FX Market Update 2-3

Market Briefs

• EUR/USD 0.27%, USD/JPY -0.7%, GBP/USD 0.16%, EUR/GBP 0.15%
• DXY -0.37%, DAX -2.23%, FTSE -1.02%, Brent -0.33%, Gold 0.38%
• EZ Producer Prices MM Jan, 0.4%, f’cast 0.4%, prev 0.2%
• EZ Producer Prices YY Jan, 1.5%, f’cast 1.6%, prev 2.2%
• DE Import Prices MM Jan, 0.5%, f’cast 0.5%, prev 0.3%
• DE Import Prices YY Jan, 0.7%, f’cast 0.7%, prev 1.1%
• DE Retail Sales MM Real Jan, -0.7%, f’cast 0.9%, prev -1.9%
• DE Retail Sales YY Real Jan, 2.3%, f’cast 3.5%, prev -1.9%
• GB Markit/CIPS Cons PMI Feb, 51.4, f’cast 50.5, prev 50.2
• Asia fears trade war after Trump plans hefty steel, aluminium tariffs
• Cryptocurrencies are failing as money – Bank of England’s Carney
• Britain’s May to set out Brexit vision for trade deal deeper than any other
• BOJ chief flags prospect of exit from easy policy if inflation goals met
• Oil set for weekly drop as stock markets, U.S. inventories weigh
• Gold inches up as dollar dips on Trump’s tariff plan

Looking Ahead – Economic Data (GMT)

• 13:30 CA GDP QQ (Q4) (prev 0.4%)
• 13:30 CA GDP QQ Annualized (Q4) (mkt 2.0%, prev 1.7%)
• 13:30 CA GDP Implicit Price QQ (Q4) (prev 0.0%)
• 13:30 CA GDP MM (Dec) (mkt 0.1%, prev 0.4%)
• 15:00 US U Mich Sentiment Final (Feb) (mkt 99.5, prev 95.7)

Looking Ahead – Events, Other Releases (GMT)

• No major economic events are scheduled

Currency Summaries

EUR/USD

• Trump trade tariff talk hits USD, DXY failed to break key 91.00, back sub 90.00
• EUR/USD breaks 10DMA 1.2294 and 1.2300 – fills related offers
• Support at ascending 55DMA 1.2194. 2.6bln 1.2250 optioon expiry underpins
• Bias more neutral now with focus having shifted to trade from rates
• Italy election and German SPD loom, but risk premiums not excessive
• Lack of any surprises should leave EUR/USD on a firmer footing next week

USD/JPY

• Trump, Kuroda double whammy spurs USD/JPY bears
• USD/JPY collapses to hit a new 2018 low at 105.27
• Nikkei down close to 3% on day, JGBs/US Treasuries in demand, yields off
• Fell after US Pres Trump upped tariffs on imported steel, aluminum products
• Sell-rally strategies remain in place on JPY short overhang

CHF

• Swift change in fortunes for the CHF vs the Dollar
• USD/CHF came sharply off its Thurs 0.9490 5-week high
• Frid action sees tech supports cleared away and a 0.9339 low
• Risk off sentiment following the Trump tariff statement Thurs
• EUR/CHF still range bound after coming off a 1.1561 Thurs high
• Cross plays 1.1560-1.1497 and remains offered into NY

GBP

• Mixed session for the pound thanks to Trump and his tariffs
• GBP/USD small recovery from Brexit fuelled 1.3712 Thurs low
• Gains extended to 1.3810 early Europe Friday: plays 1.3757-1.3810
• EUR/GBP a different story: cross climbs to 0.8933 from 0.8899 Frid low
• Brexit fears leading to Sterling under performance
• U.K PM May delivers Brexit speech around 1200GMT, seen critical

USD/CAD

• USD/CAD bid despite Thursday’s retrace from 1.2895 11-week high
• Loonie weakness feeding off the Trump steel tariffs decision
• Broad Dollar gains also at play early in the day but reversal seen
• Early Friday range 1.2822-1.2865 and 1.2850 into New York
• Topside level to watch 1.2920 high from December 19
• Canada says will respond to the steel tariff
• Canadian Q4 GDP data 1330GMT: Seen 2.0% y/y vs 1.7%

AUD/USD

• AUD/USD slide thwarted by USD setback and stagnates mid 77’s for now
• Stays heavy amid global stock and commod rout – trade wars risk
• Former support at 100/200DMA 0.7773/87 now resistance
• Today’s low 0.7746, Thurs low 0.7713 support pre 0.7700 barriers
• Break opens way to 76.4% Fib retrace of Dec-Jan gains at 0.7651
• Option vols up and downside protection costs increase

FX OPTIONS

• USD setback extends, breaks 105.50 USD/JPY, big barriers 105-104 vulnerable
• USD/JPY vols and JPY calls firmer but still well below early Feb peaks
• EUR/USD vols propped by spot moves and event risk but not excessive for Italy election
• AUD/USD vols up with downside seen vulnerable amid US tarrifs/trade war knock on
• GBP gamma high in to PM May speech, Brexit woes maintain demand for GBP puts

COMMENTS

GBP vulnerable if May fails to ease Brexit fears

Sterling bulls may be in for more pain if UK PM May’s Brexit speech today fails to ease concerns that the government may not secure a workable trade relationship with the EU post-Brexit. Sterling has struggled this week on Tory in-fighting over Brexit and fears that May’s speech due around 1200 GMT will fail to satisfy not only the EU, but also British voters that she is capable of achieving an acceptable Brexit deal. GBP/USD has fallen over 3.0% this week and nearly 4.5% since late January. EUR/GBP is clear above key technical levels, 200-DMA and Feb 14’s 0.8920 high. Downside levels within reach on any disappointment are at 1.3553 100-DMA and 1.3458 Jan 11 low. Right through the Brexit process, UK markets have been largely resilient to the likely fall-out for the UK and the pound has enjoyed relative stability. This is likely to change if trade negotiations sour. GBP/USD Daily Chart:

Trump, Kuroda double whammy spurs USD/JPY bears

U.S. President Trump’s plans to hike steel and aluminium tariffs and BOJ Governor Kuroda’s Deit testimony have left USD/JPY bulls reeling with a quick recovery unlikely near-term. USD/JPY looks set for further falls but bears need to convincingly overcome an important downside technical level in order to make a play for option barriers at 105.00 and 104.50. USD/JPY’s drop has hit a new 2018 low and is probing the 30-day lower Bollinger band, currently at 105.38. Two-way risk persists, this is showing up in the diverging 30-week Bollinger bands which point to the heightened volatility around USD/JPY. Reports of Trump’s tariff plans set off a bout of risk aversion in New York on Thursday which led to significant flows into the yen. This gained momentum in Asia on Friday when Kuroda went off script by suggesting the BOJ would consider an exit from its ultra easy monetary policy if its inflation target is achieved in the year ending March 2020.

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