FX Market Update 15-6

Market Briefs
• EUR/USD 0.12%, USD/JPY -0.08%, GBP/USD 0.07%, EUR/GBP -0.01%
• DXY 0.14%, DAX -0.24%, FTSE -0.73%, Brent -1.25%, Gold -0.28%
• EU HICP Final YY, 1.9%, 1.9% f’cast, 1.9% prev
• EU HICP ex F&E YY, 1.3%, 1.3% f’cast, 1.3% prev
• EU Labour Costs YY, 2%, 1.5% prev
• DE Wholesale Price Index YY, 2.9%, 1.4% prev
• IT CPI (EU Norm) Final YY, 1%, 1.1% f’cast, 1.1% prev
• IT Industrial Orders YY NSA, 6.4%, 2.6% prev
• IT Industrial Sales YY WDA, 4%, 3.6% prev
• IT Consumer Prices Final YY, 1%, 1.1% f’cast, 1.1% prev
• Japan’s central bank cuts inflation view, narrowing stimulus-exit path
• China promises fast response as Trump readies tariffs
• Former Trump campaign chief Manafort to ask judge not to jail him
• Bundesbank slashes Germany growth view, says horizon clouded
• Gold slips on stronger dollar; U.S.-China trade war fears loom
• Oil falls as focus moves to prospect of higher supply

Looking Ahead – Economic Data (GMT) 
• 12:30 US NY Fed Manufacturing, 19% f’cast, 20.1 prev
• 12:30 CA Manufacturing Sales MM, 0.6% f’cast, 1.4% prev
• 12:30 CA Securities Cdns C$, -1.90 bln
• 13:15 US Industrial Production MM, 0.2% f’csat, 0.7% prev
• 13:15 US Capacity Utlization MM, 78.1% f’cast, 78% prev
• 14:00 US U Mich Sentiment Prelim, 98.5 f’cast, 98 prev
• 14:30 US ECRI Weekly Index, 148.7 prev
• 14:30 US ECRI Weekly Annualized, 2.6% prev

Looking Ahead – Events, Other Releases (GMT) 
• 17:30 Fed’s Kaplan speaks in Texas

Commentary and Analysis

EUR/USD off lows on profit-taking, surging labour costs 
• EUR/USD 1.1543-1.1615 rise in Europe
• Recovery largely due to the big extent of ECB inspired decline from 1.1853
• Clear need for a correction with 1.1661 38.2% of the fall seen last 24 hours
• EZ labour costs also surged to 2% way over 1.4% f/c and highest since 2011
• So soon after the ECB and coupled weaker euro will challenge H2 2019 view
• However, huge EUR/USD longs at risk to hawkish Fed, prospect wider rate gap
• Key support @ 1.1448 50% 1.0340-1.2556 rise and 100/200-WMAs 1.1426/16

USD/JPY bulls halted after June’s 2nd biggest one-hour drop
• USD/JPY had been making good progress, but gains have been halted in London
• Friday sees 110.90 to 110.39 drop in London, as near-term bulls buckle
• Also 2nd biggest one-hour drop of June so far (open 110.76, close 110.52)
• Bulls staged resolute fight back to register close above Fibo
• BoJ stands pat as eyed, that caused USD/JPY to rise
• BoJ Gov Kuroda: Growth moderate, to stick to current policy

GBP/USD helped off 17-day low by profit-taking on shorts 
• GBP elicited support pre-1.3200/05 after breaking below 1.3229
• Subsequent rise to threaten 1.3300 aided by some profit-taking on shorts
• 1.3300 is a former support level. 1.3301 = 38.2% of 1.3446-1.3212
• 1.3446 = Thursday high on UK retail sales beat, pre-dovish ECB rate guidance
• 1.3205 was six-month low on May 29. 1.3200 is an option barrier level
• Large 1.3250 option expiry for 10am ET NY cut (1400GMT), GBP 967mn strike

AUD/USD remains under pressure on US/China trade concerns
• Global trade concerns continue to weigh on the risk-sensitive AUD
• Trump is expected to unveil revised China tariff list today
• China promises fast response as Trump readies tariffs
• AUD/USD revisited 0.7454 (Asia one-month low) in early European trade
• Subsequent climb to 0.7480 aided by some profit-taking on short positions
• AUD/USD fell by 1.4% Thursday, its steepest one-day decline since Feb 2

GBP braces for another long week of Brexit politics 
Sterling will once again be at the mercy of Brexit politics next week, with a House of Commons debate on finalising Brexit laws scheduled for Wednesday (June 20). GBP/USD broke below the 1.3300 level for the first time since May 29 on Thursday after pro-EU MPs in the Tory Party said PM May had offered them much less than they were expecting in a new amendment setting out parliament’s role in shaping Brexit. The pound’s fall came 48 hours after it caught a bid when the same group of pro-EU Tory MPs backed the government in a key Commons vote on shaping Brexit, on expected concessions. With the bad blood between May and her europhile backbenchers getting worse, a rebellion can’t be ruled out. Indeed, Ladbrokes has shortened the odds of May no longer being PM at month-end to 5/1, from 6/1 Tuesday and 10/1 last week. Sterling will take a knee-jerk hit if May faces a Tory leadership challenge or unexpectedly resigns.

German politics add to euro’s travails after ECB hit 
A threat to the survival of Germany’s CDU-CSU/SPD coalition government adds to the euro’s woes after the single currency’s steep slide on the back of the ECB’s dovish rate guidance Thursday. Chancellor Merkel (CDU) has so far failed to placate leaders of the CDU’s Bavarian sister party in a dispute over migrant policy ahead of a Bavarian regional election in October, with the CSU to decide on further steps at a meeting on Monday. If the dispute cannot be settled, Merkel may be forced to sack her CSU Interior Minister Seehofer. This would trigger a German government crisis which could spur further liquidation of long EUR positions. IMM speculators upped gross EUR long positions by 9% in the three weeks to June 5–a period which encompassed Italian political turmoil, to help maintain a hefty gap over gross EUR shorts . Some of those euro longs may be jettisoned if EUR/USD breaks below 1.1500 (option barrier level). 1.1510 was the 10-month low on May 29, at the height of Italian political turmoil


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