FX Market Update 13-3

Market Briefs

• EUR/USD -0.04%, USD/JPY 0.72%, GBP/USD -0.09%, EUR/GBP 0.05%
• DXY 0.17%, DAX 0.18 %, FTSE 0.01%, Brent 0.18%, Gold -0.31%
• Hammond to give brighter outlook for UK’s Brexit-bound economy
• German industry needs Brexit clarity next week – BDI
• Rookie crypto investors look past risks, flock to London show
• Bitcoin start-ups in Asia take aim at remittances market
• Japan to urge G20 for steps to prevent cryptocurrency use for money laundering
• China to merge regulators, create new ministries in biggest overhaul in years
• Japan Inc to announce pay hikes, seen short of PM Abe’s 3 pct target
• Oil prices dip on relentless rise in U.S. crude output
• Gold dips ahead of key U.S. data

Looking Ahead – Economic Data (GMT)

• 12:30 US Core CPI MM, SA (Feb) (mkt 0.2%, prev 0.3%)
• 12:30 US Core CPI YY, NSA (Feb) (mkt 1.8%, prev 1.8%)
• 12:30 US CPI Index, NSA (Feb) (mkt 248.936, prev 247.867)
• 12:30 US Core CPI Index, SA (Feb) (prev 255.29)
• 12:30 US CPI MM, SA (Feb) (mkt 0.2%, prev 0.5%)
• 12:30 US CPI YY, NSA (Feb) (mkt 2.2%, prev 2.1%)
• 12:30 US Real Weekly Earnings MM (Feb) (mkt 0.3%, prev -0.8%)

Looking Ahead – Events, Other Releases (GMT)

• 12:30 UK Finance Minister Philip Hammond delivers spring statement on updated fiscal forecasts, London
• 15:30 Treasury auctions $65 bn 4-week bills
• 17:00 Treasury auctions $13 bn reopened 30-year bonds

Currency Summaries
EUR/USD

• EUR/USD weighed by funding costs, but still looking resilient in low 1.23’s
• Frustrated bears need a break of 55DMA 1.2258 to set up deeper decline
• Dly cloud 1.2326-1.2128, Mon low 1.2291, 61.8% March gains 1.2266 underpin
• Mon’s high 1.2345 matched/capped today. Option vols suffer as ranges hold
• Large binary options contribute to EUR/USD range, evident by very low vols
• US CPI near term focus, but options price minimal risk premium

USD/JPY

• USD/JPY bears have been squeezed, forced into a bout of short-covering
• Lack of fresh negative news on Moritomo scandal a factor in the move
• Spot heavy early on, falling to 106.25 into Tokyo fix, rebounds to 107.22
• USD/JPY to remain capped by multiple tech levels above 107
• Japanese exporters, players outside Japan have decent sized offers above 107
• Large Thurs expiry another reason spot may struggle above 107

CHF

• EUR/CHF maintaining a shallow retrace from 1.1740 Mar 8 top
• Cross bumping along the top of a falling daily cloud, 1.1671
• Converged 10/55/100-DMAs provide support at 1.1640
• USD/CHF losing traction from within its daily cloud: base at 0.9456
• Spot plays 0.9466-0.9494 and cross 1.1680-1.1697
• Indecision in the cloud points to a run back to the low 0.93s
• U.S inflation data today, core seen unchanged at 1.8% y/y

GBP

• Cable has held below 1.3900 since the London open: 1.3875 = session low
• There is a 1.3900 option expiry for the 1400GMT NY cut, GBP 503mn strike
• US Feb inflation data is due 90 minutes before the NY cut, CPI f/c +0.2% MM
• Hammond’s half-yearly update on the UK public finances from 1230GMT
• Britain’s finance minister is expected to speak for approximately 20 minutes
• 20 pip range for EUR/GBP since the European open, 0.8865-0.8885

USD/CAD

• USD/CAD rose to a high of 1.2863 during the European morning
• 1.2863 = high water-mark since 1.2800 threatened on Friday and Monday
• Poloz due to speak about labour market and the future of work at 1415GMT

AUD/USD

• AUD/USD elicited support pre-0.7856 after retreating from 0.7885
• 0.7856 was Monday’s European am low. 0.7885 = 15-day high in Asia
• Probability of 0.7885 break will increase if US CPI softer than expected
• Headline CPI f/c +0.2% MM, +2.2% YY. Data due 1230GMT

NZD/USD

• NZD/USD extended north to a 15-day high of 0.7333 during the European am
• The pair could continue higher if US Jan CPI data is softer than expected
• Headline CPI f/c +0.2% MM, +2.2% YY. Core CPI f/c +0.2% MM, +1.8% YY
• NZ Q4 GDP data due Wednesday (2145GMT), +0.7% QQ f/c, +3.1% YY f/c

FX OPTIONS

• Option vols very low – catalyst of recent range bound spot markets and risk appetite
• Huge range binary bets in EUR/USD add weight to vols there, long gamma limits spot
• USD/JPY probes 107.00+, but 3bln 106.95-107 expiries Thur add to resistance/pull
• Over GBP 1bln 1.3900 option expiries this week help contain there
• Deeper vol losses should be limited in to next weeks FED, BoE MPC and EU summit

COMMENT

Cable could top 1.40 on Brexit transition deal
Cable’s outlook has improved this week on fresh hopes about Brexit talks and it could jump to 1.41 and EUR/GBP drop to 0.8772 if the EU and Britain agree a Brexit transition deal at next week’s EU summit (March 22-24). GBP/USD was last at 1.41 on Feb 16 (before softer than expected UK ONS January retail sales data). 0.8772, which equates to GBP/EUR 1.14, was the EUR/GBP low on Feb 26. Cable rose to a six-day high of 1.3917 Monday, with EUR/GBP sliding to an 11-day low of 0.8850, as the pound benefitted from hopes that the EU and Britain might reach a Brexit transition deal next week. Those hopes were fuelled by comments from a junior Brexit minister in the British government and a spokesman for PM May . On Tuesday, Germany’s BDI industry association turned up the heat on both sides, saying “we demand a basic decision on this from the EU and British government” at the EU summit next week

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