FX Market Update 9-3

Market Briefs

• EUR/USD -0.08%, USD/JPY 0.51%, GBP/USD 0.05%, EUR/GBP -0.16%
• DXY 0.04%, DAX -0.3 %, FTSE 0.03%, Brent 0.79%, Gold -0.15%
• Strong U.S. job growth forecast; unemployment rate seen at 4 percent
• BOJ chief brushes aside early stimulus exit, calls for free trade
• Asia’s biggest exporters bristle over U.S. tariffs, fanning trade war fears
• DE Industrial Output MM Jan, -0.1%, f’cast 0.5%, prev -0.6%
• DE Trade Balance, EUR, SA Jan, 21.3 bln, f’cast 21.1 bln, prev 21.4 bln
• GB Construction O/P Vol YY Jan, -3.9%, f’cast -0.5%, prev -0.2%
• GB Industrial Output YY Jan, 1.6%, f’cast 1.8%, prev 0.0%
• GB Manufacturing Output YY Jan, 2.7%, f’cast 2.8%, prev 1.4%
• GB Goods Trade Bal. Non-EU Jan, -3.87 bln, f’cast -4.40 bln, prev -5.18 bln
• GB Goods Trade Balance GBP Jan, -12.32 bln, f’cast -12.00 bln, prev -13.58 bln
• Trump says prepared to meet North Korea’s Kim in first-ever such meeting
• PBOC governor says Bitcoin not a legitimate method of payment
• China to rely less on economic stimulus as it battles risks – cbank gov
• HK dollar weakens to fresh 33-year low, eyes on possible intervention
• Oil up after sell-offs amid optimism about Trump meeting Kim
• Gold slips on N.Korea news, market awaits U.S. jobs data

Looking Ahead – Economic Data (GMT)

• 13:30 US Non-Farm Payrolls (Feb) (mkt 200k, prev 200k)
• 13:30 US Private Payrolls (Feb) (mkt 191k, prev 196k)
• 13:30 US Manufacturing Payrolls (Feb) (mkt 15k, prev 15k)
• 13:30 US Government Payrolls (Feb) (prev 4k)
• 13:30 US Unemployment Rate (Feb) (mkt 4.0%, prev 4.1%)
• 13:30 US Average Earnings MM (Feb) (mkt 0.2%, prev 0.3%)
• 13:30 US Average Earnings YY (Feb) (mkt 2.8%, prev 2.9%)
• 13:30 US Average Workweek Hrs (Feb) (mkt 34.4, prev 34.3)
• 13:30 CA Capacity Utilization (Q4) (mkt 85.2%, prev 85.0%)
• 13:30 CA Employment Change (Feb) (mkt 20.0k, prev -88.0k)
• 13:30 CA Unemployment Rate (Feb) (mkt 5.9%, prev 5.9%)
• 13:30 CA Participation Rate (Feb) (prev 65.50%)
• 15:00 US Wholesale Invt(y), R MM, (Jan) (mkt 0.7%, prev 0.7%)
• 15:00 US Wholesale Sales MM (Jan) (mkt 0.7%, prev 1.2%)

Looking Ahead – Events, Other Releases (GMT)

• 17:40 Fed’s Rosengren speaks at “Outlook 2018” luncheon; Springfield, MA
• 17:45 Fed’s Evans speaks on “The Fed’s Return to Normalcy”; New York, NY

Currency Summaries

EUR/USD

• EUR/USD 1.2294-1.2322 in Europe ahead today’s U.S. jobs data
• Fed futures price in a little more tightening ahead the release
• German industrial output drops 0.1% mm vs a +0.5% f/c
• Germany’s exports drop 0.5% vs 0.3% f/c, imports -0.5% vs 0.0% f/c
• Many expiries today EUR 7.2bn 1.2200-1.2450, EUR 3.2bn 1.2250-1.2350
• Weight of potential hedging may compress today’s EUR/USD range

USD/JPY

• Risk rebound on NK headlines saw USD/JPY hit 106.94 in Asia
• Spot elevated despite steady selling on the EBS in Tokyo/London since BOJ
• Risk is for a further short squeeze to test and then break the 107.00 level
• Short squeeze likely to be contained by multiple Fibos, however

