FX Market Update 15-2

Market Briefs

• EUR/USD 0.26 %, USD/JPY -0.37%, GBP/USD 0.41%, EUR/GBP -0.17%
• DXY -0.38%, DAX 0.81%, FTSE 0.62 %, Brent -0.09%, Gold 0.14%
• U.S. Senate showdown over ‘Dreamer’ immigrants seen Thursday
• US/German bond yield gap at 10-month high as U.S. inflation bites
• France to reduce debt burden in 2018 – finance minister
• French unemployment falls to lowest level since 2009
• Gold inches up as inflation concerns drive hedging
• Oil rises towards $65 on Saudi commitment to curb output, weak dollar

Looking Ahead – Economic Data (GMT)

• 13:30 US Initial Jobless Claims (w/e) (mkt 230k, prev 221k)
• 13:30 US Jobless Claims 4-Wk Avg (w/e) (prev 224.50k)
• 13:30 US Continued Jobless Claims (w/e) (mkt 1.925 mln, prev 1.923 mln)
• 13:30 US PPI Final Demand YY (Jan) (mkt 2.5%, prev 2.6%)
• 13:30 US PPI Final Demand MM (Jan) (mkt 0.4%, prev -0.1%)
• 13:30 US PPI exFood/Energy YY (Jan) (mkt 2.1%, prev 2.3%)
• 13:30 US PPI exFood/Energy MM (Jan) (mkt 0.2%, prev -0.1%)
• 13:30 US NY Fed Manufacturing (Feb) (mkt 17.50, prev 17.70)
• 14:15 US Industrial Production MM (Jan) (mkt 0.2%, prev 0.9%)
• 14:15 US Capacity Utilization MM (Jan) (mkt 78.0%, prev 77.9%)
• 14:15 US Manuf Output MM (Jan) (mkt 0.3%, prev 0.1%)
• 15:00 US NAHB Housing Market Indx (Feb) (mkt 72, prev 72)

Looking Ahead – Events, Other Releases (GMT)

• N/A Treasury $66 bn coupon auctions settle (3/10/30) (raise $19.357 bn new cash)
• 15:00 Treasury Secretary Mnuchin testifies on the budget before the House Ways and Means Committee
• 16:00 Treasury announces 4-, 13- and 26-week bills (e: $50/48/42 bn)
• 16:00 Treasury announces reopened 2-year floating rate notes (e: $14 bn)
• 16:00 Treasury announces 2-, 5- and 7-year notes (e: $28/36/29 bn)
• 16:45 FedTrade Operation 30-year Ginnie Mae (max $710 mn)
• 18:00 Treasury auctions $7 bn new 30-year TIPS

Currency Summaries


• EUR/USD trades to 1.2510 shortly after Europe opens (range 1.2461-1.2510)
• European accounts the main buyers, run into spec profit-taking above 1.25
• Real money selling seen 1.25-1.26, large near 1.2550/75/1.2600 barriers
• Seems the prospect is influencing some to book profits
• Bullish techs and momentum are supporting for test Feb 1/2 highs 1.2523/18
• Break opens 2018 high 1.2538, Dec 2014 high 1.2570, 61.8% major fib @ 1.2599


• Key 106.50 erased in Asia – option barriers and 61.8% retrace of 2016 gains
• Hit 106.18 early London, despite better stocks/risk. USD weakness and technicals weigh
• Break of 10 Nov 2016 low 106.03 to open 10 Nov 2016 low 104.95. Option barriers 105.00
• Option hedging flows not expecting much below 104.00 near term however
• JPY weaker on crosses, EUR/JPY 133.24 vs 131.61 Wed, AUD/JPY 84.84 vs 83.28 Wed


