FX Market Update 23-4

Market Briefs

• EUR/USD -0.46%, USD/JPY 0.54%, GBP/USD -0.31%, EUR/GBP -0.18%
• DXY 0.43%, DAX -0.28%, FTSE -0.09%, Brent -0.27%, Gold -0.48%
• The 10-year U.S. Treasuries yield hit its highest level since January 2014 at 2.99%
• EZ Apr Markit Comp Flash PMI, 55.2, 54.9 f’cast, 55.2 prev
• EZ Apr Markit Serv Flash PMI, 55, 54.6 f’cast, 54.9 prev
• EZ Apr Markit Mfg Flash PMI, 56, 56.1 f’cast, 56.6 prev
• DE Apr Markit Mfg Flash PMI, 58.1, 57.5 f’cast, 58.2 prev
• DE Apr Markit Serv Flash PMI, 54.1, 53.7 f’cast, 53.9 prev
• DE Apr Markit Comp Flash PMI, 55.3, 54.8 f’cast, 55.1 prev
• FR Apr Markit Mfg Flash PMI, 53.4, 53.5 f’cast, 53.7 prev
• FR Apr Markit Serv Flash PMI, 57.4, 56.5 f’cast, 56.9 prev
• FR Apr Markit Comp Flash PMI, 56.9, 55.9 f’cast, 56.3 prev
• Trade war negative for economy says Fed’s Williams – El Pais
• Euro zone debt, deficit drop in 2017 as economy grows
• Greece attains primary surplus of 4.0 pct of GDP in 2017- statistics service
• EU willing to provide some financial market access for Britain – City minister
• Mexico’s Nieto hopes for reworked NAFTA deal soon

Looking Ahead – Economic Data (GMT) 
• 13:45 U.S. Apr Markit Mfg PMI Flash, 55.0 f’cast, 55.6 prev
• 13:45 U.S. Apr Markit Svcs PMI Flash, 54.0 f’cast, 54.0 prev
• 13:45 U.S. Apr Markit Comp Flash PMI, 54.2 prev
• 14:00 U.S. Mar Existing Home Sales, 5.55 mln f’cast, 5.54 mln prev
• 14:00 U.S. Mar Existing Home Sales % Chg, 0.2% f’cast, 3.0% prev
• 12:30 CA Feb Wholesale Trade MM, 0.5% f’cast, 0.1% prev

Looking Ahead – Events, Other Releases (GMT)
• 14:00 ECB’s Benoit Coeure participates in a conference on ‘Resolution in Europe: The Unresolved Questions’ – Frankfurt
• 19:30 BoC’s Stephen S. Poloz and Carolyn A. Wilkins participate in House of Commons Standing Committee on Finance – Ottawa

Currency Summaries
EUR/USD
• EUR/USD off 0.45% early Europe with a 1.2226 low recorded
• EUR/USD traders add around EUR 2.3 bln to long positions in last 2 weeks
• Most are losing as EUR/USD is 22 pips above its low for the last two weeks
• The entire 19bln long position is subject to a cost of about 1 pip per day
• For those long since Jan that’s a big issue, costing close 0.75% IMM/FX
• Close below daily cloud base @ 1.2236 is likely to cue up a 1.20 test
• Last similar cloud break saw EUR/USD 1.1920-1.15553 Oct/Nov 2017

USD/JPY
• USD/JPY overcomes 108.00 option barriers, triggers buy stops above
• Range has been 107.67-108.28 so far this session
• Japanese importers seen late in buys for April, month-end approaching fast.
• Higher US yields very supportive, Nikkei off but holding on 22K handle.
• Falling risk aversion also weighs on the yen

GBP
• Cable fell to 1.3958 during the European am as more USD shorts squeezed
• 1.3958 = 5wk low. IMM specs net USD short rose to 6yr+ high last week
• Net GBP long biggest since July 2014 (as of Tues Apr 17)
• USD strength influenced by proximity of 10-year UST yield to 3.0%
• GBP still suffering from dovish shift in BoE expectations on Carney
• Pound could be heading for its first April fall vs USD since 2004