CHF

• EUR/CHF choppy Thurs around ECB-Draghi rhetoric
• EUR retreated as Draghi undercuts ECB statement gains
• Early bullish risk evaporated and a bearish signal, spinning top into close
• Frid action sees Upper 30DMA and cloud top pressured at 1.1687
• Confirmation of Thursday’s spinning top doji candle opens up 1.1640 55/100 DMAs
• USD/CHF into its thick daily cloud but looks vulnerable to a deep pullback as techs stall
• U.S payroll data key into the w/e: close key for both spot and cross

GBP

• GBP/USD steady (1.3801-18) after some mixed signals from UK data
• UK construction output -3.4% the biggest monthly fall since June 2012
• 9 consecutive monthly increases for UK manufacturing output, 1st for series
• IP 1.5% mm vs 1.8% f/c but still the biggest mm rise since Dec 2016
• GBP/USD quiet 1.3788-1.3831 in Europe, highs were seen ahead data
• Support @ Feb 9 low 1.3765. Resistance around 55-DMA 1.3833

USD/CAD

• Canada tariff exemption: hopes Canada gives ground on NAAFTA
• USD/CAD 1.2866 but meets demand, 6 March low 1.2865 underpins
• Support from 10dma 1.2854 and rising daily Tenkan-sen 1.2836
• Expiries 1.2815-25 (1.1BLN), 1.2860 (520M), 1.2950 (400M), 1.30 (1.6BLN)
• US, Canada jobs data awaited – Monday option vol 8.0, break-even 76 pips

AUD/USD

• AUD/USD bulls struggling with plenty of tech resistance levels this week
• Managed a close above 100/200DMA’s 0.7771/96 Tues, but 21DMA not so easy
• 21DMA 0.7835, probed above but failed to close, 0.7808-0.7778 range today
• 100DMA now support, but bulls need close above 21 DMA to target 55DMA 0.7883
• Thick daily cloud 0.7819-0.7995 adding to bulls woes
• Implied vols heavy suggesting expectations of further range trade to come

FX OPTIONS

• Implied vols under pressure across the board, helped by improved risk sentiment
• No surprises from BoJ and EUR/USD lower but well contained since ECB/Draghi
• NFP risk premiums on the low side in G10 majors for Monday expiry options
• EUR/USD 50 pips, USD/JPY 55 pips, Cable 60 pips, CAD 75 pips (gets Cnd jobs too)
• EUR 4bln 1.2300-50 expiries in EUR/USD and USD/JPY 3.8bln 107.00, 1.2bln 106.50

COMMENTS

EUR/USD vulnerable to a big hit from US NFPs

EUR/USD’s retreat following the ECB’s meeting Thursday leaves it vulnerable to a potentially strong U.S. jobs report today which could see further liquidation of bullish EUR/USD bets. Non-farm payrolls data is expected to be strong and after the ADP beat, an upside surprise is possible. There was a big upward revision for U.S. labour costs, and any surprise in closely-watched average earnings could have a big impact. Those long EUR/USD already have cause to doubt their positions as the pair headed down after a supposedly bullish event when the ECB dropped its easing bias. This was a strong sign the weight of longs is starting to influence activity. The pair has traded sideways for several weeks. The cost of running longs in that time is around 40-50 pips and with ECB rates going nowhere but U.S. rates rising, that cost will rise. Without bullish momentum, a paring of longs is inevitable. Should that lead to a closing break today below the daily Ichimoku cloud top at 1.2303, EUR/USD is likely to test the base at 1.2128.

Norway inflation data paves the way for stronger NOK

The Norwegian krone rose after stronger than expected inflation data Friday and looks set to outperform other Scandinavian currencies as the February numbers increase the likelihood that the Norges bank will hike interest rates in September. Core prices rose 1.4% annually, up from 1.1% in January. The Norges bank was looking for a 1.7% return but the data was markedly stronger than the market had expected. EUR/NOK slid to 9.6035, down from a 9.7295 Thursday high. A combination of a strong labour market and inflation and economic growth on the rise favours a return to EUR/NOK levels around 9.50-9.55. The 200-DMA currently sits at 9.5280 and serves as a target for NOK bulls. Expectations are now running high for a rate path adjustment and an actual hike in the key rate in September. Divergence in central bank policy between Norway and Sweden will also underpin further NOK/SEK gains. The cross has rallied 5% since early February as EUR/SEK climbed above the 10.00 level

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