FX Market Update 20-4

Market Briefs

• EUR/USD -0.39%, USD/JPY 0.28%, GBP/USD -0.19%, EUR/GBP -0.26%
• DXY 0.26%, DAX 0.06%, FTSE 0.47%, Brent 0.18%, Gold -0.36%
• Bank of England rate rises should be gradual, not glacial – Saunders
• Japan warns G20 protectionism will disrupt markets
• SNB’s Jordan says no reason to change monetary policy
• U.S. Treasury weighs emergency powers to curb Chinese investments -official
• China March industrial power consumption down 1.4 pct on year
• EU’s Barnier says still some 25 pct of work to do on Brexit
• DE Mar Producer Prices YY, 1.9%, 2.0% f’cast, 1.8% prev
• DE Mar Producer Prices MM, 0.1%, 0.2% f’cast, -0.1% prev

Looking Ahead – Economic Data (GMT) 
• 12:30 CA Mar CPI Inflation YY, 2.4% f’cast, 2.2% prev
• 12:30 CA Mar CPI Inflation MM, 0.4% f’cast, 0.6% prev
• 12:30 CA Mar CPI BoC Core YY, 1.5% prev
• 12:30 CA Mar CPI BoC Core MM, 0.7% prev
• 12:30 CA Feb Retail Sales MM, 0.3% f’cast, 0.3% prev
• 12:30 CA Feb Retail Sales Ex-Autos MM, 0.3% f’cast, 0.9% prev

Looking Ahead – Events, Other Releases (GMT)
• 11:30 German Federal Bank’s Jens Weidmann, Bundesbank’s Claudia Buch and Deutsche Bundesbank’s Andreas Dombret participate at Spring Meeting – Washington
• 13:40 Chicago Fed’s Charles Evans speaks on current economic conditions and monetary policy – Chicago
• 15:15 FRB San Francisco’s Williams in chat at UC Berkeley – Pebble Beach, CA
• 15:25 BoC’s Carolyn A. Wilkins participates in panel discussion – Washington
• 15:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $670 mn)
• 16:45 G20 Finance Ministers speaks on the sidelines of Spring Meeting – Washington

Currency Summaries
EUR/USD
• EUR/USD dragged down by hedging for EUR 1.6bln option expiries at 1.2300
• EUR/USD opens 1.2341 prints a 1.2353 peak then drops to 1.2293
• High risk pair closes below 21/55-DMAs 1.2332-30 and daily cloud top 1.2354
• Closing breaks target cloud base 1.2336 and April 5/6 lows 1.2219/15
• Pair likely anchored by 1.2300 expiries until 15GMT

USD/JPY
• USD/JPY 107.36-107.73 range, up in Asia on Gotobi demand, USTs underpin
• Japanese importers bought after the fix, decent exporter offers ahead 108
• Bulls seek daily close above key Fibo in order to accelerate
• Outlook bullish, but U.S-China protection needed
• Decent USD/JPY strikes above could attract

GBP
• Cable extended south to a fresh 2wk low of 1.4037 in early European trade
• Losses fuelled by dovish shift in BoE expectations on Carney
• Probability of BoE rate rise on May 10 is now close to 50-50
• GBP/USD was just under 1.42 when Carney interview broadcast Thursday
• MPC hawk Saunders says BoE rate rises should be gradual, not glacial
• EUR/GBP down half-a-penny since threatening 0.88 in early European trade

CHF
• EUR/CHF marginal new trend high at 1.2005
• Profit taking again taking the edge off a 1.20 break
• Pullback limited as fresh demand meets 1.20 supply
• Daily techs are overbought and deeper pullback risk increasing
• Cross plays a tight 1.1968-1.2005 early Friday
• USD/CHF also makes a new high, 0.9726 but again looking stretched

USD/CAD
• USD/CAD extended north to a 10-day high of 1.2685 during the European am
• 1.2657 was Asia low (1.2660 was Wednesday’s high after dovish BoC)
• Canada Mar inflation and Feb retail sales data due 1230GMT
• CPI f/c +2.4% YY vs +2.2% f/c. Retail sales f/c +0.3% MM
• Large 1.2650 and 1.2700 expiries for NY cut, USD 1bln and 903mn strikes

AUD/USD
• AUD/USD extended south from 0.7813 to 0.7687 during the European am
• 0.7687 = 11-day low. 0.7813 was Thursday’s high (just shy of 200DMA)
• Greenback continues to benefit from higher UST yields: 10-year at 2.91%
• Large 0.7700 option expiry for 10am ET NY cut, AUD 1bln strike

NZD/USD
• NZD/USD extended south to a 17-day low of 0.7216 during the European am
• 0.7216 is the 100DMA. 0.7395 was eight-week high last week (Apr 13)
• Recent NZD losses influenced by soft NZ Q1 inflation data

Option Expiries For Friday NY Cut
• EUR/USD: 1.2300-05 (1.6B), 1.2375 (565M), 1.2400 (323M), 1.2420 (641M)
• GBP/USD: 1.4000 (285M), 1.4100 (232M), 1.4150 (572M), 1.4200 (531M)
• EUR/GBP: 0.8710 (200M), AUD/USD: 0.7700 (1B), 0.7725 (374M), 0.7750 (317M)
• USD/CAD: 1.2600 (1.4B),1.2630 (631M), 1.2650/60 (1.6B), 1.2700 (903M), 1.2750 (1.2B)
• USD/JPY: 106.85-107.00 (704M), 108.00 (636M)

COMMENT
Sterling faces pivotal May after dovish Carney
Volatile trading in sterling next month is all but guaranteed after BoE Governor Carney on Thursday dampened expectations for a 25bp rate hike on May 10. A May rate rise is now close to a 50-50 bet, according to the BOEWATCH page on Reuters Eikon. A hike on May 10 was widely expected before Carney’s forward guidance on rates, even after this week’s UK earnings miss, sub-forecast UK March CPI inflation number and soft UK ONS March retail sales data. The dovish shift in expectations on Carney means GBP should catch a knee-jerk bid if the BoE does hike on May 10, before its “take two” reaction to the tone of the accompanying message (ie, ‘hawkish hike’ or ‘dovish hike’). Sterling will fall if the BoE keeps the Bank Rate at 0.5%–a decision which would also increase the GBP event risk of the next-but-one BoE monetary policy announcement on June 21. Next week’s key UK event risk is the first ONS estimate of UK Q1 GDP on April 27. BOEWATCH:

EUR/GBP bears caught in a trap as reversals loom
EUR/GBP gains are poised to extend as the monthly candle chart is warning of a bear trap for bears with April displaying a long lower wick and potential for a hammer signal. Key levels and viable bull targets are seen at 0.8863 10MMA, 0.8964 tenkan and March’s 0.8968 high. Weekly charts are also sounding alarm bells for sterling bulls and given the speed of EUR/GBP’s turn this week it is likely significant EUR/GBP shorts remain in the market. On the weekly chart, a bullish engulfing line looks set to hold into the close but would need a follow- up bullish confirmation next week to complete the signal. Upward momentum may be slow, however, as a band of weekly resistance runs from the 10-WMA at 0.8796 to the 55-WMA at 0.8821 with the weekly cloud base in the mix at 0.8806. Weekly tenkan and kijun lines look poised to cross bullishly while slow Stochastics have already confirmed a direction change. Fourteen-week bear momentum is still holding but seen fading fast

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