FX Market Update 3-4

Market Briefs
• EUR/USD 0.1%, USD/JPY 0.24%, GBP/USD 0.16%, EUR/GBP -0.09%
• DXY -0.1%, DAX -1.04%, FTSE -0.32%, Brent 0.46%, Gold -0.21%
• EZ Mar IHS Markit’s Final Mfg PMI, 56.6, 56.6 f’cast, 58.6 prev
• GB Mar markit/CIPS Mfg PMI, 55.1, 54.7 f’cast, 55.2 prev
• DE Mar Markit/BME Mfg PMI, 58.2, 58.4 f’cast, 58.4 prev
• DE Feb Retail Sales Real MM, -0.7%, +0.6% f’cast, -0.7% prev
• DE Feb Retail Sales Real YY, +1.3%, 2.2% f’cast, +2.3% prev
• IT Mar Markit Mfg PMI, 53.7, 53.6 f’cast, 53.6 prev
• IT Mar markit/ADACI Mfg PMI, 55.1, 55.4 f’cast, 56.8 prev
• ES Mar Mfg PMI, 54.8, 54.8 f’cast, 56.0 prev
• FR Feb Budget Bal EUR, -28.4 bln, -10.76 bln prev
• New York Fed to launch U.S. Libor contender, slow takeup seen
• Australia’s central bank sits tight in “masterful” inaction
• China ready for proportionate response to U.S. tariffs- envoy
• China hopes U.S.-N.Korea summit can avoid “disruptive factors”
• Gold prices slip after Monday’s surge
• Oil recovers from steep drop, but trade and output concerns linger

Looking Ahead – Economic Data (GMT) 
• N/A US Mar Light Vehicle Sales SAAR, 16.90 mln f’cast, 17.08 mln prev
• N/A US Mar Domestic Car Sales SAAR, 4.25 mln f’cast, 4.13 mln prev
• N/A US Mar Domestic Light Truck Sales SAAR, 9.00 mln f’cast, 9.08 mln prev
• 13:55 US Redbook Weekly Same-Store Sales Index y/y, +3.6% prev
• 14:45 US Mar ISM-New York PMI, 54.5 prev
• 15:00 US Apr IBD / TIPP Economic Optimism Index, 55.6 prev

Looking Ahead – Events, Other Releases (GMT) 
• 14:30 FRB Minneapolis’s Neel Kashkari in moderated Q&A session – Duluth, MN
• 16:30 Treasury auctions $55 bn 4-week bills (size cut by $10 bn)
• 16:45 FedTrade 30-year Fannie Mae / Freddie Mac (max $780 mn)
• 21:30 Fed’s Lael Brainard speaks on financial stability at NYU – New York

Currency Summaries

EUR/USD

• EUR/USD up slightly despite softer than expected data
• EZ PMI weakest since July 2017 at 56.6, compares 60.6 in December
• German PMI also weakest since Jul 17 @ 58.2 was 63.3 in December
• German retail sales earlier down 0.7% mm when f/c up 0.6%
• Despite data EUR/USD 1.2318 best in Asia reaches 1.2336 in Europe
• Capped by 21/55-DMAs 1.2338. EUR 750mln 1.2350 expiries add to resistance

USD/JPY

• Daily close back above the 30-DMA at 106.82 should see stronger rise
• Heavy in Asia, but trading has been sustained above Monday’s 105.66 low
• Bulls find support at 105.70, Kuroda causes short-lived dip before recovery
• Spec short-covering & Japanese bargain-hunting tipped as reasons for support
• Dealers also see renewed likelihood of more Japan investor bids
• Kuroda: BOJ is doing internal debate on exit strategy
• BOJ Tankan price expectations survey – +0.8% y/y in year, +1.1% in 3/5 years
• Inflation expectations tepid, stalling, BOJ target 2%

