FX Market Update 1-3

Market Briefs

• EUR/USD -0.08%, USD/JPY 0.1%, GBP/USD -0.14%, EUR/GBP 0.06%
• DXY 0.16%, DAX -1.34%, FTSE -0.47%, Brent -0.77%, Gold -0.52%
• EZ Markit Mfg Final PMI Feb, 58.6, f’cast 58.5, prev 58.5
• EZ Unemployment Rate Jan, 8.6%, f’cast 8.6%, prev 8.7%
• DE Markit/BME Mfg PMI Feb, 60.6, f’cast 60.3, prev 60.3
• GB Markit/CIPS Mfg PMI Feb, 55.2, f’cast 55.0, prev 55.3
• GB BOE Consumer Credit Jan, 1.357 bln, f’cast 1.400 bln, prev 1.520 bln
• GB Mortgage Lending Jan, 3.389 bln, f’cast 3.600 bln, prev 3.683 bln
• GB Mortgage Approvals Jan, 67.478k, f’cast 62.000k, prev 61.039k
• GB Nationwide house price mm Feb, -0.3%, f’cast 0.2%, prev 0.6%
• GB Nationwide house price yy Feb, 2.2%, f’cast 2.6%, prev 3.2%
• BOJ’s Kataoka warns against premature exit from easy policy
• EU’s Tusk warns of hard border in Ireland after Brexit
• Oil falls for 3rd day as higher inventories, dollar weigh
• Gold slips to three-week low as dollar holds firm

Looking Ahead – Economic Data (GMT)

• 13:30 US Initial Jobless Claims (w/e) (mkt 226k, prev 222k)
• 13:30 US Jobless Claims 4-Wk Avg (w/e) (prev 226.00k)
• 13:30 US Continued Jobless Claims (w/e) (mkt 1.930 mln, prev 1.875 mln)
• 13:30 US Core PCE Price Index MM (Jan) (mkt 0.3%, prev 0.2%)
• 13:30 US Core PCE Price Index YY (Jan) (mkt 1.5%, prev 1.5%)
• 13:30 US PCE Price Index MM (Jan) (prev 0.1%)
• 13:30 US PCE Price Index YY (Jan) (prev 1.7%)
• 13:30 US Personal Income MM (Jan) (mkt 0.3%, prev 0.4%)
• 13:30 US Consumption, Adjusted MM (Jan) (mkt 0.2%, prev 0.4%)
• 13:30 CA Current Account C$ (Q4) (mkt -17.80 bln, prev -19.35 bln)
• 14:30 CA Markit Mfg PMI SA (Feb) (prev 55.9)
• 15:00 US Construction Spending MM (Jan) (mkt 0.3%, prev 0.7%)
• 15:00 US ISM Manufacturing PMI (Feb) (mkt 58.7, prev 59.1)
• 15:00 US ISM Mfg Prices Paid (Feb) (mkt 70.5, prev 72.7)

Looking Ahead – Events, Other Releases (GMT)

• 15:00 Fed Chair Powell delivers semiannual monetary policy report to Senate Banking Committee
• 16:00 Fed’s Dudley delivers remarks on trade and globalization; Sao Paulo, Brazil
• 16:00 Treasury announces 13- and 26-week bills (e: $51/45 bn)

Currency Summaries

EUR/USD

• EUR/USD stays heavy amid firmer USD, but can’t break key support
• 38.2% of 1.1553/1.2556 move at 1.2173, daily ichi cloud top 1.2265
• USD gains falter for now, DXY held by 55DMA 90.91 and 18 Jan high 91.04
• US/DE 10yr spread off its long trem wide for now.
• Bullish trend still intact and maintains dip demand to underpin/limit losses
• 2bln 1.22 option expiry today helps contain, huge 1.2150 and 1.2250 Fri
• US consumption, jobless claims, ISM Manf PMI and 2nd Powell testimony today

USD/JPY

• USD/JPY bulls slowly build, scope for recovery to big Fibo
• Dollar bulls remain in the ascendancy, eye important Fibo
• Sell-rally USD/JPY strategies in play, but Powell underpins USD
• Japanese exporters said to have decent offers at and above the 107.00 level
• Japanese importers do not seem to be in a rush to buy at month start so far

