FX Market Update 14-3

Market Briefs

• EUR/USD -0.19%, USD/JPY -0.01%, GBP/USD -0.05%, EUR/GBP -0.16%
• DXY 0.17%, DAX 0.32 %, FTSE 0.25%, Brent 0.63%, Gold -0.08%
• ECB to end bond buys only when inflation is on sustainable path
• ECB’s Angeloni says banks must get ready for end of ECB stimulus
• German lawmakers elect weakened Merkel to fourth term
• EZ Industrial Production MM Jan, -1.0%, f’cast -0.4%, prev 0.4%
• EZ Industrial Production YY Jan, 2.7%, f’cast 4.7%, prev 5.2%
• EZ Employment YY Q4, 1.6%, prev 1.7%
• DE CPI Final MM Feb, 0.5%, f’cast 0.5%, prev 0.5%
• DE CPI Final YY Feb, 1.4%, f’cast 1.4%, prev 1.4%
• DE HICP Final MM Feb, 0.5%, f’cast 0.5%, prev 0.5%
• DE HICP Final YY Feb, 1.2%, f’cast 1.2%, prev 1.2%
• New Trump tariff threat overshadows strong China factory, investment data
• BOJ signals confidence on smooth exit from easy policy
• Gold flat amid rising U.S. protectionism fears
• Oil rises as Chinese factory data boosts commodities

Looking Ahead – Economic Data (GMT)

• 11:00 US MBA Mortgage Applications (w/e) (prev 0.3%)
• 11:00 US Mortgage Market Index (w/e) (prev 384.1)
• 12:30 US PPI Final Demand YY (Feb) (mkt 2.8%, prev 2.7%)
• 12:30 US PPI Final Demand MM (Feb) (mkt 0.1%, prev 0.4%)
• 12:30 US PPI exFood/Energy YY (Feb) (mkt 2.5%, prev 2.2%)
• 12:30 US PPI exFood/Energy MM (Feb) (mkt 0.2%, prev 0.4%)
• 12:30 US Retail Sales Ex-Autos MM (Feb) (mkt 0.4%, prev 0.0%)
• 12:30 US Retail Sales MM (Feb) (mkt 0.3%, prev -0.3%)
• 12:30 US Retail Control (Feb) (mkt 0.4%, prev 0.0%)
• 14:00 US Business Inventories MM, (Jan) (mkt 0.6%, prev 0.4%)

Looking Ahead – Events, Other Releases (GMT)

• No major events are scheduled

Currency Summaries


• EUR/USD opens 1.2405 and trades a little lower in Europe
• Dovish bias to ECB commentary leans on the pair
• ECB to only end bonds buys when inflation on sustainable path
• But, ECB growing in confidence inflation converges to target
• 1.2364 low after ECB comments 1.2362 after EZ IP -1% in Jan vs -0.4% f/c
• EUR 900 mln 1.1.2390-2400 and 400mln 1.2350 expiries may be anchoring spot


• USD/JPY has seen a 106.39-106.75 range this session
• USD/JPY rise capped at 107.30 on Tuesday, ahead 30-DMA
• Offers said to trail up, heavier at 107.00 and above. Stops above 107.30
• Focus on the 10-DMA at 106.31, bids in size ahead of there
• Tuesday’s Tillerson firing saw spot retreat back below 107.00


• EUR/CHF out of the game as USD moves dominate
• Equity weakness, trade wars and U.S political intrigue not lifting CHF
• Cross plays 1.1690-1.1708 early Wed: 1.1675-1.1740 recent range
• USD/CHF lifting out of a new 0.9425 pullback low but stalled by daily cloud base
• Bearish resumption would look to 0.9413 61.8% 0.9339-0.9534 early March lift
• Firing of U.S. Sec State Tillerson still reverberating around the dollar market
• U.S Feb retail sales data 1230GMT, +0.3% m/m vs -0.3% prev expected


• GBP/USD met fresh headwind pre-1.40 in Asia: 1.3996 = 15-day high
• Prior supply near 1.40 capped cable after USD sold on Tillerson exit Tuesday
• 1.3941 = low water-mark since 1.40 was threatened in Asia
• Stops are tipped above 1.4000 (1.3996 was also Feb 27 high)
• Bull targets include 1.4070 (Feb 26 high) and 1.4145 (Feb 16 high)
• US Feb retail sales and PPI data due 1230GMT, retail sales f/c +0.3%


• USD/CAD matched its 1.2939 Asia low during the European am
• 1.2939 = low water-mark since Tuesday’s six-day high of 1.2984
• Ascent to 1.2984 was fuelled by dovish Poloz
• 1.30 is a key resistance level (approximate treble-day 8mth high last week)


• AUD/USD met fresh headwind ahead of 0.79 during the European am
• Prior offers pre-0.79 capped pair after USD sold on Tillerson exit Tuesday
• 0.7846 = interim low on Trump/China tariff news (NY afternoon)
• Wednesday ascent to threaten 0.79 influenced by strong China data


• NZD/USD has retreated towards 0.7320 since threatening 0.7355 in Asia
• 0.7355 was 19-day high Tuesday after USD sold on Tillerson exit
• 0.7320 = pullback low from 0.7355 (0.7323 was Monday’s high)
• NZ Q4 GDP data due 2145GMT, f/c +0.7% QQ, +3.1% YY


• Option vols starting to find a base in G10 after recent steady declines
• Better value level vs realised now as key events loom – Fed, MPC, EU summit
• Renewed demand for downside risk hedges via USD/JPY last few sessions
• 3bln 106.95-107.00 USD/JPY expiries help to cap/limit USD/JPY topside
• EUR/USD remains pinned by huge binary options, adding to implied vol weight


Potential of non-German ECB head may hurt euro

Euro bulls banking on a hawkish shift in ECB monetary policy may take a hit if a non-German candidate such as Irish central bank governor Lane is chosen to succeed Draghi as ECB president next year. A Bloomberg report has raised doubts about the chances of a German succeeding Draghi, saying Merkel may give up Germany’s shot to lead the ECB. Bundesbank President Weidmann is the leading candidate to succeed Draghi, although picking him may be tricky because he has alienated some officials with his opposition to the ECB’s ultra-easy monetary policy. Irish CB chief Lane was one of the two candidates to succeed Constancio as ECB Vice-President in May, before Ireland decided to withdraw Lane’s name. If he gets the job, he may be a lot less hawkish than Weidmann, to the detriment of the euro. Lane might benefit from the heavy focus on the Ireland/Northern Ireland border issue in Brexit negotiations if a non-German is sought for the top ECB job. EUR:


Longer-term charts suggest rand rally is faltering

A flattening in the USD/ZAR daily chart with tighter ranges points to supply fade but the bias remains bearish. However, weekly action is beginning to highlight reversal potential. Fourteen-week momentum has been diverging since mid-February and suggests the move lower from the 12.20 February 8 high has lacked strength. The latest two-week dip in USD/ZAR, 12.0250 to 11.71-11.73, has not been confirmed by a pick up in bearish momentum. Weekly tenken and 10-WMA have contained the topside but are flattening, making them less technically significant. Weekly cloud twists on the horizon and although some way off current price, 13.48 Apr 20 and 13.40 Jul 6, could extents some pull on USD/ZAR. Should the current chart set up lead into a bigger rebound the initial target would be the 12.20 February high and then 12.2333, 23.6% Fibo off the 14.5750 November high and 11.5100 March low. Reversal call strengthens above 12.0250, double day high from March 2-5

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