FX Market Update 18-6

Market Briefs
EUR/USD -0.03%, USD/JPY -0.14%, GBP/USD -0.21%, EUR/GBP 0.21%
DXY 0.02%, DAX -1.23%, FTSE -0.31%, Brent 0.97%, Gold 0.15%
IT Trade Balance EU, 1.077 bln, 0.698 bln prev
IT Global Trade Balance, 2.938 bln, 4.531 bln prev
British PM’s Brexit plans set for Lords defeat, teeing up showdown
UK households see fastest income growth in at least 9 years – IHS Markit
China’s c.bank says bond market risks in check as it steps up monitoring
Gold steady as strong dollar counters concerns over U.S.-China trade spat
Oil down on China tariffs, expected OPEC supply rise
Magnitude 6.1 quake in Japan’s Osaka area kills three, stops factories

Looking Ahead – Economic Data (GMT)
14:00 US NAHB Housing Market Indx, 70 f’cast, 70 prev

Looking Ahead – Events, Other Releases (GMT)
N/A John Williams begins tenure as president of the Federal Reserve Bank of New York
12:35 Retiring Federal Reserve Bank of New York President William Dudley speaks in New York
16:45 Speech by Bank of Canada Deputy Governor Lynn Patterson in Toronto
17:00 Federal Reserve Bank of Atlanta President Raphael Bostic speaks in Georgia state
19:00 ECB President Mario Draghi speaks in Sintra, Portugal
20:00 Incoming Federal Reserve Bank of New York President John Williams speaks in New York

Commentary and Analysis

Wobbly stocks underpin EUR/USD but topside looks limited 
Many factors conspire against the euro but risk-off markets underpin today
Longs, carry trades, CNY, CB flows and techs weigh EUR/USD
China equities slide close key 3K mark, DAX off 1.1%, E-mini down 0.5%
After another low shy 1.1500 option barriers spurs a little short-covering
Resistance @ 38.2% retracement sell-off since ECB @ 1.1661. 21-DMA 1.1699
USD strength will lead to CB rebalancing, so selling EUR/USD strength

USD/JPY shorts on edge after 5th biggest 2018 one-week gain 
USD/JPY shorts caught after last week’s 5th biggest one-week rise of 2018
Bulls little fazed by trade tensions, eye 111.00, stops above
IMM data for week ending June 12: Equivalent USD/JPY 572M short position
There has been net selling of USD/JPY on the EBS since June 12
Spot retains slight bullish slant, support at tenkan line
Monday’s range has been 110.30-75, bids all the way down to 110, stops below

GBP/USD down before expected May loss on Brexit in Lords )
Cable down 38 pips to 1.3236 intra-day low since the European open
Weakness precedes expected Brexit vote loss for UK govt in Lords today
Key Commons vote on Wednesday
Cable bids tipped pre-1.3200 option barrier level. 1.3205 = May 29, 6mth low
1.3212 was Friday’s low. Big 1.3205 option expiry Thursday, GBP 766mn strike
BoE MPA Thursday: 7-2 rate hold vote f/c, pre-Carney MH speech

AUD/USD remains on the defensive on global trade tensions 
Risk-sensitive AUD remains under pressure on US-China trade tensions
0.7426 was six-week low for AUD/USD early Asia
0.7455 = subsequent high (during European am). 0.7475 resistance beyond
Large 0.7475 option expiries Tuesday and Wednesday, A$2.49bln strikes
0.7413 (May 9 low) support. Copper down to two-week low
M&A news: South32 bids $1.3bln for rest of Arizona Mining

Brexit vote may torpedo GBP/USD pre-BoE decision
Cable could slide towards 1.3000 on the back of UK political uncertainty if the UK government loses a crucial Brexit vote in the Commons on Wednesday, on the eve of a BoE meeting widely expected to keep rates on hold. The vote will also take place just over a week before an EU summit where Brexit will be discussed. On Sunday, leading pro-EU Tory MP Grieve warned that a row over parliament’s influence over the Brexit process could collapse the government (Full Story). GBP/USD broke below 1.3300 last Thursday after pro-EU Tory MPs including Grieve said May had offered them much less than they were expecting in a new amendment setting out parliament’s role in shaping Brexit. Wednesday’s key Commons vote will be teed up by an expected defeat for the government over its Brexit plans in the Lords today (Full Story). IMM speculators have held more long GBP positions than shorts for six months: some stops on cable longs will be sheltering under 1.3200 (option barrier level), and these could help generate downward momentum towards 1.3000 if tripped.

USD/JPY bulls little fazed by trade tensions, eye 111
USD/JPY remains on course to break above 111.00 with bulls little fazed by the escalation on Friday in U.S-China trade tensions because the new tariffs imposed were broadly expected. The U.S decided to slap tariffs on $50 billion worth of Chinese goods (Full Story) and this was met with an announcement by China that it would impose 25% tariffs on 659 U.S. products (Full Story). The doji on Friday’s USD/JPY candlestick line — where the market closed very close to where it opened — reflected market indecision as U.S-China tensions came into sharp focus again. However, as spot marginally took out Wednesday’s 110.85 high on Friday, the market retains a slight bullish tilt. More immediate support has built up ahead of the 110.25 Fibo — 23.6% retrace of the 108.12 to 110.90 (May to June) recovery. As the tenkan and kijun lines are positively aligned, this reinforces the underlying bullish structure. A further ratcheting up of the trade dispute this week could, however, knock USD/JPY bulls off their stride.

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