FX Market Update 17-4

Market Briefs
• EUR/USD -0.11%, USD/JPY -0.03%, GBP/USD -0.15%, EUR/GBP 0.05%
• DXY 0.08%, DAX 0.88%, FTSE 0.22%, Brent 0.03%, Gold -0.25%
• China posts strong Q1 growth as robust consumer demand buffers trade worries
• Economic institutes raise German growth forecasts -sources
• BOJ to forecast inflation approaching 2 pct target in FY2019, 2020 – sources
• GB Mar Claimant Count Unem Change, 11.6k, 5.0k, 9.2k prev, 15.1k rvsd
• GB Feb ILO Unemployment Rate, 4.2%, 4.3%, 4.3% prev
• GB Feb Employment Change, 55k, 33k, 168k prev
• GB Feb Avg Wk Earnings 3M YY, 2.8%, 3.0%, 2.8% prev
• GB Feb Avg Earnings (Ex-Bonus), 2.8%, 2.8%, 2.6% prev
• DE Apr Zew Economic Statement, -8.2, -1.0, 5.1 prev
• DE Apr Zew Current Conditions, 87.9, 88.0, 90.7 prev
• Gold prices rise as dollar slips to lowest in nearly 3 weeks
• Oil bolstered as investors factor in supply risks

Looking Ahead – Economic Data (GMT) 
• 12:30 U.S. Mar Building Permits Number, 1.323 mln, 1.321 mln prev
• 12:30 U.S. Mar Housing Starts Number, 1.262 mln, 1.236 mln prev
• 12:55 U.S. w/e Redbook YY, 2.9% prev
• 13:15 U.S. Mar Industrial Production MM, 0.4%, 0.9% prev
• 13:15 U.S. Mar Manufacturing Output MM, 0.1%, 1.3% prev
• 13:15 U.S. Mar Capacity Utilization MM, 77.9%, 77.9% prev
• 12:30 CA Feb Manufacturing Sales MM, 1.0%, -1.0% prev
• 12:30 CA Feb Securities CDNS C$, 13.25 bln prev
• 12:30 CA Feb Securities Foreign C$, 5.68 bln prev

Looking Ahead – Events, Other Releases (GMT)
• 12:30 FRB New York’s Dudley opening remarks at community bankers conference – New York
• 13:00 IMF releases biannual report on world economic outlook
• 13:15 FRB San Francisco’s Williams speaks at the NABE-Bank of Spain Event – Madrid
• 14:00 Fed Vice Chair for Supervision Quarles testifies before House Fin Svcs Cmte – Washington
• 15:00 FRB Philadelphia’s Harker speaks on equitable education – Philadelphia
• 16:00 Bundesbank’s Carl-Ludwig Thiele speaks on “Between Virtuality and Virtuosity – Banks and Central Banks in the Digital Age” – Stuttgart
• 17:40 FRB Chicago’s Evans speaks at Chicago Rotary Club event – Chicago
• 17:45 Bundesbank’s Joachim Wuermeling speaks on “Sustainability, Security, Return – A Trilemma in Investment?” – Frankfurt
• 18:00 Swedish Central Bank Governor Stefan Ingves participates in panel discussion on how digitalization of money – Washington
• 18:00 Fed publishes minutes of recent dicount rate meetings
• 18:30 FedTrade Operation 15-year Fannie Mae/Freddie Mac (max $160 mn)

Currency Summaries
EUR/USD
• EUR/USD 1.2325-1.2414 in two days ahead today’s ZEW data
• Today 1.2380-1.2414 in Europe then 1.2379 after ZEW (1.2376 low in Asia)
• Germany ZEW plummets. April -8.2 from 5.1 in March and compared -1 f/c
• Short-term techs positive while above 55/21-DMAs 1.2337/26
• Strong resistance Mar 7/8 1.2447/46 highs and 1.2450 options

USD/JPY 
• Nikkei ends flat on worries Trump will pressure Abe on trade
• Under pressure USD/JPY bulls find support at daily cloud base
• Pivot point at 106.89 propping intra-day bulls
• Spot has seen a limited range of 106.89-107.16 so far this session
• Japanese exporters look to sell any rally, offers said to be at 107.50
• There are 1.5bln worth of 107.20 NY cut expiries and another 300M at 107.30
• US Feb TIC report – Japan US Tsy holdings down, $1.06 tln, China up, $1.177
• BOJ to forecast inflation approaching 2 pct target in FY2019, 2020

