FX Market Update 2-5

Market Briefs
• EUR/USD 0.05%, USD/JPY -0.03%, GBP/USD 0.32%, EUR/GBP -0.27%
• DXY -0.07%, DAX 1.13%, FTSE 0.46%, Brent -0.03%, Gold 0.55%
• EZ Apr Markit Mfg Final PMI, 56.2, 56.0 f’cast, 56.0 prev
• DE Apr Markit/BME Mfg PMI, 58.1, 58.1 f’cast, 58.1 prev
• GB Apr Markit/CIPS Cons PMI, 52.5, 50.5 f’cast, 47.0 prev
• Close Xi aide to meet U.S. trade delegation in Beijing
• German economy minister urges EU unity in trade conflict with U.S.
• Pro-Brexit lawmakers pressure British PM May over customs plan
• EU proposes to set aside euro zone money in next budget
• EZ Q1 GDP Flash Prelim YY, 2.5%, 2.5% f’cast, 2.7% prev,2.8% rvsd
• EZ Q1 GDP Flash Prelim QQ, 0.4%, 0.4% f’cast, 0.6% prev, 0.7% rvsd
• EZ Mar Unemployment Rate, 8.5%, 8.5% f’cast, 8.5% prev
• FR Apr Markit Mfg PMI, 53.8, 53.4 f’cast, 53.4 prev
• IT Q1 GDP Prelim QQ, 0.3%, 0.3% f’cast, 0.3% prev
• IT Q1 GDP Prelim YY, 1.4%, 1.4% f’cast, 1.6% prev
• IT Apr Markit/ADACI Mfg PMI, 53.5, 54.5 f’cast, 55.1 prev

Looking Ahead – Economic Data (GMT)
• 11:00 U.S. MBA Mortgage Applications, -0.2% prev
• 11:00 U.S. Mortgage Market Index, 398.5 prev
• 11:00 U.S. Mortgage Refinance Index, 1,145.5 prev
• 11:00 U.S. MBA 30-Yr Mortgage Rate, 4.73% prev
• 12:15 U.S. Apr ADP National Employment, 200k f’cast, 241k prev
• 18:00 U.S. Fed Funds Target Rate, 1.5-1.75% f’cast, 1.625% prev

Looking Ahead – Events, Other Releases (GMT)
• 11:40 ECB’s Ignazio Angeloni’s speaks at FT-Fitch Global Conference – London
• 12:00 Sweden Central Bank’s Stefan Ingves speaks at FT Global Conference – London
• 18:00 Fed’s FOMC announces decision on interest rate

Currency Summaries

• Traders widely paring longs with EUR/USD falling to 1.1981 Monday
• Today’s data to remind a more neutrally positioned market why it should buy
• Slow grind higher through early Europe with a 1.2032 high but offered there
• EZ GDP in-line 2.5% from 2.8%, strongest rate in 10 years
• Eurozone unemployment seen unchanged at 8.5%, last lower in Dec 2008
• EZ PMI f/c unch @ 56.0. Similar level springboard EUR/USD’s H1 2017 rally
• German PMI f/c 58.1, only seems weak vs stellar data recently seen over 60

• More near-term USD/JPY shorts taken out since last Wed remain vulnerable
• Session range has been 109.65-109.92, as spot hits highest level since Feb 5
• Profit taking in Asia blamed for USD/JPY failing to reach 110.00
• Talk also that Japanese exporters near 110.00 may impede upward progress
• Tue’s rise was the twelfth biggest one-day gain of 2018, however
• Bulls have momentum, eyes 200-DMA, 61.8% Fibo at 110.23, 110.24 respectively

• Cable extended north from 1.3581 to eye 1.3667 on UK construction PMI beat
• 52.5 vs 50.5 f/c. First UK economic data beat for over a fortnight
• 1.3667 was Tuesday’s Ldn am low. 1.3581 = early Europe 4mth low
• Drop to 1.3581 was spurred by Brexit-related news re: BBC report
• Hard Brexit faction in Tory party deny issuing threat over EU customs union
• 1.3588 was Tuesday’s low after UK mfg PMI miss. UK service PMI Thursday

