FX Market Update 27-3

Market Briefs

EUR/USD -0.21%, USD/JPY 0.26%, GBP/USD -0.72%, EUR/GBP 0.53%
DXY 0.34%, DAX 1.99%, FTSE 1.93%, Brent 0.24%, Gold -0.34%
EU Consumer Confidence Final Mar, 0.1, 0.1 f’cast, 0.1 prev
EZ Industrial Sentiment Mar, 6.4, 7.0 f’cast, 8.0 prev
EZ Economic Sentiment Mar, 112.6, 113.4 f’cast, 114.1 prev
EZ Business Climate Mar, 1.34, 1.39 f’cast, 1.48 prev
EZ Services Sentiment Mar, 16.3, 16.5, f’cast, 17.5 prev
EZ Cons Infl Expec Mar, 16.1, 18.0 prev
EZ Selling Price Expec Mar, 11.5, 12.6 prev
EZ Money-M3 Annual Growth Feb, 4.2%, 4.6% f’cast, 4.6% prev
IT Consumer Confidence Mar, 117.5, 115.0 f’cast, 115.6 prev
IT MFG Business Confidence Mar, 109.1, 110.0 f’cast, 110.6 prev
U.S. seeks China trade moves on autos, financials, chips -source
Federal Reserve may review rules on lending to the poor
Gold gains on weaker dollar, Russian tensions
Oil holds above $70 as geopolitics eclipses supply outlook

Looking Ahead – Economic Data (GMT)

13:55 US Redbook MM w/e, 0.1% prev
13:55 US Redbook YY w/e, 3.2% prev
14:00 US CaseShiller 20 MM SA Jan, 0.7% f’cast, 0.6% prev
14:00 US CaseShiller 20 MM NSA Jan, 0.2% prev
14:00 US CaseShiller 20 YY Jan, 6.2% f’cast, 6.3% prev
15:00 US Consumer Confidence Mar, 131.0 f’cast, 130.8 prev
15:00 US Rich fed Comp. Index Mar, 28 prev
15:00 US Rich Fed Services Index Mar, 27 prev
15:00 US Rich Fed Mfg Shipments Mar, 31 prev

Looking Ahead – Events, Other Releases (GMT)

15:00 Fed’s Raphael Bostic speaks in Atlanta, Georgia

Currency Summaries

EUR/USD

EUR/USD initially higher to 1.2476 in Europe
Real money noted sellers of strength before data sends pair down
Euro zone M3 drops to 4.2% from 4.6% so below ECB’s 4.5% ref rate
EUR/USD drops 1.2465-27 in the hour after the release [nEONI3J0SF]
Euro zone business climate at 1.34 weakest since Sep 2017 [nS8N1JX01W]
EUR/USD slips further to 1.2415. EUR 1bln expiries 1.2300 may attract

USD/JPY

Elevated seeing a 105.40-105.75 range this session as trade concerns abate
Concerns over Abe govt going down also fade on ex-tax chief testimony
Despite bounce from 104.56 new 2018 low Monday, USD/JPY upside seen limited
Rise nothing more than retracement, some short-covering
Good chance rise will be stymied by key 105.96 Fibo n-term [nL1N1R906L]
Ex-Tax Bureau chief Sagawa – No instructions from PM to alter documents
Talk DepPM/FinMin Aso could step down tomorrow after budget passes
Feb corp service prices +0.2% m/m, +0.6% y/y, Jan -0.6%, +0.7%

GBP

Month-end selling of GBP and M&A news influenced 99 pip fall from 1.4244
1.4244 was early Europe 7wk high, before month-end buying of EUR/GBP
The month-end flow inflated the cross from 0.8750 to 0.8790 (1wk high)
GSK buys out Novartis in USD 13bln consumer healthcare shake-up
1.4130/38 is a GBP/USD support window (pre-weekend low/Monday’s low)
Ladbrokes-7/4 May is replaced as UK PM this year vs evens at start of month

CHF

EUR/CHF helped higher by recovering risk appetite – 1.1760-74 Tuesday
Closed above 76.4% of Jan-Feb drop at 1.1742 Mon
Jan 22 high and Jan/2018 peak 1.1798/1.1833 are the next bull targets
Daily Tenkan and Mon’s session low now support 1.1713-05
USD/CHF 0.9434-89 Mon, 0.9486-36 today
GBP/CHF lower, M&A news weighs

USD/CAD

USD/CAD rose from 1.2815 to 1.2868 during the European am
Ascent accompanied broad USD demand ahead of month-end
1.2815 = 15-day low. 1.2829 was Asia low
Huge 1.2850 option expiry Wednesday, USD 1.3bln strike

AUD/USD

AUD/USD eased to threaten 0.7714 during the European am
0.7714 was Monday’s North American session low
USD on the front-foot as month-end looms

NZD/USD

NZD/USD eased to 0.7273 during the European am amid greenback gains
0.7304 was 12-day high in Asia (0.7301 was Monday’s high)
Large 0.7280 option expiry Wednesday, NZD 447mn strike

FX OPTIONS

Risk recovers to pressure vols, helped by impending Easter holiday
USD/JPY 1-week vol off 2.0 and 1-month down 1.0 from last weeks peaks
3bln 105.00-50 USD/JPY expiries to underpin ahead of 10am NY cut today
EUR/USD gains run in to sellers ahead of 1.2500, Options still covering risk above
GBP/USD doing enough within range to prop vols at recent lows. Bias remains higher

COMMENT

USD/JPY, Nikkei up on lack of Moritomo bombshells

Abating concerns over a trade war the main reason behind moves up in both USD/JPY and the Nikkei this week. The lack of any incriminating news from the Moritomo loan scandal looks to be helping. In Diet testimony, ex-Tax Bureau chief Sagawa looks to shoulder most of the responsibility for re-writing of the tax documents in question. Mr Sagawa added he received no specific instructions from the PM to alter the land sale documents. This seems to ensure the continuation of an Abe government for the foreseeable future. That said, there is still the risk that the government will face some repercussions. To wit, about half of those polled think PM Abe should resign on the back of the crony-ism scandal. After the budget bill for the next fiscal year is passed, likely tomorrow, there is talk DepPM/FinMin Aso could tender his resignation as he oversees the Tax Bureau. This would in effect take out a major pillar of the current Abe government.

CHART FOCUS

EUR/USD downside risk grows, protection needed

Receding fears of a global trade war have hurt the dollar and encouraged investors to pile back into the euro, taking it to a new five week high on Monday as it posted the sixth biggest daily gain of 2018. However, EUR/USD speculative accounts have run into decent real money sellers near the 30-day upper Bollinger band now at 1.2479 on Tuesday. For those traders worried about the growing risk of a near-term relapse back to the 30-DMA, currently at 1.2342, they can take advantage of this by taking out 1-week insurance. This can be achieved by buying a 1-week 1.2430 put option for a cost of 36 pips, but unlimited profit potential especially if spot collapses back below the aforementioned 30-DMA before the April 3expiry date. There is even an outside chance EUR/USD could drop to the 30-day lower Bollinger at 1.2205. Thinning volume as the Easter break approaches could exacerbate moves

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