FX Market Update 20-2

Market Briefs

• EUR/USD -0.57 %, USD/JPY 0.49%, GBP/USD -0.19%, EUR/GBP -0.39%
• DXY 0.64%, DAX -0.06%, FTSE -0.24 %, Brent -1.17%, Gold -0.62%
• DE ZEW Economic Sentiment Feb, 17.8, f’cast 16.0, prev 20.4
• DE ZEW Current Conditions Feb, 92.3, f’cast 93.9, prev 95.2
• DE Producer Prices MM Jan, 0.5%, f’cast 0.3%, prev 0.2%
• DE Producer Prices YY Jan, 2.1%, f’cast 1.9%, prev 2.3%
• GB CBI Trends – Orders Feb, 10, f’cast 10, prev 14
• Britain will not have “Mad Max” economy to undercut rivals- David Davis
• German Social Democrats begin vote on Merkel deal, result due March 4
• Japan’s cryptocurrency exchanges to form new self-regulating body – sources
• Brent crude sags, while lower Canadian supply boosts U.S. futures
• Gold prices dip as dollar bounces off Dec 2014-lows

Looking Ahead – Economic Data (GMT)

• 13:30 CA Wholesale Trade MM, (Dec) (mkt 0.4%, prev 0.7%)

Looking Ahead – Events, Other Releases (GMT)

• 16:30 Treasury auctions $55 bn 4-week, $51 bn 13-week and $45 bn 26-week bills
• 16:45 FedTrade Operation 30-year Ginnie Mae (max $715 mn)
• 18:00 Treasury auctions $28 bn 2-year notes

Currency Summaries


• Small pause in USD recovery Mon but EUR/USD pullback resumes Tues
• Lows of 1.2380 in Asia and 1.2333 in Europe: bear potential building
• 1.2289 76.4% Fibo off 1.2205-1.2556 move a near-term target
• Tsy-Bund 10s spread out to 217.85 from 213.50 Monday
• German Jan ZEW, econ sent up and current conditions fall
• Data seen positive overall and a further improvement expected for 6mth horizon


• Sell rally strategies still in play, market still net short of yen
• Speculative positions may overshadow Fed minutes, risks a fall
• Risen from 106.56 to hit 107.21, lots of Fed speakers this week
• Propelled higher by Gotobi Tokyo fix demand, broad USD strength
• Net USD/JPY buying accelerated on EBS as London entered the fray
• Decent supply near the 107.67 tenkan line should ultimately halt recovery


• Dollar recovery extends and USD/CHF hits 0.9351 early Europe
• U.S. 10-year Tsy yield climbs to 2.9280% early on but then slips to 2.9080%
• Matching the 21DMA line and nudging above the 0.9329 10DMA
• 0.9329 also a 50% Fibo off the recent 0.9470-0.9188 drop: 61.8% = 0.9362
• EUR/CHF continues to amble sideways as USD moves dominate
• Short-term trend support close to market at 1.1511: off Feb 8-9 lows
• Little in the Swiss news: Gold exports at highest in over a year


• GBP rose during European am on a Business Insider report on Brexit
• Report says EP to call for UK to have ‘privileged’ SM access post-Brexit
• EP = European Parliament. SM = single market
• Cable rose to 1.4015 on report vs 1.3932 early Europe six-day low
• EUR/GBP fell to 0.8812 (11-day low). 0.8846-0.8867 was early Europe range
• 1.4021 was cable’s recovery rally high from Monday’s 1.3960 low


• USD/CAD rose to a six-day high of 1.2605 during the European am
• Offers expected near 1.2650 and 1.2700 if the ascent continues
• 1.2649 was Feb 14 high, after US CPI data. 1.2690 was Feb 9 high


• AUD/USD dropped to threaten 0.7881 during the European am
• 0.7881 = 50% retracement of 0.7774 (Feb 14 low, post-US CPI) to 0.7988
• Drop influenced by decline in risk appetite: S&P E-mini -0.65% at 1055GMT
• 0.7934 was Asia high, before Nikkei closed -1%. 0.7935 was Monday’s high
• Huge 0.7950 option expiry Wednesday, AUD 3.4bln strike


• NZD/USD eased to a six-day low of 0.7343 during the European am
• Losses influenced by a decline in risk appetite. 0.7375 was Asia high
• Global Dairy Trade auction result expected circa 1430GMT, may impact NZD


• Italy election and German SPD vote risk lift 2-week vols and EUR puts
• GBP vols sought on dips amid ongoing intraday GBP volatility
• USD/JPY vols and JPY call bias easing as 105-104 barriers less vulnerable
• ZAR O/n vol highest since ANC election in to Weds SA budget


Cable could test Feb’s 1.4145 peak on Brexit hopes

Sterling got a boost from renewed expectations of a “soft” Brexit on Tuesday, which could open the way to further gains and a test of February’s 1.4145 peak in coming days. Cable jumped to 1.4015 after the Business Insider website reported that the European Parliament would call for giving Britain “privileged” single market access. If confirmed, this will spur the pound’s recovery attempts since it sunk to 1.3764 on Feb 9 when EU’s lead negotiator Barnier raised the prospect that a transition deal was not a given if substantial differences between the UK and the EU persisted. GBP/USD has staged an uneven and somewhat volatile recovery since finding support ahead of 1.3745 Fibonacci level — 38.2% retrace of the 1.2774 to 1.4346 rise — hitting a 1.4145 peak last Friday. Cable bulls are on course to prevent a daily close below the 30-DMA, which is currently at 1.3956, which would keep the underlying outlook positive from a technical perspective, especially when 14-day momentum remains marginally negative. Daily Bollinger

Unbalanced spec positioning could hurt euro longs

Speculators who are long the euro could get bruised if the current unbalanced positioning tips over. Although the net EUR long position held by IMM speculators declined for the second week in a row in the week to Feb 13, gross EUR long positions continue to dwarf gross EUR shorts. Gross EUR longs totalled 230,785 contracts in the week to Feb 13, well over double the amount of gross EUR shorts. Any negative shock to the system for the euro could therefore be magnified by a rush to liquidate EUR longs. Event risks which have the potential to hurt the euro include next week’s flash estimate of euro zone Feb inflation data (Feb 28), the result of the German SPD membership vote on the grand coalition March 4and the Italian election being held the same day. EUR/USD has fallen two cents since scaling a 38-month peak of 1.2556 last Friday, a week after the pair threatened 1.2200.


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