GBP
• Profit-taking on longs helped deflate cable to 1.4310 after UK earnings miss
• 1.4377 was fresh post-Brexit referendum day high before 0830GMT data
• Headline earnings 2.8% vs 3.0% f/c. Ex-bonus earnings 2.8% as expected
• EUR/GBP matched Monday’s 11mth low of 0.8627 pre-UK earnings miss
• 0.8648 = ensuing high. Both earnings numbers above 2.7% Feb CPI
• UK Mar CPI due Wednesday, 2.7% f/c. BoE rate hike expected May 10

CHF
• EUR/CHF grinding higher towards previous SNB 1.20 floor
• New 38-month high of 1.1910 early Tues as CHF remains a broad sell
• Talk of real money CHF supply versus both JPY and EUR
• Much talk of likely profit taking ahead of 1.20 and this to slow EUR/CHF advance
• USD/CHF caught between softer dollar and the CHF supply flow
• Spot sideways just below 200DMA, 0.9656 but holding a Tues bid, 0.9581-0.9615
• Little change in CHF trend likely unless major risk off move or SNB policy shift

USD/CAD
• USD/CAD respected mooted bids at 1.2545-50 through the European am
• 1.2545 was seven-week low last week. More bids tipped near 1.2500
• Resistance levels 1.2576/77 (Asia high/European am high) & 1.2600/23
• 1.2600 option expiry for 10am ET NY cut, USD 696mn strike
• Larger 1.2600 expiry Wednesday, USD 1.6bln strike
• 1.2623 = 200DMA. Offers ahead of 200DMA capped recent gains

AUD/USD
• AUD/USD rose to 0.7791 on early Europe selling of the greenback
• 0.7761 was Asia low. 0.7791 = three pips shy of 100DMA
• 200DMA at 0.7816: offers ahead of 200DMA capped Apr 13 rise

NZD/USD
• NZD/USD eased to threaten 0.7334 during the European am
• 0.7334 was Monday’s base/low since Friday’s 8wk high of 0.7395
• Asia high of 0.7372 is a resistance level pre-0.7395/0.7400

FX OPTIONS
• Cable vols outperform G10 peers as GBP extends rally to new post Brexit high
• EUR/USD tests above 1.24 but wider range and long gamma cap vols
• USD/JPY clings to 107 axis ahead of large expiries, vols at lows since January
• USD/JPY implied to realised vol discount may attract relative value buyers
• CAD vols propped in to Wednesdays BoC, CAD susceptible to hawkish surprise

COMMENT
Sterling never has it so good in May than April
Sterling longs may look to close out their positions while the going is still good before the month is out, with seasonal factors a potential influence. GBP/USD has fallen in May for the past eight years, albeit by a relatively modest 0.5% on average over the past four years. The May weakness through the decade-to-date has followed healthy gains for cable in the month preceeding it. MUFG recently highlighted that GBP/USD has risen every April for the past 13 years, by an average 2.3%, with BAML analysts saying GBP tends to do well in April due to dividend payments to British shareholders from foreign companies. Cable is set to maintain its positive April trend this year, with Tuesday’s 22-month top of 1.4377 three cents higher than its peak on the first trading day of the month. Expectations of a BoE rate rise on May 10are a fundamental source of support for sterling, although ‘selling of the history’ saw GBP have a big down-day when the BoE raised rates on Nov 2. GBPUSD:

AUD bulls may buckle under weighty tech resistance
The bullish AUD/USD tone is beginning to fade ahead of both daily and weekly resistance points which may prompt a retreat near-term. The appearance of a hanging man candle April 13 warned that demand might be losing traction and despite a bull close Monday, the near-term risk is building for a deeper pullback in the recent bull trend. The 200-DMA capped the April 13 session at 0.7814 and the line, at 0.7816 today, is joined by the 55- and 100-DMAs at 0.7796 and 0.7794 respectively. Despite a flattening bias the daily tenken and Kijun lines are bearishly aligned and the price is below the cloud with an initial bear hurdle at the 30-DMA, currently 0.7743. Weekly price action is constructive but having closed above the 200-WMA last week and maintaining the break this week, the market faces cloud top resistance at 0.7801. Rejection at the cloud top and subsequent close back under the 200-WMA will increase the risk of a pullback and potential for a resumption of the January-April bear trend. Converged 100-WMA and weekly cloud base at 0.7643 provide a viable bear target.

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