Category Archives: Market News

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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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.

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

FX Market Update 12-6

Market Briefs
• EUR/USD 0.11%, USD/JPY 0.11%, GBP/USD 0.17%, EUR/GBP -0.06%
• DXY -0.06%, DAX -0.14%, FTSE -0.4%, Brent 0.39%, Gold -0.12%
• Trump, Kim agree on denuclearisation, but deal seen symbolic
• China suggests N.Korea sanctions relief as Trump, Kim meet
• DE ZEW Economic Sentiment, -16.1, 14 f’cast, -8.2 prev
• DE ZEW Current Conditions, 80.6, 85 f’cast, 87.4 prev
• German upswing remains robust despite U.S. tariff threat -OECD
• GB Claimant Count Unem Chng, -7.7k, 31.2k prev
• GB ILO Unemployment Rate, 4.2%, 4.2% f’cast, 4.2% prev
• GB Employment Change, 146k, 110k f’cast, 197k prev
• GB Avg Wk Earnings 3M YY, 2.5%, 2.6% f’cast, 2.6% prev
• FR Non-Farm Payrolls Rev, 0.20%, 0.30% prev
• OPEC will squeeze oil buffer to historic lows with an output hike
• In Brexit showdown, British PM May faces issue of “meaningful vote”
• With rate hike in the bag, focus turns to Fed’s policy language
• Gold dips on strong dollar post Trump-Kim meeting; Fed in focus
• Oil edges up, but bulls remain wary ahead of OPEC meeting

Looking Ahead – Economic Data (GMT)
• 12:30 US Core CPI YY, NSA, 2.2% f’cast, 2.1% prev
• 12:30 US CPI YY, NSA, 2.7% f’cast, 2.5% prev
• 12:55 US Redbook YY, 4% prev

Looking Ahead – Events, Other Releases (GMT) 
• N/A U.S. Federal Reserve’s Federal Open Market Committee starts in Washington
• 14:00 Senate Committee votes on the nominations of Richard Clarida to be Fed vice chairman and Michelle Bowman to be a member of the Fed Board of Governors in Washington

Commentaries and Analyses

EUR/USD up in Europe as rates lend the euro a hand (nL1N1TE0AO) 
• EUR/USD soft in Asia trading lower within a 1.1803-1.1741 range
• Pair supported in Europe rising 1.1757-1.1809
• Interest rate mkts ahead FED/ECB shift in support of a higher EUR/USD
• US/German 10-year spread narrows to 245bp, tightening by 14bp since end-May
• Further 1bp tightening would take spread to narrowest since mid-May
• EUR 8 shorts estab since start May. Break 1.1840 or 1.1700 will excite

USD/JPY, sold in Ldn after US-NK summit, vulnerable to squeeze (nL1N1TE0AM)
• USD/JPY selling in late Asia, throughout Ldn could see short squeeze from NY
• Few details on how NK denuclearisation will be achieved weighs on USD/JPY
• USD/JPY rose from 110.00 to hit 110.49 in Asia, ahead of the easing in Ldn
• Bulls had earlier leapt over 200-DMA to focus on key Fibo
• Japanese exporter offers said to be in size at 110.50 and above
• Widening UST-JGB spread underpin USD/JPY bulls ahead of Fed

GBP/USD reclaims 1.34 handle after dip on UK earnings miss (nL1N1TE095) 
• Cable fell to 1.3380 in knee-jerk reaction to below f/c UK earnings data
• Headline earnings +2.5%, ex-bonus earnings +2.8%, both 0.1% below f/c
• Larger than expected rise in employment is silver lining for GBP bulls
• 146k vs 110k f/c. ILO jobless rate 4.2%, as expected
• Rally from 1.3380 topped out a pip shy of 1.3419 (pre-UK data high)
• 1.3343 was early Europe one-week low. 1.3345-1.3441 was Monday’s range

