FX Market Update 28-2

Market Briefs

• EUR/USD -0.12%, USD/JPY -0.17%, GBP/USD -0.18%, EUR/GBP 0.08%
• DXY 0.12%, DAX -0.19%, FTSE -0.32%, Brent -0.12%, Gold 0.08%
• EZ Inflation, Flash YY Feb, 1.2%, prev 1.3%
• EZ Infl Ex Food & Enr Flash Feb, 1.1%, prev 1.2%
• DE GfK Consumer Sentiment Mar, 10.8, f’cast 10.9, prev 11.0
• DE Unemployment Chg SA Feb, -22k, f’cast -15k, prev -25k
• DE Unemployment Total NSA Feb, 2.546 mln, prev 2.570M
• DE Unemployment Rate SA Feb, 5.4%, f’cast 5.4%, prev 5.4%
• DE Unemployment Total SA Feb, 2.393 mln, prev 2.415 mln
• GB GfK Consumer Confidence Feb, -10, f’cast -10, prev -9
• FR GDP Detailed QQ Q4, 0.60%, f’cast 0.60%, prev 0.60%
• BOJ’s Kuroda says policy normalization would be ‘very gradual’
• Lunar New Year distortion? China factory growth slows the most in 1-1/2 yrs
• Japan’s industrial output tumbles in January as inventories build up
• Britain’s Johnson says Northern Irish border issue being used to frustrate Brexit
• Oil struggles to shake off concern over demand after China data
• Gold prices flat as outlook for faster U.S. interest hikes weigh

Looking Ahead – Economic Data (GMT)

• 12:00 US MBA Mortgage Applications (w/e) (prev -6.6%)
• 12:00 US Mortgage Market Index (w/e) (prev 372.9)
• 12:00 US MBA Purchase Index (w/e) (prev 225.5)
• 13:30 US GDP 2nd Estimate (Q4) (mkt 2.5%, prev 2.6%)
• 13:30 US GDP Sales Prelim (Q4) (mkt 3.1%, prev 3.2%)
• 13:30 US GDP Cons Spending Prelim (Q4) (prev 3.8%)
• 13:30 US GDP Deflator Prelim (Q4) (mkt 2.4%, prev 2.4%)
• 13:30 US Core PCE Prices Prelim (Q4) (mkt 1.9%, prev 1.9%)
• 13:30 US PCE Prices Prelim (Q4) (mkt 2.8%, prev 2.8%)
• 13:30 CA Producer Prices MM (Jan) (mkt 0.5%, prev -0.1%)
• 13:30 CA Producer Prices YY (Jan) (prev 2.2%)
• 13:30 CA Raw Materials Prices MM (Jan) (prev -0.9%)
• 13:30 CA Raw Materials Prices YY (Jan) (prev 6.2%)
• 15:00 US Pending Sales Change MM (Jan) (mkt 0.3%, prev 0.5%)x

Looking Ahead – Events, Other Releases (GMT)

• No major events are scheduled

Currency Summaries

EUR/USD

• Post Powell USD gains took EUR/USD to 1.2222 Wed, 1.2199 today
• Dip buyers leaning against 1.2175-65 support/stops
• 55DMA 1.2176, 1.2173 is 38.2% of 1.1553-1.2556, 18 Jan low 1.2165
• DXY recovery stalls ahead of mid Feb double top 90.56
• Feb 18-Feb 19 FED fund futures peak 1.1025 bp halting USD gains for now
• US/DE 10yr spread peaks new 1yr wide 224.50 but 222.40 since
• Limited reaction to EU infl, ex food/energy 1.2 vs 1.1 exp. US GDP 13.30GMT

USD/JPY

• USD/JPY held close to 107.00 by huge impending expiries
• Bulls need break of huge Fibo to fuel bigger rise
• Month-end flows again dominated – Japanese importer buys to session high
• Japanese exporters, longs sold once Tokyo fix over, buy flows abated
• Trading on the EBS on Wednesday has been net neutral so far

CHF

• Broad USD gains after a surprisingly hawkish Powell testimony
• Rates higher, equities down and ball remains in the dollar’s court
• USD/CHF lifts to 0.9431 in Europe: clears tech res. at 0.9384, daily tenken
• EUR/CHF made a good attempt to make a range break to the downside Tues
• However, a bid returns early Wed and cross heads back to middle of range
• EUR/CHF plays 1.1487-1.1521 from a Tues 1.1486 close

GBP

• Cable choppy during European am: 1.3916-1.3873-1.3914-1.3872
• Volatility precedes slated comments from EU’s Barnier on Brexit
• Stops tipped sub-1.3850: 1.3858 was Tuesday’s low after hawkish Powell
• 1.3858 was also last week’s low (Feb 22). 1.3800 among bear targets
• Month-end demand mooted as factor in EUR/GBP climb from 0.8780 to 0.8810
• 0.8780 = European am low. Stops tipped sub-0.8770 (0.8772 = Monday low)

USD/CAD

• USD/CAD is consolidating gains fuelled by hawkish Powell steer Tuesday
• 1.2779 = fractionally fresh 2mth high in Asia. 1.2763 = European am low
• USD/CAD closed above 200DMA for the first time since June on Tuesday

AUD/USD

• 0.7812 is high water-mark for AUD/USD since its 2wk low of 0.7780 in Asia
• Asia low = four pips shy of 100DMA (0.7784 = 200DMA)
• Large 0.7800 option expiry for 10am ET NY cut, AUD 1.1bln strike

NZD/USD

• NZD/USD has dropped to 0.7210 ahead of the North American open
• 0.7210 = 19-day low. Simultaneous AUD/NZD rise to 1.0826 (15-day high)
• NZD/USD 0.7200 option expiry for 10am ET NY cut, NZD 233mn strike

FX OPTIONS

• EUR/USD downside hedging remains limited, despite Italy, SPD votes and fimer USD
• USD/JPY drawn back to huge 107 expiries – 10bln next week
• USD/JPY downside concerns stay tame – vols and JPY call options offered
• Cable vols bought on dips ahead of UK PM May speech Friday – Volatility likely
• AUD/USD 1.1bln expiry today helps contain, Vols heavy, limited downside concerns

COMMENT

Euro longs hope events won’t burst position bubble

The market’s sanguine view of Sunday’s German SPD membership vote result and the Italian election may prove costly for euro bulls. If SPD members unexpectedly reject a grand coalition with Merkel’s conservatives or the Italian election springs a shock it could prompt many EUR longs to head for the exit at once. Speculative positioning in the euro remains unbalanced, with IMM gross EUR longs well over double the amount of gross EUR shorts in the week to Feb 20: 229,273 versus 103,147 (virtually unchanged from the prior week). The biggest Italian election shock would probably be if the eurosceptic Lega unexpectedly wins more seats than Forza Italia with the centre-right coalition simultaneously attaining an unexpected governing majority. The centre-right coalition–which includes Forza Italia and Lega, has agreed that if it wins an absolute majority, the party which takes the most votes can pick the next premier.

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