CHF
• USD/CHF continues higher and drawing support from rampant U.S. yields
• Spot plays 0.9748 to 0.9776 vs Friday’s 0.9751 close
• U.S 10-YT yield hits 2.9980%, just shy of much touted 3.0% level
• EUR/CHF heavy having failed to hold 1.20 breaks last week
• Offers had been touted around the former SNB floor at 1.20
• Overbought techs also at play but pullbacks likely shallow
• Latest SNB sight depo data shows increases for domestic and total depos

USD/CAD
• USD/CAD rose to 2wk high of 1.2805 during the European morning
• More greenback shorts squeezed during the climb
• Proximity of 10-year UST yield to 3.0% is lending support to USD

AUD/USD
• AUD/USD slid to a four-month low of 0.7634 during the European am
• Losses influenced by proximity of 10-year UST yield to key 3% level
• 0.7659-0.7683 was Asia range to follow Friday’s fall to 0.7655
• Australian Q1 inflation data due Tuesday 0130GMT, core CPI f/c 1.8%
• US bank said buy EURAUD at 1.6000 as TOTW, stop 1.5825, target 1.6325

NZD/USD
• NZD/USD extended south to 0.7167 during the European morning
• 0.7167 = one-month low. 0.7199-0.7219 was Asia range
• More USD shorts squeezed during the slide to 0.7167
• IMM speculators’ upped net USD short position to 6yr+ high last week

FX Options
• EUR/USD downside hedging remains limited, certainly while 1.2150 barriers hold
• USD/JPY vols off lows with spot above 108.00, no hurry to cover further gains yet
• GBP/USD vols best performers last week after 600 pip round trip for spot
• UK May rate hike hopes may now ride on Fri’s UK GDP being strong
• AUD/USD vols higher as 0.7600 barriers look increasingly vulnerable

COMMENT
US yield boost for dollar index may be short-lived
The rise in the 10-year UST yield to 2.9960 on Monday as it extends its push towards the much-touted 3% level is underpinning the USD index but that boost may prove short-lived. Hourly charts show the DXY being towed by higher yields from April 17, which tied in with a rebound in oil prices on April 18 but daily action is less convincing. While yields are breaking range tops the DXY remains comfortably below its 90.932 February to April range high. Levels to watch topside for the DXY are at the 30-DMA upper Bollinger at 90.552 and then 90.597 high from April 6. The big level to watch is at 91.004, the high from Jan 17. A 50% Fibo retrace off the October 2017 95.15 high to 88.2530 February 2018 low comes in behind at 91.7015. Note the potential for a bull break above a three-month range top and cloud top break in light crude oil, which will figure prominently on bond traders inflation radar screens. US 10YT yield vs DXY Daily Chart:

AUD/USD risks deeper fall as US yields rise 
AUD/USD risks deeper losses with barriers at 0.7600 looking more vulnerable as U.S. inflation concerns boost UST yields and the greenback. Higher U.S. yields and a stronger dollar place more burden on currencies with higher debt that are dependent on foreign funding such as the Australian dollar. One U.S. bank is even looking for AUD/USD to target the December 2016 low at 0.7160, AUD/USD failed to get legs above 0.7800 last week, helped in part by the 200-DMA currently 0.7815, where short stops are now gathering. The U.S. name highlights recent lacklustre Australian data and subdued underlying inflation, which should keep the RBA on hold for the foreseeable future and makes Tuesday’sCPI data key for short-term direction. Initial AUD/USD targets are the 2018 low at 0.7643, before the trend line off the 2016 low around 0.7615-20 ahead of those 0.7600 barriers. A breach of 0.7600 targets the December 2017 low at 0.7501 before early June 2017 double base at 0.7372-74, May 9‘s 0.7329 low and December 2016 lows at 0.7160 thereafter

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