• And now the adj as USD/CHF comes off its 0.9971 trend high
• Broad pullback in the USD albeit tentative at best so far
• Position adjusting ahead of tonight’s FOMC conclusion cited
• USD/CHF plays 0.9969 to 0.9938 and is offered into New York
• EUR/CHF easing with spot and eyes range lows at 1.1926
• Cross plays 1.1960-1.1940, Monday’s 1.1936 initial support
• Swiss Mar sales down 1.8% y/y vs -0.2% Feb, Apr PMI 63.6 vs 60.3

• USD/CAD elicited fresh support pre-1.2800 after sliding from 1.2857
• 1.2803 = European am low. 1.2857 was Asia low
• Monday’s low was 1.2807–before rise to 2mth high of 1.2914 Tuesday

• Profit-taking on shorts helped inflate AUD/USD to 0.7529 European am high
• 0.7476 was Asia low (four pips shy of Tuesday’s 11-month low)
• FOMC statement due 1800GMT, hawkish hold expected
• Large 0.7500 option expiry Thursday, AUD 950mn strike

• NZD/USD rose from 0.7006 to threaten 0.7034 during the European am
• 0.7034 was Asia high, before it dropped to threaten 0.6991
• 0.6991 was Tuesday’s 2018 low. 0.7000 expiry Thursday, NZD 232mn strike
• Large AUD/NZD 1.0725 option expiry Friday, AUD 700mn strike

FX Options
• Dollar gains falter pre Fed, potential for hawkish statement to reignite bid
• FOMC risk premiums on the low side, but no hike expected until June
• USD call options most notable against Euro, strikes to 1.1500
• USD/JPY topside flows remain light, exporters to limit any gains above 110 barrier
• GBP off lows, 1.35 barriers look safe, limited hedging flows below 1.3500, vols peak

Dollar bulls seek close above Fibo after big rise

The dollar has started off May with a bang and rising momentum means further gains are likely. The USD index, which tracks the greenback versus a basket of six currencies, registered the third biggest one-day points rise of 2018 on Tuesday. This led to a probe of the 92.515 Fibo — 61.8% retrace of the 95.150 to 88.251 (October to February) fall — a weekly close above which will pave the way to 93.522 — 76.4% retrace of the same rise. The ultimate target for bulls seeking a bigger recovery is the 200-WMA which currently comes in at 94.577. This week’s 91.480 low provides further support for the index as it is near the 30-WMA at 91.624. Fourteen-week momentum is increasingly bullish, after flipping from negative to positive last week, further highlighting the new found robust outlook for USD. Therefore bears will only be comfortable if they manage to force a weekly close back below the 30-WMA. 2018 Top 10 One-Day USD Index Rises Chart:

GBP/USD 200-DMA could force a short squeeze
Sterling bears are still very much in control but a looming 200-DMA support point might force some profit-taking in cable. The average is at 1.3534 today and has supported cable since a bullish breakout in April 2017. However, it’s worth noting that the market paid scant regard for the 100-DMA, which had also provided long-term support. The price convincingly broke the average on April 27 with a 1.3% decline. Counter-trend positioning at market or just ahead of the 200-DMA with a tight stop might prove profitable. Poor UK data with implications for the BoE rate outlook has shaped a 12-day sterling bear run culminating in a 1.3581 trend low early Tuesday. A subsequent small rebound to 1.3648 might feed into a stronger adjustment back inside the 30-DMA Bollinger envelope, the lower line is at 1.3705 today and serves as an initial target. The 100-DMA at 1.3880 is also a viable retracement level. A low at 1.3460 from early November provides a natural stop point not too far from the 200-DMA.

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