FX Market Update 12-3

Market Briefs

• EUR/USD 0.06%, USD/JPY -0.22%, GBP/USD 0.06%, EUR/GBP -0.01%
• DXY -0.03%, DAX 0.51 %, FTSE -0.07%, Brent -0.63%, Gold -0.47%
• ECB’s Coeure sees short term interest rates at “very low levels”
• UK consumer spending suffers weakest start since 2012 – Visa
• “No deal” Brexit could cost UK, EU companies 58 bln pounds -report
• Britain, EU should aim for customs union – Germany’s BDI industry lobby
• Poverty row splits conservatives before German coalition deal signed
• Gold inches lower as equities rally after U.S. jobs data
• Oil, briefly up on lower rig counts, falls on U.S. output outlook

Looking Ahead – Economic Data (GMT)

• 14:00 US Employment Trends (Feb) (prev 106.9)
• 18:00 US Federal Budget,$ (Feb) (mkt -216.00 bln, prev 49.00 bln)

Looking Ahead – Events, Other Releases (GMT)

• 15:00 Treasury announces 4-week bills (e: $65 bn)
• 15:00 Treasury auctions $21 bn reopened 10-year notes
• 15:30 Treasury auctions $51 bn 13-week and $45 bn 26-week bills
• 15:30 Treasury auctions $28 bn 3-year notes

Currency Summaries


• EUR/USD is close the centre of the range for the last 8 weeks
• The number of EUR/USD traders holding bullish bets is little changed
• Loss of bullish momentum may/should start to influence profit-taking
• Cost of holding longs is increasing, near doubled since November
• Only wider over year-end when funding needs initially weighed EUR/USD
• May prove prudent to sell strength within 1.2250-1.2450


• USD/JPY range has been 106.35-106.97, with the bias on the downside
• Outlook negative while important levels above remain intact
• March 1 107.20 peak capped Fri’s US NFPs rebound which got to 107.05
• Lots of tech levels above 107.20 which aid sell-rally starts


• EUR/CHF threatening a reversal from recent 1.1740 highs
• This despite a risk on Monday market, firmer stocks and steady EM
• Doji candles Thurs/Frid warned of a change in direction: early Monday losses
• Plays 1.1694-1.1716 and has bearish engulfing line potential today
• Swiss sight depos show domestic balances up in latest week
• USD/CHF tech reversal underway after acceleration into doji star Frid and Mon losses
• Potential trend turn and retrace to 0.9361, 50% Fibo 0.9188-0.9534
• Dollar struggles after latest U.S wage data tempers inflation expectations


• Cable met headwind pre-1.3889 after firming from 1.3856 (early Ldn low)
• 1.3889 was Friday’s high as GBP benefitted from rise in risk appetite
• Nikkei closed up 1.65% Monday. S&P E-mini +0.35% (at 5.50am ET)
• 1.3900-10 and 1.3929 (Mar 6 high) are GBP/USD resistance levels
• EUR/GBP holding below 0.89 after sliding to 8-day low of 0.8874 Friday
• UK finance minister Hammond to deliver budget update Tuesday


• USD/CAD elicited fresh support pre-1.2800 in Asia and early Europe
• 1.2804 = Asia low. 1.2806 = early Europe low. 1.2807 was pre-weekend low
• BoC Governor Poloz due to speak about labour market on Tuesday


• AUD/USD notched a new 2wk peak of 0.7879 in early European trade
• Offers expected near 0.7900 (0.7893 was Feb 26 high)
• 0.7847 (Asia low) and 0.7825 (option expiry) are support levels
• AFR-Model says TPP-11 deal could boost Australian GDP by $18bln a year


• NZD/USD is trading close to a 0.7300 option expiry for the 10am ET NY cut
• NZD 313mn strike. 0.7323 was two-week high in Asia
• RBNZ Gov Spencer to speak about macro-prudential policy 12.45pm NZT


• Risk friendly environment pressure FX vols – many front end vols back near 2018 lows
• Some bargain hunters limit deeper vol declines now as event risk draws nearer
• US FOMC, BoE and EU summit the stand out risk events on near term horizon
• USD/JPY recovery falters 107, but well away from 105 barriers, danger zone
• EUR/USD pinned by huge range bets/barriers, many between 1.2150-1.2550


Time to consider paring more costly EUR/USD longs

The EUR/USD rally has stalled but the cost for those betting on a further rise is increasing more rapidly so it’s probably a good time to take profit. If traders opt to pare back bullish bets then a range, that’s currently near 1.2250-1.2450, is likely to gradually descend until the lower-end reaches a major level like the 100-DMA at 1.2031 or 200-DMA at 1.1845. It may be prudent to switch from buying dips within the 1.20-1.25 consolidation phase to selling rallies. EUR/USD first topped above 1.2500 on Jan 25 and has since traded a sideways pattern with 1.2155-1.2566 extremes. In March the pair bounced from the 1.2155 low but the cost of being long has also jumped by around 50%. It was only greater at the beginning of December when initial worries about year-end funding saw cross currency basis swaps blow out and EUR/USD sold. That was a temporary phenomenon, the current rise in the cost for those long EUR/USD is likely here to stay. EUR/USD long

Speculators less positive on GBP as EU summit looms

Speculators have reduced their net GBP long position to the lowest in over three months ahead of a crucial EU summit next week which will determine sterling’s path. The outcome of the summit is uncertain: the pound should rise if the EU and Britain can agree a Brexit transition deal, but success is far from guaranteed. The risk of the summit coming and going without a deal may help to explain why IMM speculators raised gross GBP shorts by 5,867 contracts to 56,104 and simultaneously cut gross GBP longs by 1,556 contracts to 61,368 in the week to March 6. This more than halved the net GBP long position to 5,264 contracts, the smallest long since late November . If a Brexit transition deal is agreed on March 22-23, it is expected to encompass the period from Britain’s scheduled EU exit in March 2019 to the end of 2020. The next-but-one meeting of EU leaders is slated for June 28-29.

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