FX Market Update 23-2

Market Briefs

• EUR/USD -0.28%, USD/JPY 0.11%, GBP/USD -0.11%, EUR/GBP -0.19%
• DXY 0.24%, DAX -0.02%, FTSE -0.14%, Brent -0.69%, Gold -0.2%
• DE GDP Detailed QQ SA Q4, 0.6%, f’cast 0.6%, prev 0.7%
• DE GDP Detailed YY NSA Q4, 2.3%, f’cast 2.3%, prev 2.2%
• DE GDP Detailed YY SA Q4, 2.9%, prev 2.7%
• EZ Inflation Final MM Jan, -0.9%, f’cast -0.9%, prev 0.4%
• EZ Inflation, Final YY Jan, 1.3%, f’cast 1.3%, prev 1.3%
• EZ Infl Ex Food & Energy MM Jan, -1.3%, f’cast -1.6%, prev 0.4%
• EZ Infl Ex Food & Energy YY Jan, 1.2%, f’cast 1.0%, prev 1.2%
• Chance of halting Brexit now close to 50:50, says leading campaigner
• Japan’s stagnant inflation set to keep BOJ exit from stimulus distant
• Xi confidant emerges as front runner to head China’s central bank – sources
• Gold heads for biggest weekly loss this year as dollar bounces
• Oil slips to $66 a barrel as U.S. output offsets OPEC curbs

Looking Ahead – Economic Data (GMT)

• 13:30 CA CPI Inflation MM (Jan) (mkt 0.4%, prev -0.4%)
• 13:30 CA CPI Inflation YY (Jan) (mkt 1.4%, prev 1.9%)
• 13:30 CA CPI MM SA (Jan) (prev 0.2%)
• 13:30 CA CPI BoC Core YY (Jan) (prev 1.2%)
• 13:30 CA Core CPI MM SA (Jan) (prev 0.1%)
• 13:30 CA CPI BoC Core MM (Jan) (prev -0.5%)

Looking Ahead – Events, Other Releases (GMT)

• n/a Treasury’s $15 bn reopened 2-Yr floating rate notes settle; raises all new cash
• 15:15 U.S. Monetary Policy Forum featuring Fed’s Rosengren, Dudley, Mester, George; NY
• 16:00 Federal Reserve releases Monetary Policy Report
• 16:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.015 bn)
• 18:30 Fed’s Mester participates in panel review of monetary policy objectives; NY
• 20:40 Fed’s Williams speaks on the economic outlook and monetary policy; Los Angeles, CA

Currency Summaries


• EUR/USD 1.2280-1.2321 in Europe after 1.2280-1.2337 slide in Asia
• Broader USD under pressure, holding losses vs higher yielding EM
• With the EUR/USD rally faltering euro’s appeal to fund carry may be rising
• No U.S. data today so a slow session expected raising influence of expiries
• EUR 807mln vanilla option expires lie at the centre of Europe’s range
• Fed’s Dudley speaks 15.15GMT. Mester and Williams after Europe’s close


• Tokyo and London sold USD/JPY, stops vulnerable sub 106.50
• USD/JPY recovery from 105.55 may be over as top forms
• Tokyo and London have persistently sold USD/JPY on EBS, stops below at risk
• Recall 106.60 was the low on Thursday, stops said clustered below 106.50
• Near-term bulls have been stymied by the tenkan line at 107.16 Friday
• Range on Friday has been 106.66-107.14 so far on the EBS


• USD/CHF recovery off the Feb 16 0.9188 low hits the buffers Thurs
• Not a complete bearish engulfing candle Thurs but still hints at demand fade
• Offering interest ahead of the 0.9405 30DMA triggering a weak close down at 0.39331
• Early Friday and another attempt to lift from the 0.9324 10DMA
• EUR/CHF continues to pivot around the 10DMA line, today at 1.1530
• Dollar moves overshadow the CHF cross, which plays out bearish to sideways


• Offers ahead of 1.40 capped cable’s climb from 1.3925 (early Europe low)
• There is a huge 1.4000 option expiry Monday, GBP 2.15bln strike
• Prior supply pre-1.40 curtailed Thursday’s climb from 1.3858 (8-day low)
• 1.4025 (Tuesday’s high) and 1.4050 are resistance levels beyond the figure
• EUR/GBP dropped to eye 0.8800 for 3rd time this week during European am
• Cross above 0.8800 since Feb 9. Corbyn and May Brexit speeches next week


• USD/CAD respected its 1.2700-1.2726 Asia range through the European am
• Canada Jan inflation data due 1330GMT, 1.4% yy f/c vs 1.9% in Dec


• AUD/USD eased to an intra-day low of 0.7815 in early European trade
• Lower copper prices helping weigh on AUD: LME copper -0.65%
• 0.7790 (Thursday’s low) and 0.7759/74 are AUD/USD support levels
• Australian deputy PM Joyce to resign as National party leader Monday
• National party is the junior partner in PM Turnbull’s centre-right coalition


• NZD/USD plumbed a fractionally fresh 9-day low of 0.7288 early Europe
• 0.7309 = subsequent rally high, before 0.7288 all-but revisited


• Option vols lower to highlight FX consolidation, but setbacks limited
• Plenty of event risk to underpin – Italy elections the n-term EU focus
• 2-week sees ECB, 1-month vols get March FED, BoE MPC and EU summit
• Big expiries Monday – USD/JPY 1.6bln 107.00 and GBP/USD 2.2bln 1.4000
• USD/JPY option flows selling 105 strikes, looking for 105.00 to hold near term


GBP bulls hope BoE’s doves don’t coo too loudly

Sterling bulls hope BoE deputy governors Ramsden and Cunliffe do not push back too hard against the recent hawkish shift in BoE expectations via upcoming public appearances. Ramsden has the opportunity to dissent from the BoE’s new central view that rates are likely to go up sooner and by more than it was thinking until recently when he takes part in a CBI panel discussion Friday (1200GMT). Cunliffe is due to speak at Warwick University on Monday. Ramsden and Cunliffe both voted against the BoE’s 25bp rate hike last November. Four other members of the BoE MPC addressed the UK TSC earlier this week, with chief economist Haldane striking a slightly more hawkish tone than Carney, Broadbent and Tenreyro. Broadbent is one of the names-in-the-frame to succeed Carney as BoE Governor in July 2019. Interest rate futures currently suggest there is an approximate 70% chance of a 25bp BoE rate hike in May. Hawks advocate another one or two follow-up hikes before year-end. BOEWATCH:

Stronger CNY spells trouble for the euro and JPY

A strengthening CNY should weigh on the euro and yen which are bigger components of the yuan’s trade weighted basket and have benefited from a capped yuan. There has been a marked change in the trade weighted value of China’s currency. Following a drop of around 10 percent the yuan was held in a rough 93.50-96.50 range for around 18-months, theoretically supporting larger components of the basket. Both JPY and EUR strengthened in the 18-month period the yuan was held low after China switched focus to a currency basket in December 2015. So a break higher, which seemingly has official blessing, warrants attention. The CNY rallied 3.5% from mid-January and, despite a sizeable pullback, is still above the top of the old range and renewed support emerged after China’s return from New Year holidays. If a change leads to a shift in rebalancing flows, once the product of USD/CNY support and perhaps now a need to cap the pair, that means buying dollars versus JPY and euro


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