CHF

• Dollar maintaining its advantage over the CHF Thurs
• USD/CHF new high at 0.9462 but beginning to see mkt indecision
• Much tighter 0.9442-0.9462 range and potential for a doji star Thrs
• Swiss Jan R.Sales fall 1.4% vs rvsd 0.7% rise in Dec
• Swiss Feb PMI 65.5 vs 64.00 Rtrs poll and 65.3 in Jan
• EUR/CHF lacking direction and close to s/t range mid-point, 1.1535

GBP

• Cable extended south to test 1.3728 (Jan 15 low) during the European am
• GBP continues to suffer on the back of Brexit concerns
• UK PM May will host EU’s Tusk for lunch in London today
• 1.3764 (Feb 9 low) is now a resistance level: 1.3764 = post-UK mfg PMI high
• UK Feb mfg PMI 55.2 vs 55.0 f/c. 1.3800 resistance beyond 1.3764
• EUR/GBP scaled a 13-day peak of 0.8877 during the European am

USD/CAD

• USD/CAD extended north to a new 2018 high of 1.2856 during European am
• 1.2848 was Asia high. Bull targets include 1.2920 (Dec high) and 1.30
• Canada Q4 C/A data due 1330GMT, deficit of CAD 17.8bln expected

AUD/USD

• AUD/USD eased to a fractionally new 2018 low of 0.7713 during European am
• 0.7717 was Asia low after AUD hurt by worse than expected Capex data
• 0.7742 was interim high. RBA seen on hold next week (March 6)

NZD/USD

• NZD/USD extended north from 0.7186 to 0.7221 during the European am
• 0.7186 = three-week low. 0.7186 = 38.2% of 0.6781 (Nov low) to 0.7437
• AUD/NZD extended south from 1.0826 to 1.0706 during the European am
• 1.0826 = 15-day high. 1.0706 = six-day low (1.0655 was last week’s low)

FX OPTIONS

• 1-week expiry EUR related vols higher on ECB capture
• EUR/USD vol curve capped for now as spot stagnates, Huge 1.22 expiry
• USD/JPY vols and JPY calls meet demand as risk aversion picks up
• USD 10 bln 107.00 USD/JPY expiries next week help contaion that market
• GBP vols and put options higher on renewed Brexit angst and weaker pound
• AUD/USD vols higher as spot extends losses today

COMMENT

Gilt selling adds to blizzard of bad news for GBP

A bad week for sterling bulls is getting worse with news that foreign investors were net sellers of UK government bonds for the first time in six months in January. The net GBP 9.252 billion of gilts sold was also the largest net sale of gilts since March 2014. Foreign investors bought a net GBP 21.274bln gilts in the last five months of 2017, with GBP/USD trading as low as 1.2774 during that period (during August). The reversal of the prior gilt buying trend came as the pound racked up its biggest monthly gain against the USD since July 2010 in January, soaring to a post-Brexit referendum high of 1.4346 (December’s range was 1.3300-1.3550). Its subsequent slide to a 10-week low of 1.3728 has been influenced by Brexit concerns and a hawkish shift in Fed expectations. GBP/USD:

CHART OF THE DAY

EUR/JPY collapse below 200-DMA ominous for EUR/USD

A bearish EUR/JPY has serious implications for the direction of EUR/USD. EUR/USD has so far been held up by the 30-day lower bollinger-band now at 1.2174 and the huge 1.2173 Fibonacci level — 38.2% retrace of the (November to February) 1.1553 to 1.2556 bullish cycle. EUR/USD traders should watch this 1.2173 Fibonacci level closely as a break and daily close below here will likely see a sustained drop to 1.2055 — 50% retrace of the same 1.1553 to 1.2556 rise. With EUR/JPY’s fourteen-day momentum persistently negative, which has been the case since February 5, the drop is EUR/JPY is set to continue for a while dragging EUR/USD down with it. EUR/JPY closed down 124 pips on Wednesday, the fourth biggest one day drop of 2018, as bears tightened their grip on this cross. EUR/JPY bears also managed to register a daily close below the 200-DMA, currently at 131.28, for the first time since April 2017

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