FX Market Update 24-5

Market Briefs
DE GDP Detailed QQ SA, 0.3%, 0.3% f’cast, 0.3% prev
DE GDP Detailed YY NSA. 1.6%, 1.6% f’cast, 1.6% prev
DE GDP Detailed YY SA, 2.3%, 2.3% f’cast, 2.3% prev
DE GfK Consumer Sentiment, 10.7, 10.8 f’cast, 10.8 prev
FR Business Climate Mfg, 109, 108 f’csat, 109 prev
GB Retail Sales YY, 1.4%, 0.1% f’cast, 1.1% prev
U.S. launches auto import probe, China says will defend interests
China, Germany bullish on investment as Merkel visits Beijing under shadow of Trump trade threats
Fed and Bank of England tell markets to step up shift from Libor
China plans to cut import tariffs on some consumer goods from July 1-Bloomberg
POLL-ECB set to look through tepid inflation, end QE this year
BOJ member warns against overly stimulating demand with easy policy
Gold prices hold gains in wake of weaker dollar
Oil pinned below $80 a barrel as chances rise of OPEC raising output

Looking Ahead – Economic Data (GMT)
12:30 US Initial Jobless Claims, 220k f’cast, 222k prev
12:30 US Continued Jobless Claims, 1.754 mln f’cast, 1.707 mln prev
12:30 US Jobless Claims 4-Wk Avg, 213.25k prev
13:00 US Monthly Home Prices YY, 7.2% prev
13:00 US Monthly Home Price Index, 261.1 prev
14:00 US Existing Home Sales, 5.57 mln f’cast, 5.60 mln prev
14:00 US Exist. Home Sales % Chg, -0.2% f’cast, 1.1% prev
15:00 KC Fed Manufacturing, 33 prev
15:00 KC Fed Composite Index, 26 prev

Looking Ahead – Events, Other Releases (GMT)
N/A European Business Summit annual 2-day starts off in Brussels, Belgium
11:30 ECB releases minutes of April policy meeting
14:35 Fed Presidents Bostic and Kaplan speak at Dallas
15:00 Britain’s Philip Hammond speaks at Brussels, Belgium
17:00 BoE’s Carney speaks at London
18:00 Fed’s Patrick Harper speaks at Dallas
00:00 Fed’s Barkin speaks at Dallas

Currency Summaries

EUR/USD
EUR/USD 1.1694-46 in Europe, 1.1691-1.1733 Asia, 1.1676-1.1720 NA
Dovish interpretation of Fed minutes behind pair’s small rise
Rise falls short of 100-HMA 1.1758 and yesterday’s 1.1789 high
Italy 10-year yield down 9bp today but still up 70 bp since May 4
U.S. stocks buoyant, fuel for euro funded carry trades
Close below weekly cloud top tomorrow @ 1.1681 will spark bears into action

USD/JPY

Trump considering tariffs on auto imports, fresh pressure on USD/JPY in Asia
110.09-109.33, recovery falters 109.75 since, 200dma key resistance 110.19
Above 200dma may negate recent slide, but plenty of sellers ahead
Support mid May lows 109.30-109.00, 38.2% fib of 104.56-111.39 rise 108.78
Options remain biased for further declines, JPY call options firm premium
1mth risk reversals doubled on Wednesday to 1.0 JPY calls and stay bid

GBP/USD
Strong UK retail sales data does GBP little lasting good
Sales easily beat the 0.7% f/c at 1.6% yy
Knee jerk reaction saw GBP/USD boosted around 60 pips
Momentum wanes ahead 100-HMA and hourly cloud top 1.3420
Yesterday’s 1.3305 low @ GBP/JPY @ 145.89 low the danger points below
S-term tech bearish after three declining daily highs Tue/Thu this week

USD/CHF

EUR/CHF sharp eight-day 3.3% decline based below 1.16 Wed
Early Thurs action suggests bears are not done yet
Cross slips away from the 200DMA, 1.1650, to hit 1.1620
Looks to be some bidding/short cover interest around the 1.16 level
Eurozone politics and choppy risk markets still a CHF flown driver
USD/CHF fall held at the 30DMA, 0.9890, Wed, but looking to test again
Spot plays 0.9910-0.9955 early Europe and leaned on by 10/21DMAs, 0.9980

USD/CAD
USD/CAD 1.2829-66 range Thursday, well within Thurs 1.2813-1.2916
Support from 55/10dma 1.2828/26 today. DNT topside barrier caps at 1.2925
Mild USD setback helps keep a lid on the pair after percieved dovish Fed

AUD/USD
4bln expiries between 0.7500 and 0.7610 Friday will limit spot volatility
1.3bln 0.7500, 1bln 0.7515-30, 1bln 0.7550-70, 1.2bln 0.7600-10
AUD currently 0.7560, Thurs range 0.7542-74. 10-21DMA support 0.7535-26
USD off highs to underpin, AUD/JPY recovery also helps AUD from early lows
AUD/JPY drop based 82.44 Wed, 55DMA 82.51 held todays setback from 83.32

FX OPTIONS

Risk aversion seen Wednesday now receding and vols have peaked in most pairs
EUR/USD vols hit hard signalling near term spot consolidation there
Risk reversals remain firmly bid EUR puts however, bias remains down
USD/JPY vols peak, but JPY call premiums stay firm – bias down there too

COMMENT

USD/TRY to stabilize in the wake of the hike

Turkey has further go to regain investor confidence but the 300bp hike of the late liquidity window should be sufficient to steer the lira from a one-way plunge onto a two-way street. The extent of the lira’s decline, still down 14% since April’s LLW hike, is going to further fuel inflation, as is the 7% rise for oil since April. So the June 4 CPI release of May data is likely to weigh the lira, but the big hike and the dovish interpretation of yesterday’s Fed minutes should be enough to put a temporary cap on USD/TRY. Support has emerged ahead the 200-HMA at 4.4965 and 4.4657 which is a 38.2% retracement of the 2018 rally. Renewed resistance is likely at the site of prior significant option levels at 4.80 and 4.90. With specs likely long and paying a lot more to hold those bets a deeper pullback towards 50% and 61.8% of 2018’s rise at 4.3326/4.1794 could unfold before focus reverts to inflation in early June.

Time for cable bears to re-group before fresh fall

Upbeat UK April retail sales data Wednesday provided a bit of relief for cable and with bullish divergence creeping into the daily chart it might be time to trim shorts and look to offer again at better levels. Slow stochastic and a slowing in negative 14-day momentum has taken some heat out of bear crosses on 21-200DMA and 55DMA-100DMA. A tight doji star Tuesday warned that supply might be fading and an acceleration lower Wednesday would fit with a possible near-term adjustment. Daily tenkan and 10-DMA lines at 1.3460-70 could be reached on a corrective rebound and provide a fade level to join the underlying bear trend. Downside targets remain at 1.3206, weekly Ichimoku cloud top, and 1.3140 30-DMA lower Bollinger line. A close below the 55-WMA, currently 1.3401, could open up the cloud top and also the converging 100-WMA and 30-WMA lower Bollinger line at 1.3065-70. Fibonacci retrace levels off the October 2017 1.1491 low and April 1.4377 high are at 1.3275 38.2% and 1.2934 50%

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