FX Market Update 6-4

Market Briefs

• EUR/USD 0.06%, USD/JPY -0.01%, GBP/USD 0.13%, EUR/GBP -0.08%
• DXY -0.06%, DAX -0.52%, FTSE -0.19%, Brent -0.31%, Gold -0.11%
• China says will fight back “at any cost” against U.S. trade tariffs
• Trade war fears already hurting the economy, ECB’s Coeure says
• DE Feb Industrial Output MM, -1.6%, +0.3% f’cast, -0.1% prev
• ES Feb Ind Output Cal Adj YY, +3.1%, +1.2% prev
• FR Feb Current Accounts EUR, -2.0 bln, -1.6 bln prev
• FR Feb Trade Balance SA EUR, -5.20 bln, 5.15 bln f’cast, -5.56 bln prev
• FR Feb Imports EUR, 44.860 bln, 45.820 bln prev
• FR Feb Exports EUR, 39.680 bln, 40.260 bln prev
• Japan’s long growth run faces turning point as wages, spending fall
• China hopes N.Korea leader’s summits with Trump, Moon will defuse tension
• As Australia regulators target broker fees, banks’ mortgage business face risk
• Gold steadies near $1,325/oz before U.S. payrolls data
• Oil moves lower on Trump’s latest China trade threats

Looking Ahead – Economic Data (GMT)

• 12:30 US Mar Nonfarm Payrolls, +190k f’cast, +313k prev
• 12:30 US Mar Private Nonfarm Payrolls, +190k f’cast, +287k prev
• 12:30 US Mar Factory Payrolls, +23k f’cast, +31k prev
• 12:30 US Mar Unemployment Rate, 4.0% f’cast, 4.1% prev
• 12:30 US Mar Average Hourly Earnings, +0.2% m/m, +2.7% y/y f’cast; +0.1% m/m, +2.6% y/y prev
• 12:30 US Mar Workweek Hours, 34.5 f’cast, 34.5 prev
• 12:30 CA Mar Employment Change, 20.00k f’cast, 15.40k prev
• 12:30 CA Mar Full time employment chng, -39.30k prev
• 12:30 CA Mar Participation Rate, 65.50% prev
• 12:30 CA Mar Part time employment chng, 54.70k prev
• 12:30 CA Mar Unemployment Rate, 5.80% f’cast, 5.80% prev
• 14:00 CA Mar Ivey PMI, 58.40 prev
• 14:00 CA Mar Ivey PMI SA, 59.60 prev
• 15:15 US Q1 New York Fed Staff Nowcast for Real GDP growth q/q AR, +2.71% prev
• 15:15 US Q2 New York Fed Staff Nowcast for Real GDP growth q/q AR, +2.87% prev
• 19:00 US Mar Consumer, +$15.00 bln f’cast, +$13.91 bln prev

Looking Ahead – Events, Other Releases (GMT)

• 12:00 China commerce ministry to hold media briefing on Sino-U.S. trade relations
• 15:45 US FedTrade 30-year Ginnie Mae (max $620 mn)
• 17:30 US Fed’s Jerome Powell delivers speech on the economic outlook – Chicago, IL
• 20:00 US Fed’s John Williams discusses the outlook for the national economy – Santa Rosa, CA

Currency Summaries

EUR/USD

• EUR/USD 1.2215-1.2247 range in Europe
• Pairs trades to the low at the outset drifts back up ahead NA open
• Low followed much weaker than f/c German IP, -1.6% mm Feb vs 0.3% f/c
• Broad concerns regarding U.S./China trade spat but little reaction
• Stocks modestly in the red DAX down 0.47% so little need for EUR’s safety
• Focus next on U.S. jobs data. NFP f/c 193k, u/r 4% from 4.1%

USD/JPY

• USD/JPY sees a 106.99-107.46 range, with bulls remaining on the front foot
• Scope for surge key 108.07 Fibo higher up thick cloud
• Gains so far limited by 107.50 offers, however, recall 107.49 was Thu’s peak
• Japanese exporters selling for current fiscal half, budget assuming 103-105
• Twin risk events Fri for USD/JPY. China briefing and U.S non-farm payrolls

