FX Market Update 24-4

Market Briefs

• EUR/USD -0.03%, USD/JPY 0.09%, GBP/USD 0.08%, EUR/GBP -0.11%
• DXY -0.01%, DAX 0.39%, FTSE 0.27%, Brent 0.23%, Gold 0.25%
• DE Apr Ifo Business Climate, 102.1, 102.7 f’cast, 114.7 prev, 103.3 rvsd
• DE Apr Ifo Current Conditions, 105.7, 106.0 f’cast, 125.9 prev, 106.6 rvsd
• DE Apr Ifo Expectations, 98.7, 99.5 f’cast, 104.4 prev, 100.0 rvsd
• FR Apr Business Climate Mfg, 109, 110 f’cast, 111 prev, 110 rvsd
• Japan says trade talks with US under new framework won’t start until June
• Iran warns Trump it might withdraw from Non-Proliferation Treaty
• Oil tops $75, highest since 2014 OPEC meeting that led to pump war
• ECB’s Villeroy de Galhau warns of U.S. protectionist threat
• EU downplays prospect of bespoke Brexit trade deal for banks
• UK finance minister beats target for cutting budget deficit
• IT Apr Consumer Confidence, 117.1, 116.9 f’cast, 117.5 prev
• IT Apr MFG Business Confidence, 107.7, 108.7 f’cast, 109.1 prev, 108.9 rvsd
• UK Apr CBI Trends-Others, 4, 6 f’cast, 4 prev

Looking Ahead – Economic Data (GMT)
• 14:00 U.S. Mar New Home Sales-Units,0.630 mln f’cast, 0.618 mln prev
• 14:00 U.S. Mar New Home Sales Chg MM, 1.9% f’cast, -0.6% prev
• 14:00 U.S. Mar Build Permits R Number, 1.354 mln prev
• 14:00 U.S. Mar Build Permits R Chg MM, 2.5% prev
• 14:00 U.S. Apr Consumer Confidence, 126.0 f’cast, 127.7 prev
• 13:00 U.S. Feb CaseShiller 20 YY, 6.3% f’cast, 6.4% prev
• 13:00 U.S. Feb CaseShiller 20 MM SA, 0.7% f’cast, 0.8% prev
• 14:00 U.S. Apr Rich Fed Comp Index, 15 prev
• 14:00 U.S. Apr Rich Fed Mfg Shipments, 15 prev
• 18:25 U.S. w/e 21 Apr Redbook YY, 3.0% prev

Looking Ahead – Events, Other Releases (GMT)
• N/A EU General Affairs Council meets to discuss Brexit – Luxembourg

Currency Summaries
• EUR/USD 1.2246-1.2198 in NA reaches 1.2185 in Asia and 1.2182 after IFO
• IFO drops to 102.1 in April below 102.7 f/c and compared to prior 103.3
• EUR/USD traded 1.2197-82 in reaction before profit-taking set in
• Hedging for EUR 1bln 1.2200 option expiries is now sen anchoring EUR/USD
• EUR 800 mln expiries 1.2235-50 may attract those short for IFO pare bets
• Support @ Mar 1 low 1.2155/1.2150 barriers. Resistance @ cloud base 1.2236

• USD/JPY remains bid Mon’s rally, US yields high, Japan importer demand
• Importer demand likely to continue to Tokyo month-end Friday
• Exporter offers said to be ahead of 109.00 options barriers
• Range has been a narrow 108.67-108.91 range, though bulls eye barriers
• Descending 100-DMA near 109.00, daily Ichi cloud top 109.32

• Cable firmed to 1.3955 after all-but revisiting 1.3919 during the European am
• 1.3919 = fresh five-week low in Asia (1.3928 was Monday’s low)
• GBP continues to suffer on dovish shift in BoE expectations on Carney
• Cable was trading just under 1.42 when Carney interview broadcast Apr 19
• BoE MPA on May 10 is a coin toss between hike and hold
• EUR/GBP eased to test 0.8745 (Monday’s low) after German IFO miss

• USD/CHF maintains its bid despite easier U.S. yields early Tues
• However, USD-CHF yield spreads are still widening
• Spot plays to a new trend high at 0.9790 from early 0.9769 lows
• Some disappointment surrounding Swiss Mar trade data
• Weaker CHF supporting the surplus but a contraction seen versus Feb
• EUR/CHF pullback from 1.2005 bangs into the 10DMA at 1.1924
• Remains to be seen if an overbought USD/CHF can still slow the cross decline
• Risk to 1.1885 Apr 12 high but would expect fresh bidding at this level

• USD/CAD eased from 1.2851 to 1.2826 during the European am
• 1.2860 was three-week peak in Asia (1.2858 was Monday’s high)
• 1.2800 and 1.2770 (last Friday’s high) are support levels under 1.2826

• AUD/USD met fresh headwind pre-0.7620 after firming from 0.7593
• 0.7593 was early Europe low. 0.7613 = rally high from 0.7577
• 0.7577 = 4mth low in Asia after Aussie headline CPI 1.9% vs 2.0% f/c

• NZD/USD eased to a fresh 16wk low of 0.7106 in early European trade
• 0.7106 is three pips under 50% of 0.6781 (Nov low) to 0.7437 (Jan high)
• AUD/NZD scaled a fractionally fresh 1mth peak of 1.0693 early Europe
• 1.0691 was Asia high. 1.0700 option expiry for NY cut, AUD 400mn strike

FX Options
• USD demand falters for now and related option/vol demand peaks
• EUR/USD held by huge 1.22 vanilla expiries. 1.2150 barriers underpin
• USD/JPY 1-month vol paid 6.4 to 7.7 since last week, but sold 7.5 since
• Limited hedging demand for strikes above 109.00 just yet
• Cable vol setbacks limited ahead of Fridays UK GDP, key for May hike probability

Every BoE MPC vote could be crucial for GBP May 10 

Sterling is at the mercy of a coin-toss BoE interest rate decision on May 10, which may be as close as 5-4 for a hike or a hold. Assuming BoE hawks Saunders and McCafferty repeat their March 22 votes for a hike, three more MPC members need to join them to get the Bank Rate to 0.75%. Vlieghe looks the most likely, having said on March 23 that rates will probably need to rise once or twice a year over the next few years. BoE chief economist Haldane might be another hawk in waiting, after saying in February that BoE rate rises could come faster than expected. This leaves Carney–who spurred a dovish shift in BoE expectations through his comments that hurt GBP last Thursday–Broadbent, Tenreyro, Cunliffe and Ramsden. The latter pair voted against last November’s hike, although Ramsden is no longer perceived as a dove after saying in February that he sees the case “for rates rising somewhat sooner rather than somewhat later”.

EUR/USD girding for retreat to 1.2075-90N
Rising U.S. bond yields and a potentially dovish ECB add to headwinds facing EUR/USD and the daily chart is building for another leg down, a view which is supported by longer-term charts. Downside targets on the EUR/USD weekly chart are showing up at 1.2092, September 2017 high, and 1.2075 30-WMA. and longer-term charts are supporting this view. A rebound pattern on the weeklies, early March and early April, would be negated by a close below 1.2155, low from March 1. This would draw further significance by coinciding with a close below the 21-WMA, currently 1.2210. Fourteen-week bull momentum is fading fast having confirmed a bull bias since late December. Monthly action is moving sideways below the 200-MMA after failing to maintain upside breaks in January, February and March. Rejection at the 1.2483 average this month has led to a decent pullback and EUR/USD is once more threatening a close below the monthly Ichimoku cloud top at 1.2226. Worth noting that the 100-MMA is poised to cross below the 200-MMA, which would give a further bear signal

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