkt 1.7%, prev 1.8%)
• 13:30 US CPI Index, NSA (Jan) (mkt 247.604, prev 246.524)
• 13:30 US Core CPI Index, SA (Jan) (prev 254.43)
• 13:30 US CPI MM, SA (Jan) (mkt 0.3%, prev 0.1%)
• 13:30 US CPI YY, NSA (Jan) (mkt 1.9%, prev 2.1%)
• 13:30 US Real Weekly Earnings MM, (Jan) (mkt -0.3%, prev 0.2%)
• 13:30 US Retail Sales MM, (Jan) (mkt 0.2%, prev 0.4%)
• 15:00 US Business Inventories MM, (Dec) (mkt 0.3%, prev 0.4%)

Looking Ahead – Events, Other Releases (GMT)

• 15:00 House Budget Committee holds hearing on FY 2019 Trump administration budget
• 16:45 FedTrade Operation 15-year Fannie Mae / Freddie Mac (max $315 mn)

Currency Summaries

EUR/USD

• EUR/USD up to 1.2385 early in European session then dips ahead NA open
• Session low at 1.2346 just short 200-HMA 1.2335 and 21-DMA 1.2339
• Series of four higher daily lows follow the drop to 1.2206 on Feb 9
• Resistance at Feb 7/6 highs 1.2406/35
• Targets at 61.8%/76.4% retr Jan/Feb drop at 1.2411/60
• EZ Q4 GDP meets f/c 0.6% qq/2.7% yy. EZ IP beats 5.2% yy vs 4.2% f/c

USD/JPY

• USD/JPY breaks 2017 low at 107.32 in Tokyo reaching 106.84
• Tepid bounce to 107.52 in Europe while traders await U.S. data
• U.S. CPI seen 1.9% yy from 2.1%. Core 1.7% from 1.8%
• U.S. retail sales f/c 0.2%. Real weekly earnings f/c -0.3%
• Session high 107.91, 100-HMA 108.49 10/DMA 108.90 and 200-HMA 109.02
• Support lies with option barriers at 106.50/106.00 and 200-MMA 105.72

CHF

• EUR/CHF easier through early Europe and a potential rounding top on the dailies
• Tues top at 1.1561 and a hanging man candle adding to bearish risk
• Softer EUR/USD and USD/CHF leaning on the cross and this despite solid EZ data
• Cross plays 1.1557 to 1.1527 and spot 0.9357 to 0.9307
• Waiting on key U.S data and Dollar looking to early NY trade for next market impulse

GBP

• Cable fell half-a-cent to threaten 1.3850 during the European am
• The drop precedes a scheduled Brexit-themed speech from Boris Johnson
• Johnson to say UK staying subject to EU laws would be intolerable
• 1.3850 was pullback low from Tuesday’s post-UK CPI high of 1.3924
• EUR/GBP rose to a five-week high of 0.8920 during the European am
• 0.8910 was Tuesday’s high. 0.8927 marks the 2018 high (Jan 12)

USD/CAD

• USD/CAD topped out 10 pips shy of 1.2600 after rising from 1.2561
• 1.2561 = Asia base and low water-mark since Tuesday’s 1.2625 high
• Last Friday’s 6wk high of 1.2590 key resistance beyond 1.2625

AUD/USD

• AUD/USD elicited support pre-0.7850 after retreating from 0.7890
• 0.7890 was one-week high in Asia. 0.7860 = European am low
• Huge 0.7850 option expiry Friday, AUD 2.7bln strike
• Australian jobs data due 0030GMT, employment f/c +15k

NZD/USD

• NZD/USD based just shy of 0.7300 after retreating from 0.7335
• 0.7335 = 1wk high in Asia. 0.7300 expiry for NY cut, NZD 241mn strike

Option Expiries

• EUR/USD: 1.2265-75 (1.5BLN), 1.2300-10 (2.0BLN), 1.2335-50 (2.6BLN), 1.2400-05 (2BLN)
• GBP/USD: 1.3635 (278M), 1.4025 (230M). EUR/GBP: 0.8890-0.8910 (700M)
• AUD/USD: 0.7770 (350M), 0.7885 306M). NZD/USD: 0.7300 (241M)
• USD/JPY: 107.50 (275M), 107.85 (275M), 108.20 (354M), 108.70 (300M)
• EUR/JPY: 132.30 (315M), 136.00 (530M)

COMMENTS

USD/ZAR drop to 11.50 is on as ANC ups its Zuma game

An imminent resolution to the South African political impasse could see the rand rally hard and USD/ZAR extend south to levels around 11.50. Any downside progress under 11.50 would depend heavily on how the investor community sees the political and economic outlook for South Africa. Investors currently see the light at the end of the Zuma tunnel becoming brighter as the ANC says the deadline for Zuma to resign is today (Wednesday). The ANC also says it will support a motion of no-confidence brought by an opposition party against Zuma on Thursday if Zuma does not resign. USD/ZAR has fallen to a two-and-a-half year low of 11.79 today on hopes of an imminent resolution to the Zuma issue. The slide comes after a relatively calm Tuesday, when rand bulls were able to re-load at slightly better levels. USD/ZAR Daily Chart: http://reut.rs/2sqkdGG

JPY traders should look to Nikkei/U.S. long bond

The Nikkei and U.S. long bond are key indicators JPY traders should watch around today’s U.S. inflation data. The question is whether there is enough inflation to drive interest rates up and upset risk appetite. That may be unlikely as while a move to 3.25% for the 30 year yield is easily achievable, and would be the highest since 2014, it’s still 75 basis points under the peak for 2014 and around 160 basis points below the peak since the 2008 global financial crisis. With interest rates still low risk appetite could stay high and if it does the recent pullback for the Nikkei looks great value to buy into. Recent weakness might seem big but actually has not quite reached the minimum requirement for a technical correction of the 2016-2018 rise which is 20,589. A big psychological spot like 20k level is certain to be well supported too and JPY traders should tailor strategies in accord with a still bullish stock trend. US 30 year yield

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