FX Market Update 5-4

Market Briefs

• EUR/USD -0.02%, USD/JPY 0.18%, GBP/USD -0.18%, EUR/GBP 0.16%
• DXY 0.06%, DAX 1.78%, FTSE 1.21%, Brent -0.21%, Gold -0.54%
• China says it never backs down in the face of threats after trade salvos with US
• EZ Mar Markit Serv Final PMI, 54.9, 55.0 f’cast, 55.0 prev
• EZ Mar Markit Comp Final PMI, 55.2, 55.3 f’cast, 55.3 prev
• EZ Feb Producer Prices YY, +1.6%, +1.5% f’cast, +1.5% prev
• EZ Feb Retail Sales YY, +1.8%, +2.1% f’cast, +2.3% prev
• DE Mar Markit Services PMI, 53.9, 54.2 f’cast, 54.2 prev
• DE Mar Markit Comp Final PMI, 55.1, 55.4 f’cast, 55.4 prev
• DE Feb Industrial Orders MM, -1.20%, +1.5% f’cast, -3.9% prev
• GB Mar Markit/CIPS Serv PMI, 51.7, 54.0 f’cast, 54.5 prev
• FR Mar Markit Serv PMI, 56.9, 56.8 f’cast, 56.8 prev
• FR Mar Markit Comp PMI, 56.3, 56.2 f’cast, 56.2 prev
• IT Mar Markit/ADACI Svcs PMI, 52.6, 53.8 f’cast, 55.0 prev
• ES Mar Services PMI, 56.2, 56.0 f’cast, 57.3 prev
• Canada reports progress on NAFTA, says ‘we’re not there yet’
• Japan households’ mood slumps, inflation expectations stall – BOJ survey
• Oil steady as easing U.S.-China tension, U.S. stockdraw support
• Gold prices fall as U.S.-China trade tensions easer

Looking Ahead – Economic Data (GMT)

• N/A US Q1 Atlanta Fed GDPNow Model Forecast for Real GDP Q/Q AR, +2.8% prev
• 11:30 US Mar Challenger Layoffs, 35,369 prev
• 12:30 CA Feb Trade Balance C$, -2.00 bln f’cast, -1.91 bln prev
• 12:30 CA Feb Exports C$, 45.84 bln prev
• 12:30 CA Feb Imports C$, 47.75 bln prev
• 12:30 US Mar Initial Jobless Claims, 225k f’cast, 215k prev
• 12:30 US Mar Continued Claims, 1.849 mln f’cast, 1.871 mln prev
• 12:30 US Feb International Trade Balance, -$56.8 bln f’cast, -$56.6 bln prev

Looking Ahead – Events, Other Releases (GMT)

• 14:15 Fed Desk conducts small value Treasury sale operation
• 15:00 Treasury announces 13- and 26-week bills
• 15:00 Treasury announces new 3- and reopened 10-year notes and reopened 30-year bonds
• 15:45 FedTrade 30-year Fannie Mae /Freddie Mac (max $685 mn)
• 17:00 Fed’s Raphael Bostic speaks at Financial Literacy Day – Sarasota, FL
• 19:00 Treasury STRIPS

Currency Summaries

EUR/USD

• EUR/USD finds a base despite mostly softer than expected EZ data
• Spot sees a range of 1.2249-90 so far this session
• Support at 1.2240 Mar 20/21 matching lows and 30-day lower BB
• Decent NY cut expiries surround the market

USD/JPY

• Dollar inches up vs yen on hopes trade war can be averted
• Hits new 3 week high at 107.15 as bulls take control, low has been 106.72
• Higher Nikkei (up 1.53%), firm US yields supportive
• Offers are said to trail up, could well be in size up to 107.51 cloud base
• Bulls could push higher to test the cloud base
• But may face headwind at March 13 107.30 peak and 30-day upper BB at 107.37
• Spot may be anchored to big 106.90/107.00 strikes until NY cut

