FX Market Update 15-3

Market Briefs

• EUR/USD -0.05%, USD/JPY -0.43%, GBP/USD -0.15%, EUR/GBP 0.08%
• DXY 0.08%, DAX 0.22 %, FTSE 0.16%, Brent -0.15%, Gold -0.11%
• Euro zone banks may get reprieve until 2021 from ECB bad-debt rules
• Russia to expel UK diplomats as row over spy attack escalates
• U.S. pressing China to cut trade surplus by $100 bln -White House
• BOJ Kuroda calls for raising Japan’s service-sector productivity
• Gold prices steady amid trade war fears, Britain-Russia tensions
• Oil prices stable on healthy demand, but oversupply worries loom

Looking Ahead – Economic Data (GMT)

• 12:30 US Import Prices MM (Feb) (mkt 0.2%, prev 1.0%)
• 12:30 US Export Prices MM (Feb) (mkt 0.3%, prev 0.8%)
• 12:30 US Initial Jobless Claims (w/e) (mkt 226k, prev 231k)
• 12:30 US Jobless Claims 4-Wk Avg (w/e) (prev 222.50k)
• 12:30 US Continued Jobless Claims (w/e) (mkt 1.900 mln, prev 1.870 mln)
• 12:30 US NY Fed Manufacturing (Mar) (mkt 15.00, prev 13.10)
• 12:30 US Philly Fed Business Indx (Mar) (mkt 23.0, prev 25.8)
• 20:00 US Overall Net Capital Flows (Jan) (prev -119.3 bln)

Looking Ahead – Events, Other Releases (GMT)

• N/A Treasury $62 bn coupon auctions settle (3/10(r)/30(r)) (raise $38.0 bn new cash)
• 15:00 Treasury announces 13- and 26-week bills (e: $51/45 bn)
• 15:00 Treasury announces reopened 10-year TIPS (e: $11 bn)

Currency Summaries


• EUR/USD 1.2352-77 in Europe follows 1.2362-84 in Asia
• One-month vols sinking 6.25 from near 10 in mid-February
• The hedging of larger option expiries is more influential in quieter times
• EUR 1bln vanilla expires at 1.2300, 1.2350 and 1.2400 today
• Expiries suggest a high probability of a tight range well within 1.23/1.24
• Philly Fed at 12.30GMT seen 23.0 from 25.8


• USD/JPY has scope for eventual losses to the 30-day lower BB
• Spot is unlikely to break 105.00 pre-FOMC according to options
• Huge bids said ahead of 105 barriers, but Japan exporter sales limit upside
• NY Cut Expiries: 106 (707M), 106.40-50 (905M), 106.95 (2.8B), 107 (816M)
• Risk aversion has seen a drop from Tue’s 107.30 peak to hit 105.79 Asia
• There was net selling on EBS throughout Tokyo and so far in London
• MoF flow data week-ended Mar 10 – Japanese buy net Y1.09 trln foreign bonds
• Net Y23 bln stocks sold, Y115.3 bln bills bought, bond-buys on JPY strength
• Foreigners sell Y432.5bln Japan stocks, buy Y486bln JGBs, Y1.7896trln bills


• EUR/CHF steady to firm at 1.1688 Thurs within shallow daily bear drift
• No surprise to see SNB maintain expansionary policy position
• Latest assessment concludes CHF remains highly valued nNDL9n6wFF
• Overall view of domestic and global economy upbeat
• Stimulus for CHF activity continues to come from external influences
• Unless the CHF accelerates recent gains vs EUR SNB is out of the FX game


• Cable tested 1.3925 after sliding from 1.3989 (early Europe intra-day high)
• Losses influenced by fix-related selling of GBP and latest Russia/UK news
• Kremlin says will not have to wait long for Russia’s response to UK measures
• 1.3925 was Wednesday’s low on prior Russian retaliation threat
• Key resistance 1.40: three failures just shy of level TuesdayWednesday
• BBC-Brexit secretary Davis to meet Barnier on Monday, pre-EU summit


• 19 pip range for USD/CAD thus far Thursday, 1.2946-1.2965
• Gain consolidation is big-picture story: 1.2804 was Monday’s low
• Recent gains influenced by dovish Poloz Tuesday


• AUD/USD ticked south to 0.7859 during the European morning
• 0.7859 = low water-mark since Wednesday’s 3wk high of 0.7916
• Drop to 0.7859 influenced by trade war concerns
• Real risk of “devastating” trade war – Singapore CB chief


• NZD/USD eased to threaten 0.7305 during the European am
• 0.7305 was Asia low after lower than expected NZ Q4 GDP data
• NZD/USD scaled 19-day peak of 0.7355 earlier this week (Tuesday)


• 1-Week expiry options capture FOMC and BoE MPC but vol premiums tame
• Low vols offer decent hedging opportunities for those looking for volatility, direction
• Implied vols in G10 remain broadly offered amid recent spot consolidation
• Big EUR/USD range binaries in play to supress spot and pressure vol
• USD/JPY sees limited threat of 105 test yet as implied vols and JPY calls stay soft


USD/JPY to repeat the NFP trend for post-data falls

The USD/JPY bounce since a strong U.S. jobs report has been negligible and fits the trend for USD/JPY to rise slightly for 24-48 hours after NFPs before falling, which puts it at risk of reversing the so-called “Trump trade”. The decline should be within the recent average for post-NFP drops, which roughly measure between 2 and 5 yen. However, that brings USD/JPY to 105.00 which is a major psychological point as it was the level ahead of Donald Trump’s November 2016 election win and also the level cited as a buy by Nippon Life, the largest of Japan’s insurers, so a likely bellwether for this influential sector. A break below would wipe away any USD strength linked to the optimism after the election, probably confirming that U.S. protectionist plans have flipped sentiment back to the prior bearishness linked to Trump. USD/JPY initially traded 101.19 on headlines of his surprise win, which makes that a likely target when 105 breaks. USD/JPY daily chart:

Brexit transition deal may be game changer for GBP

Brexit optimism is boosting sterling and it could spike higher if the EU and Britain agree a Brexit transition deal at next week’s EU summit (March 22-24). UK’s Brexit secretary David Davis fuelled the positive mood after he told BBC Newsnight Wednesday that he was prepared to accept the EU’s demand that a transition deal should conclude at the end of December 2020 and his main priority is to secure agreement next week. The BBC says Davis will travel to Brussels on Sunday for a meeting with the EU’s chief Brexit negotiator Barnier on Monday. If the outcome of their meeting is positive, it could tee up further gains for the pound–which has risen to two-week highs against the USD and euro this week. On Feb 28, the pound fell after Barnier said a Brexit transition was not guaranteed.


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