FX Market Update 19-6

Market Briefs
EUR/USD -0.64%, USD/JPY -0.59%, GBP/USD -0.6%, EUR/GBP flat
DXY 0.41%, DAX -1.26%, FTSE -0.42%, Brent -0.42%, Gold 0.11%
ECB patient and gradual with rate hikes, Draghi says
EU Current Account NSA,EUR, 26.2 bln, 40.6 bln prev
EU Current Account SA, EUR, 28.4 bln, 32 bln prev
China slams U.S. “blackmailing” as Trump issues new trade threat
Germany’s Ifo sees euro crisis 2.0, trade war slashing growth
Japan steel lobby fears US-China spat may prompt global trade order ‘collapse’
N.Korea’s Kim visits Beijing; S.Korea, U.S. halt military drill
Flexible wage setting may increase inequality, researchers tell ECB
White House defends immigration policy as outrage grows over children
OPEC sees strong oil market, possible need for more output
Gold prices gain as U.S.-China trade spat stokes safe-haven buying
Oil falls as flaring U.S.-China trade dispute blunts risk appetite

Looking Ahead – Economic Data (GMT) 
12:30 US Housing Starts Number, 1.310 mln f’cast, 1.287 mln prev
12:30 US Build Permits: Change MM, -0.9% prev
12:30 US Building Permits: Number, 1.350 mln f’cast, 1.364 mln prev
12:30 US House Starts MM: Change, -3.7% prev
12:55 US Redbook YY, 4.3% prev

Looking Ahead – Events, Other Releases (GMT) 
N/A ECB President Draghi, chief economist Praet, St Louis Fed President Bullard and Central Bank of Ireland chief Lane speak in Sintra, Portugal
11:00 ECB chief economist Peter Praet chairs a session in Sintra, Portugal
11:00 Federal Reserve Bank of St. Louis President James Bullard speaks in Sintra, Portugal
13:00 ECB bank supervisory chief Daniele Nouy speaks in Brussels
23:50 BoJ releases Minutes of Monetary Policy Meeting held on Apr 26 and 27

Commentary and Analysis

Trigger of stops below 1.1500 EUR/USD barriers are likely
Massive EUR/JPY selling has folowed the rise in U.S/China trade tensions
EUR/JPY -1.3% to 126.67. Break May 31 low 126.34 risks 29/30 lows 124.62/98
Long-term supports @ 100-WMA 125.59 and weekly cloud base 125.19
Large stops below 1.1500 barrier at risk due to the limited EUR/USD rebound
Shrinking c/a surplus and patient Draghi also weigh EUR
Sub 1.1500 exposes major fib @ 1.1448. Big 1.1450 options are a certainty

USD/JPY biggest one-hour drop since May 24, risk-off reigns
Trump’s new threat triggered biggest one-day slide in USD/JPY since May 24
Risk aversion swept through FX, USD/JPY bias remains squarely on downside
Spot has dropped from Asia’s 110.58 high to reach 109.55 low in Ldn so far
USD/JPY propped by Fibo after biggest one-hour fall in June
10-yr UST-JGB spread narrows as USD/JPY drops, 30/60-day correlations high
Large USD/JPY expiry for Tue June 19 below 109.00

Sterling ship is listing ahead of Brexit showdown
1.3168 = seven-month low for GBP/USD after stops tripped on 1.3200 break
Risk aversion on US/China trade conflict & Brexit concerns weighing on pair
USD occupies a higher rung of the safe-haven currency ladder than GBP
Brexit showdown in Commons Wednesday
GBP/USD bear targets include 1.3100, 1.3040 (Nov low) and 1.3000
1.3200 (former support point) is now a resistance level (1.3205 was May low)

AUD/USD down to 13mth low as Trump raises trade war stakes
Risk-sensitive AUD continues to suffer after US/China trade war stakes upped
AUD/USD down to 0.7361 (13mth low) since European open
0.7394 was Asia low (0.7427 = ensuing rally high). Nikkei closed down 1.77%
London copper down 1.65% to 18-day low. Dalian iron ore down 5%
Scope for further AUD/USD losses if US/China trade war escalates further
0.7160 (Dec 2016 low) and 0.70 among bear targets (0.6827 = Jan 2016 low)

GBP longs on edge as Brexit showdown clock ticks
Speculators who are long sterling may be in for additional pain as the clock ticks towards Wednesday’s Brexit showdown in the House of Commons. If PM May fails to dig out a compromise with Tory pro-EU rebel MPs within the next 32 hours and loses the mid-week vote it could spur further GBP losses on fears the UK government might collapse. Leading pro-EU Tory MP Grieve today said he did not want the government to collapse in the row over parliament’s role in the Brexit process. Nevertheless, Ladbrokes quotes 5/1 for May to no longer be PM by month-end versus 10/1 a fortnight ago. Tripped stops have helped depress GBP/USD to a seven-month low of 1.3168 today, following its break below 1.3200, with risk aversion and Brexit concerns helping to weigh on the pound. On Monday, a Goldman Sachs strategist said the “fair value” of GBP/USD is around 1.26.

Trump worsens Swiss c.bank’s FX headache as MPA looms
The spectre of a global trade war and political events are conspiring against the Swiss central bank’s desire for a weaker franc as Thursday’s quarterly SNB monetary policy assessment looms. EUR/CHF has fallen to a June low of 1.1492 today on demand for the safe-haven franc after President Trump ratcheted up the U.S. trade conflict with China. The cross had traded north of 1.1500 since June 1 (until today), after slumping to eight-month low of 1.1370 in late May as Italian political turmoil spurred buying of the CHF. Although the Italian political situation is now a lot calmer, the Swiss government remains concerned–issuing a warning today about the possibility of “considerable upward pressure” on the CHF. If events increase the allure of the franc, it could also prompt IMM speculators to jettison more of their short CHF positions–which dwarfed CHF longs by nearly four to one in the week to June 12 (50,265 contracts vs 13,020

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