GBP

• Cable extended south to 1.4030 on worse than expected UK service PMI
• 51.7 vs 54.0 f/c. 1.4035 was low shortly before 0830GMT data release
• BoE is still expected to hike rates next month despite UK service PMI miss
• Offers just shy of 1.41 kept a lid on GBP/USD in Asia, 1.4098 = session high
• Cable has traded above 1.4000 and below 1.4100 since March 28
• Stops on shorts/longs may be sheltering above 1.4100/below 1.4000s

CHF

• EUR/CHF notched an 11-week high of 1.1805 in Asia
• 1.1786 marks the subsequent low (during the European am)
• USD/CHF notched a 10-week peak of 0.9631 in early European trade
• Swiss CPI rose 0.8% in March (annualized) vs 0.7% f/c

USD/CAD

• USD/CAD extended south to a five-week low of 1.2745 in Asia
• 1.2780 = subsequent high water-mark (during European am)
• Recent CAD gains fuelled by NAFTA optimism
• Canada and US trade data due 12:30 GMT

AUD/USD

• AUD/USD eased to an intra-day low of 0.7681 during the European am
• 0.7686 = Asia low. 0.7663 (Wednesday’s low) and 0.7650 are support levels
• Buyers are tipped pre-0.7650 (Monday’s low). 0.7652 was Tuesday’s low

NZD/USD

• NZD held sub-0.73 through the European am after retreating from 0.7322
• 0.7322 was three-week peak in Asia. 0.7280 was early Europe low

OPTION EXPIRIES

• EUR/USD: 1.2200 (998M), 1.2300 (757M), 1.2325 (518M), 1.2360 (1.459B)
• EUR/USD: 1.2370 (713M), 1.2375 (478M), 1.2400 (1.133B)
• USD/JPY: 106.00-05 (806M), 106.15 (330M), 106.90-107.00 (1.55B)
• GBP/USD: 1.4020 (204M), 1.4100 (331M)
• AUD/USD: 0.7700 (347M), 0.7735 (250M), 0.7770 (285M)
• USD/CAD: 1.2960 (556M), 1.2980-85 (731M)

COMMENT

Euro to weaken if Italy’s Lega swipes right to M5S

The euro could take a hit if the far-right Lega warms to overtures from the anti-establishment 5-Star Movement (M5S) to form a coalition government in Italy. Lega is one of two possible coalition partners sought by the M5S: the centre-left Democratic Party (PD) is the other–although they are currently cold on the idea. An M5S-Lega coalition would likely have a negative impact on the euro due to the call by M5S for a “universal income” for the unemployed and Lega’s desire for drastic income tax cuts. Both proposals would increase Italy’s already large debt pile and defy EU budget rules. Lega also wants Italy to dump the euro, although any Lega deal to govern with M5S would exclude abandoning the euro. A second round of talks to try and form an Italian government is expected later this month if this week’s talks fail to make a breakthrough.

USD/JPY could see big gains if trade war is averted

USD/JPY could extend north to/through 109.00 if this week’s U.S/China trade spat turns out to be nothing more than a preamble to more constructive negotiations. The pair rose to a three-week high of 107.15 Thursday on hopes that a global trade war can be averted. The yen, often sought in times of market turmoil and political tensions, had rallied as Wall Street shares initially tumbled on Wednesday after China’s swift move to impose retaliatory tariffs on U.S. goods. When China announced its retaliation, USD/JPY saw the eighth biggest hourly decline of 2018 but ultimately found rock solid support at 105.99 before bouncing back. USD/JPY bulls hope weekly closes above the 10-WMA, now at 106.88 and the 106.96 Fibo — 23.6% retrace of the 114.73 to 104.56 (November to March) fall — fuel larger gains. The biggest pre-weekend risk for USD/JPY bulls is U.S non-farm payrolls data due Friday. There have been a recent tendency for USD/JPY to sell-off shortly after payrolls releases.

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