GBP

• GBP/USD modestly extends session gain to 1.4089 after better than f/c PMI
• UK manufacturing PMI 55.1 in March beats 54.5 f/c but still a 1-year low
• Orders at 9-month low 55.3 vs 57.0 in Feb
• GBP/USD 1.4054-1.4089 in Europe after opening 1.4060
• EUR/GBP 0.8744-63 weighed by mix softer EZ PMI and small beat for UK series

CHF

• Both CHF cross and spot struggling to drum up direction
• Haven buying focused on the Yen, leaving CHF pairs steady
• USD/CHF bumping along its daily cloud top, 0.9561
• Eyes a May 1 0.9465 cloud twist as bearish credentials improve
• EUR/CHF trying to base around its Tenken line, 1.1728 but downside risk holds
• Latest sight depo data shows fall in domestic and total deposits w/e Mar 30

USD/CAD

• USD/CAD continues to move out sideways with heavy supply capping
• Failure to hold Monday’s climb to 1.2944, despite marginal bull close, see Tues drop
• Asia through Europe sees market play 1.2924-1.2867 range: on lows into NY
• Light data week to support range bound CAD: employment data Friday
• See some potential for playing long CAD buy could be grind this week

AUD/USD

• AUD/USD threw the market a bearish dummy in early Asia post W.st 2.0% drop
• Low of 0.7652 seen before a grind higher with stock futs and commodity gains
• Possible order added to the squeeze to 0.7706, 10DMA 0.7695, then lower
• Profit taking from the highs gives the AUD an offered feel heading into NY
• Hourly cloud top is at 0.7686, 0.7687 the Europe pullback low
• Underlying bias down but risk of a sideways market this week
• Little new in the RBA statement to excite but ref to funding squeeze in US short-end
• Chart; forex

OPTION EXPIRIES

• EUR/USD: 1.2275 (292M), 1.2310-15 (433M), 1.2350 (757M)
• USD/CAD: 1.3015 (500M), NZD/USD 0.7275 (324M)
• USD/JPY: 105.95-106.00 (743M), EUR/GBP 0.8700 (330M)

COMMENT

Rising costs for those long may see EUR/USD fall
EUR/USD is trading a range that is close to the top of a year long rally, which is a bullish sign. However, with the costs for those long mounting during the wait for something to happen, the probability of a move lower is growing. EUR/USD has traded sideways within 1.2566-1.2155 for nearly three months and has spent the bulk of the last 6-weeks within 1.2250-1.2450. Speculative bets on a further rise have been fairly consistent in this time, roughly fluctuating between EUR 16/19 billion and are currently 17.8 billion. EUR/USD is close the middle of the last 6-week’s range. The cost of holding a EUR/USD long is around 28 pips per month or around 0.75% of the position size for anyone who has held their position throughout the entire period. That’s a fairly substantial cost and judged by the latest TR poll from March 6, which has a median 1.2300 for EUR/USD in the next three months, it may well be doubled. EUR/USD, eur longs and eur forwards

EUR/USD may get April boost if it follows the norm
EUR/USD bulls could well bounce back this month, if the market follows the pattern of a typical April, meaning gains back towards 2018 1.2556 peak are feasible. A study of EUR/USD’s performance for each April since its inception shows it has risen in 11 of the last 19-years, including in every year between 2013 and 2017. On average, in April, EUR/USD has closed up 95 points or 0.81%, if this average points ris is added to this April’s 1.2322 open we can derive an estimated close of 1.2417. Fourteen-month momentum remains positive, which has been the case since July 2017, reinforcing the overall upside bias. Also, the boost the dollar received from month and quarter-end flows on Friday have come to an end, reducing the downward pressure on EUR/USD. EUR/USD bulls biggest risk is from the rising costs of being long. Even if EUR/USD registers a daily close back above the 30-DMA, currently at 1.2322, the squeeze lower will likely be limited to support circa the 30-day lower bollinger-band, currently at 1.2218. EUR/USD April Monthly Returns

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