GBP

• Cable pivoting 1.4000 ahead of US jobs report at 12:30 GMT: NFP f/c 193k
• 1.3983-1.4021 = Friday range-to-date (1.4022 was Tuesday’s low)
• AHE in focus besides NFP, f/c +2.7% YY. Powell speaks 1730GMT
• 1.3965 was 17-day low for cable Thursday after USD shorts squeezed
• UK productivity up strongly in H2 2017 to 12-year high – ONS
• 0.8750 offers keeping lid on EUR/GBP. 0.8732 was European am low

CHF

• CHF remains on the back-foot despite escalation in U.S/China trade dispute
• 0.9643 = fractionally fresh 11wk high for USD/CHF during the European am
• Thursday’s high was 0.9640. EUR/CHF scaled 11wk peak of 1.1805 Thursday

USD/CAD

• USD/CAD met headwind pre-1.28 after rising from 1.2745
• 1.2745 = early Asia low (1.2745 was also Thursday’s 5wk low)
• 1.2800 is a former support turned resistance level
• Canada March jobs data due 1230MT, employment f/c +20k

AUD/USD

• Speculation that there may have been some recent M&A-related buying of AUD
• Unibail-Westfield deal was approved by Australian regulator last week
• AUD/USD has held above 0.7650 this week despite U.S/China trade dispute
• 0.7658 was Asia low after Trump upped ante in U.S/China trade dispute
• Bids tipped ahead of 0.7640-50 (0.7643 was 14-week low on March 29)
• China commerce ministry briefing on Sino-U.S trade relations at 12:00 GMT

NZD/USD

• NZD/USD fell to a three-day low of 0.7245 during the European am
• Decline influenced by escalation in U.S/China trade dispute
• China commerce ministry briefing on Sino-U.S trade relations at 12:00 GMT

OPTION EXPIRIES

• EUR/USD: 1.2200 (642M), 1.2290 (481M), 1.2300 (510M), 1.2335 (273M)
• EUR/USD: 1.2345/50 (700M), 1.2400 (803M)
• USD/JPY: 106.00 (972M), 107.00 (504M)
• EUR/JPY: 131.90 (246M)
• AUD/USD: 0.7605 (260M), 0.7675 (367M)
• USD/CAD: 1.2850 (385M), 1.2875 (590M), 1.2885/90 (654M), 1.2900 (986M)

COMMENT

Without risk aversion EUR/USD longs will bail

Those betting on a EUR/USD rise need a material decline in risk appetite or they will likely be forced to pare their bets further. Supported by a big current account surplus and liquid asset markets the euro seems a good hedge for the risk of a U.S/China trade war. The problem for the many already long the euro is that markets are not overly risk averse at present. Stocks have dropped but falls are slight given prior rises and corrections of prior excesses should boost the chance of a further sustainable long-term rise. Bets on a EUR/USD rise, meanwhile, are huge and represent about 80 percent of the USD 25.8 billion total gambled on a dollar fall. When bets reach the USD 25 billion level it often leads to position unwinds and a reversal in the fortunes of a currency. That the dollar is gaining when it probably should have been undermined by the trade war with China is a strong indication of excessive positioning.

Trump threats could help depress AUD/USD to 0.75

The escalating U.S/China trade dispute is raising the risk of AUD/USD revisiting 0.7501 (Dec low), which is close to the 30-week lower Bollinger-band currently at 0.7508. It may therefore be prudent for AUD/USD traders to seek option protection to cover a likely weakening of spot. For example, the buyer of a 1-month 0.7680 AUD put/USD call will be in profit if spot is below the 0.7612 break-even level at the option’s May 8 expiry date (option cost is 68 pips). AUD/USD’s fourteen-week momentum registered a negative reading at the end of last week, reinforcing a bearish technical outlook. AUD/USD fell to 0.7658 in Asia Friday after U.S. President Trump threatened $100 billion more in China tariffs. China says it will fight back “at any cost,” the China commerce ministry is scheduled to hold a media briefing on Sino-U.S. trade relations at 12:00 GMTOn Tuesday, the Trump administration proposed tariffs on $50 billion worth of Chinese goods, with China retaliating on Wednesday by proposing tariffs on $50 billion of U.S. goods

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