FX Market Update 16-4

Market Briefs
• EUR/USD 0.28%, USD/JPY -0.08%, GBP/USD 0.45%, EUR/GBP -0.20%
• DXY -0.26%, DAX 0.01%, FTSE -0.41%, Brent -1.1%, Gold -0.12%
• Russia’s Putin predicts global ‘chaos’ if West hits Syria again
• China Q1 GDP growth seen easing only slightly as trade tensions mount
• Japan, China agree trade war will harm global economy
• Reflationist BOJ deputy happy with current pace of easing
• UK’s May seeks Commonwealth trade boost as final Brexit talks begin
• Merkel’s conservatives seek to limit her room on euro zone reform
• EZ Mar Wholesale Price Index YY, 1.2%, 1.2% prev
• EZ Mar Wholesale Price Index MM, 0.0%, -0.3% prev
• Oil prices drop as fears about Syria strikes fallout wane
• Gold steadies as Syria strike fears fade

Looking Ahead – Economic Data (GMT)
• 12:30 U.S. Mar Retail Sales MM, 0.4% Rtrs f’cast, -0.1% prev
• 12:30 U.S. Mar Retail Sales ex-autos, 0.2% Rtrs f’cast, 0.2% prev
• 12:30 U.S. Mar Retail Sales ex-autos and gas, 0.3% prev
• 12:30 U.S. Mar Retail Sales Control Group, 0.4% Rtrs f’cast, 0.1% prev
• 12:30 U.S. Apr Empire State Manufacturing Survey, 18.80 Rtrs f’cast, 22.5 prev
• 14:00 U.S. Feb Business Inventories MM, 0.6% Rtrs f’cast, 0.6% prev
• 14:00 U.S. Apr NAHB Housing Market Index, 70 Rtrs f’cast, 70 prev
• n/a U.S. Q1 Atlanta Fed GDP Now, 2.0% prev
• 20:00 U.S. Feb Treasury International Capital Statistics, (prev L-T flows ex-swaps +$62.1 bn)

Looking Ahead – Events, Other Releases (GMT) 
• 14:30 UK PM May to address parliament on Syria strike
• 14:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $680 mn)
• 16:00 Dallas Fed’s Robert Kaplan participates in a Q&A session at at event – Florida
• 16:00 Minneapolis Fed’s Neel Kashkari speaks at “Too Big To Fail” symposium- Wasgington
• 16:30 German Finance Minister Olaf Scholz speaks at Association of German Banks – Berlin
• 17:15 FRB Atlanta’s Raphael Bostic speaks at chamber of commerce event – Florence

Currency Summaries
EUR/USD
• EUR/USD rooted to 1.2350 the mid-point of the range since end-Jan
• EUR 3 billion of vanilla expiries 1.2300-1.2385 today likely anchor spot
• U.S. March retail sales @ 13.30GMT. Control eyed a robust 0.4%
• Resistance at Apr 11 high at 1.2396. Support @ cloud top 1.2328

USD/JPY
• USD/JPY bulls set to charge as Syria risk fades
• Range has been a narrow 107.13-107.61, bias for gains but obstacles remain
• Japanese exporter sales has capped USD/JPY so far
• Talk of decent sized 108 option barriers with decent defensive offers ahead of them

GBP
• Cable rose from 1.4238 to a high of 1.4313 during the European am
• 1.4313 is the highest level for GBP/USD since Jan 25
• M&A news aids rise: Shire selling oncology business to Servier for $2.4bln
• London-listed Shire is also a potential takeover target for Takeda
• Expectation of BoE rate hike next month is another positive for pound
• Cable notched its post-Brexit referendum day high of 1.4346 on Jan 25

CHF
• EUR/CHF just off last week’s 1.1888 38-month high
• Syria initiative and China-U.S. trade friction just dampen CHF losses
• Remains on course for a 1.20 test, prior SNB floor from 2015
• Above 1.20 to weaken SNB intervention argument
• USD/CHF heavy at 0.9605 but 100DMA close by at 0.9590
• Spot capped by 200DMA and 30DMA upper bolli line, 0.9654
• Latest SNB sight depo data shows increases for both domestic and total depos

USD/CAD
• USD/CAD retreated to 1.2601 after threatening 1.2625 early Europe
• 1.2625 is 200DMA–which has helped keep lid on pair since Apr 11
• Stop-loss buying expected if the 200DMA is vaulted
• USD 2.7bln 1.2600 option expiries this week (MondayFriday)
• Largest of the figure strikes rolls off Wednesday, USD 1.1bln
• BoC is expected to keep its policy interest rate at 1.25% Wednesday

AUD/USD
• AUD/USD elicited support just shy of 0.7750 in early European trade
• 0.7750 option expiry for 10am ET NY cut, AUD 420mn strike
• Asian range was 0.7765-0.7783 (low before high)
• Key resistance 0.7816 (200DMA). 0.7810 was Friday’s four-week high

NZD/USD
• NZD/USD has traded a 22 pip range thus far Monday, 0.7341-0.7363
• 0.7341 is low water-mark since Friday’s five-week high of 0.7395
• There is a 0.7355 option expiry for the 10am ET NY cut, NZD 396mn strike

FX OPTIONS
• G10 FX implied vols low as broader ranges hold, EUR and JPY curves lows since Jan
• US retail sales near term risk but EUR/USD, USD/JPY o/n vol break-evens just 40 pips
• UK data a-plenty this week – potential to spur more GBP gains – GBP stays bid for now
• GBP related vols firm as GBP performs, hedgers target 1.45 by May MPC
• USD/RUB vols peak, fresh demand for options targetting RUB recovery medium term

COMMENT
Boost for AUD as US cools currency manipulation threats
The absence of any fireworks from the U.S. Treasury’s semi-annual currency report, published Friday, could open the door to further gains for risk-sensitive currencies such as the AUD. If the U.S. Treasury report had labelled China as a currency manipulator following comments earlier this year by President Trump, it would have deepened the U.S/China trade rift and hurt the AUD–which is a liquid proxy for Asian risk. The U.S/China trade mood recently turned more positive and helped the AUD outperform every major currency bar the CAD last week. The AUD gains caught many speculators off-guard: IMM speculators reduced their gross AUD long positions by 15% in the week to April 10, with the net AUD short position rising to its highest level since the start of the year as a result. The U.S. Treasury report kept China on a currency “monitoring list”, alongside Japan, South Korea, Germany and Switzerland. India was added to the list.

USD/ZAR could have the legs for a 13.04 test 
Longer-term charts continue to highlight bullish potential for USD/ZAR with Fibonacci levels and weekly cloud twists pointing to the 13.0425 50% retrace level off the 14.5750 November 2017 high to 11.5100 March 2018 low. A weekly cloud twist at 13.4075 out to late June 2018 could also serve as a magnet for the price. There’re plenty of technical levels to tackle before reaching such a target but the bullish foundations are set by the double-week lows at 11.5100 and 11.5425 from early March. Initial resistance comes at 12.20, a high from early February, then 12.2333, 23.6% Fibonacci off the 14.5750-11.5100 drop. The 21-WMA also currently comes in 12.2333. Fourteen-week bear momentum has been fading since mid-February and a push above 12.20 is likely to see momentum flip bull side. Weekly stochastic is looking top heavy but yet to cross back to the bear side. Monthly action remains below its cloud but bullish signals are building here too

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