FX Market Update 23-3

Market Briefs

• EUR/USD 0.22%, USD/JPY -0.33%, GBP/USD -0.02%, EUR/GBP 0.24%
• DXY -0.18%, DAX -1.77 %, FTSE -0.85%, Brent 0.19%, Gold 1.04%
• China urges U.S. away from “brink” as Trump picks trade weapons
• Trump temporarily excludes EU, six other allies from steel tariffs
• EU leaders confirm Brexit transition offer, joint trade line
• U.S. Congress approves $1.3-trillion spending bill, sends to Trump
• Inflation bites into German 2017 real wages
• BOJ deputy gov says price gains insufficient, wants stronger policy regime
• Oil rises as Saudi talks about extending output cuts into 2019
• Gold shines as trade war fears rattle markets

Looking Ahead – Economic Data (GMT)

• 12:00 US Build Permits R Numb (Feb) (prev 1.298 mln)
• 12:30 US Durable Goods (Feb) (mkt 1.5%, prev -3.6%)
• 12:30 US Durables Ex-Transport (Feb) (mkt 0.5%, prev -0.3%)
• 12:30 CA CPI Inflation MM (Feb) (mkt 0.5%, prev 0.7%)
• 12:30 CA CPI Inflation YY (Feb) (mkt 2.0%, prev 1.7%)
• 12:30 CA CPI BoC Core YY (Feb) (prev 1.2%)
• 12:30 CA CPI MM SA (Feb) (prev 0.5%)
• 12:30 CA Core CPI MM SA (Feb) (prev 0.2%)
• 12:30 CA Retail Sales MM (Jan) (mkt 1.1%, prev -0.8%)
• 14:00 US New Home Sales-Units (Feb) (mkt 0.623 mln, prev 0.593 mln)
• 14:00 US New Home Sales Chg MM (Feb) (mkt 4.4%, prev -7.8%)

Looking Ahead – Events, Other Releases (GMT)

• 12:10 Fed’s Bostic speaks at economics forum; Knoxville, TN
• 14:30 Fed’s Kashkari in moderated Q&A session; New York, NY
• 15:30 Fed’s Kaplan in moderated Q&A session; Austin, TX
• 15:45 FedTrade 15-year Fannie Mae / Freddie Mac (max $165 mn)
• 23:00 Fed’s Rosengren at International Research Forum on Monetary Policy; Washington, DC

Currency Summaries

EUR/USD

• EUR/USD 1.2317-48 in Europe after 1.2300-1.2348 in Asia
• Euro appeals as a safer asset to U.S./China trade war
• But, may see spec longs curbed before the safer asset status supports
• Unwinding of exiting positions usually precedes moves to safe shores
• No EU data, EUR/USD is near centre of range for near ten weeks
• Quiet intensifies influence of option expiries. EUR 2.6bln @ 1.2300

USD/JPY

• USD/JPY in for volatile month as China tariffs loom
• Buckled below 105.00 barriers as risk aversion rises, range 104.64-105.45
• Bears now free to target huge 76.4% Fibo below
• Bids from @104.70 attributed to bargain-hunting, options, possible PKO
• Nippon Life already stated intention to buy sub-105, other funds/lifers too

CHF

• Fall in EUR/CHF pulls up shy of the daily cloud Thurs-Frid: Cloud top = 1.1641
• EZ data and U.S trade news drivers last session along with EU tariff exemption
• Cross plays 1.1653-1.1682 early Frid and displaying bullish signals
• USD/CHF heavy mid-cloud at 0.9472 but stalled by 21/55-DMAs at 0.9455/0.9460
• Spot plays 0.9445-0.9495 early Frid and risks a cloud base test at 0.9404 near-term
• Overall, CHF to remain volatile as potential trade instability drives risk sentiment

GBP

• Following strong gains on data and BOE hawks GBP now on the back foot
• GBP often tracks more risk sensitive currencies when stocks under pressure
• That traders recently long pounds exacerbates the bearish situation
• EUR/GBP seeming false break 0.87/0.90 range play adds to GBP bulls woes
• Break Mar 21 high at 0.8758 opens move to a thin daily cloud 0.8807-15
• GBP/JPY set to close breaks below 21/200-dmas 148.01/28 risking 145 return

USD/CAD

• 1.2896-1.2940 Fri, yet to close below 21DMA 1.2903 – supportive
• Close below 21DMA needed to retest Thurs 1.2830 and 12 March 1.2804 lows
• Trade war angst, stock weakness should help USD/CAD support
• Resistance at Thurs 1.2949 high, daily Tenkan and 10DMA 1.2977/83

AUD/USD

• Surprisingly resilient despite trade war talk and risk aversion
• 0.7730-0.7686 today, Wed low 0.7672 supports, 0.7600 barriers key
• 0.7600 is also trend line of 2016-18 rise, break signals deeper decline
• AUD/JPY weight keeps a lid on any AUD/USD recoveries for now
• AUD/JPY propped by mid Nov double base 80.27-26, break opens 9 Nov low 76.79

FX OPTIONS

• Risk aversion lends support to G10 vols, especially CHF and JPY pairs
• However, gains limited, especially USD/JPY – well below early Feb peaks
• Flows suggest deeper USD/JPY declines to be a hard fought grind
• 1-month risk reversals have even seen sellers of JPY calls in early Europe
• EUR/USD and Cable flows suggest spot range trade before renewed push higher

COMMENT

Looking to fade the USD/ZAR daily cloud base

Another bout of bear side consolidation and some indication that price could re-visit the base of the thick and falling daily cloud, currently 11.9462. Weight of the cloud along with negative fourteen day momentum highlight the bias but until the Tenken, 11.9225, and Kijun, 11.8088, align bearishly there is scope for better levels to sell USD/ZAR. Bear side targets are found at 11.71, March 6 low, and 11.51 low from February 26. A look at the weeklies highlights the continued sideways bias but with fading bearish momentum clashing with a potential bearish turnover on the slow stochastic. Looking slightly longer-term the market is likely to play a range between 11.51 and 12.20 with upside risk driven by weekly cloud twists at 13.48 and 13.4075, mid-April and mid-June. However, with a falling 30-week lower Bollinger there remains some scope to test lower levels towards the aforementioned range base

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