• USD/CHF off its early Europe 0.9230 low but bears in control
• Dollar has now lost 2.5% to the CHF since Feb 8’s 0.9470 peak
• Last at these lows Jun 2015: o/s weeklies but room to run on dailies
• Fall out from the U.S CPI data has seen broad USD losses
• Weak U.S. retail sales created unease amid twin deficit concerns
• US PPI, IP and CU the main focus on today
• EUR/CHF bull run peters out at 1.1584 Wed and now risks a sub-10DMA close
• Short-term reversal back to 1.1450 the risk despite risk on markets


• Cable rose to an 11-day peak of 1.4078 during the European am
• Ascent fuelled by further USD selling on rise in risk appetite
• 1.4000-1.4022 was Asia range. 1.4100 and 1.4150 resistance levels
• EUR/GBP eased to a two-day low of 0.8870 during the European am
• 0.8920 was five-week peak Wednesday amid Brexit concerns
• BBC-Brexit: EU ‘removes transition punishment clause’


• USD/CAD extended south to 1.2466 (10-day low) during the European am
• 1.2481 was Asia low. USD losses fuelled by rise in risk appetite
• BoC deputy governor Schembi to speak in Winnipeg at 1830GMT


• AUD/USD extended north to a 13-day high of 0.7967 in early European trade
• Ascent fuelled by “risk on”. Retreat from 0.7967 based a pip shy of 0.7946
• 0.7946 was Asia high. RBA’s Lowe slated to speak at 2230GMT


• NZD/USD extended north to a Feb high of 0.7411 during the European am
• 0.7395 was Asia high. 0.7420 (Jan 31 high) and 0.7435 are resistance levels
• 0.7435 = Sept 2017 high (tested Jan 24 into lower than expected NZ CPI)

Option Expiries

• EUR/USD: 1.2400-05 (296M), 1.2450 (200M),
• USD/JPY: 106.75 (230M), 107.00 (605M), 107.50 (205M), 107.75 (210M)
• EUR/JPY: 132.75 (380M), 133.00 (190M)
• EUR/GBP: 0.8800 (623M)
• AUD/USD: 0.7800 (1BLN), 0.7825 (318M), 0.7880 (406M), 0.7930 (291M), 0.7950 (214M)
• NZD/USD: 0.7325 (203M)


Brexit transition deal vibe key for sterling

The probability of the EU and Britain agreeing a Brexit transition period deal at an EU summit next month will be a key influence over sterling through the second half of Q1. The greater the probability of a deal the better for the pound, and vice-versa. There was some good Brexit-related news for GBP bulls Thursday courtesy of a BBC piece saying ‘EU diplomats have removed a so-called “punishment” clause from a draft text of the arrangement for the Brexit transition period’. Assuming the piece accurate, it should pour oil on troubled Brexit waters–as the clause was strongly criticised by Brexit Secretary Davis last week. EUR/GBP eased to a two-day low of 0.8868 during the European morning Thursday, half-a-penny below Wednesday’s five-week peak of 0.8920. That peak was scaled amid Brexit concerns before a speech from British foreign minister and prominent Brexiteer Johnson. UK PM May is due to meet Chancellor Merkel in Berlin on Fridayhttp://reut.rs/2BuyODT

Rand bulls seek Rainbow Nation’s pot of gold

USD/ZAR looks set to continue south as political uncertainty around Zuma evaporates, with the 11.50 level looming large. USD/ZAR has fallen 20% since mid-November and technically needs some form of adjustment if the bear run is to extend under 11.50. The bear trend could tolerate a return to the 12.00-12.20 area before resuming its fall. A close under the monthly cloud, 12.6985, looks a certainty for the first time since Sept 2012. Bear targets below 11.50 include 11.3240, 50% of 4.6530 Sept 1997 low to 17.9950 Jan 2016 high, and 10.9220, 61.8% of the 2011-2016 rise. With the door having closed on nine years of a Zuma-led South Africa a new one has opened to potential reform and ANC unity. Focus must now shift to putting the economy on a course for growth, stamping out corruption and meeting the public’s expectations. A tall order but one which ANC leader and soon to be president Ramaphosa must carry forward


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