AUD/USD elicits support from ‘positive’ Trump-Kim summit (nL1N1TE08R)
• Risk-sensitive AUD ticks up to 0.7623 vs USD after Trump/Kim summit
• Trump, Kim sign agreement but few specifics
• 0.7621 was Asia high and Monday’s high. 0.7627 was last Friday’s high
• Interim low between Monday’s high and Asia high was 0.7584
• AUD/USD could extend north if US CPI data softer than expected at 1230GMT
• US CPI f/c +0.2% MM, +2.7% YY. Core CPI f/c +0.2% MM, +2.2% YY

COMMENTS
Higher USD yield, RBNZ to sap NZD/USD strength 

With U.S. interest rates about to become the highest of all in developed markets and risk appetite underpinned by the U.S.-North Korea agreement, the dollar is looking an attractive buy especially against the New Zeland dollar. A potentially dovish RBNZ at the end of the month and the fact that speculators are short of the greenback versus the kiwi may makes this the best dollar long play. This week the Fed Funds target is expected to rise to 2%, making the dollar’s yield the highest within developed FX markets and with stocks holding their long-term uptrends and vols in FX majors low, that big carry is going to attract a lot of demand. On the flip side, the new RBNZ Governor Orr struck a dovish tone at his first meeting on May 10 and with NZD/USD around 1% stronger than it was on May 10, the RBNZ is almost certainly going to repeat that dovish view on June 27. The 55-DMA at 0.7089 and daily Ichimoku cloud 0.7100-0.7175 provide strong resistance to sell against.

Widening UST-JGB spread spur USD/JPY bulls ahead of Fed  
The U.S. Federal Reserve is widely expected to raise interest rates for the second time this year, the focus is on whether the central bank will hint at raising rates a total of four times in 2018 which would spur USD/JPY gains. Meanwhile, the BoJ is widely to maintain its loose monetary policy on Friday. The 10-year UST-JGB yield spread will therefore likely remain a key influence over USD/JPY in coming days. The relationship (30-day log correlation) between USD/JPY and the UST/JGB spread since May 9 has been above +0.50, the threshold which means the two variables register a daily close in the same direction more often than not. Increased risk appetite in recent days in the run-up to today’s Trump-Kim summit, saw USD/JPY vault the 200-DMA at 110.19. Though Trump, Kim signed an agreement after the summit it had few details on how denuclearisation will be achieved, capping pressure on the safe-haven yen. If the 10-year UST-JGB yield spread continues to widen, this will help secure a USD/JPY bullish daily close above the 200-DMA.

Futuro del peso mexicano 12-6

US-Korea Summit Fails to Impress Investors

  • Investors appear largely unimpressed with the summit
  • With the G7 political theater behind us and the historic US-North Korean summit also over, attention returns to the macro situation
  • Redenomination risk in Italy continues to retract
  • The US reports May CPI figures today
  • USD/MXN is back above 20.50 and approaching the Friday high near 20.6550; India reports May CPI and April IP

50 HMA= 487.70

200 HMA= 493.50

 

Futuro del peso mexicano 12- 6

FX Market Update 11-6

Market Briefs

• EUR/USD 0.24%, USD/JPY 0.42%, GBP/USD -0.31%, EUR/GBP 0.55%
• DXY 0.01%, DAX 0.48%, FTSE 0.7%, Brent -0.94%, Gold -0.18%
• N.Korean, U.S. officials air differences on eve of summit; Trump stays positive
• “Fair trade, fool trade”, Trump’s tweets spew ire on NATO allies, Trudeau
• GB Apr Industrial Output YY, 1.8%, 2.7% f’cast, 2.9% prev
• GB Apr Manufacturing Output MM, -1.4%, 0.3% f’cast, -0.1% prev
• GB Apr Manufacturing Output YY, 1.4%, 3.1% f’cast, 2.9% prev
• GB Apr Goods Trade Balance (GBP), -14.04 bln, -11.35 bln f’cast, -12.29 bln prev
• Britain’s May to urge Conservative unity before parliament’s votes
• Mexico minister calls for ‘flexibility’ in reworking NAFTA
• Bitcoin tumbles as hackers hit S.Korean exchange Coinrail
• Oil prices slip as U.S. and Russian supplies grow
• Gold dips on uncertainty about Fed, U.S.-N.Korea summit

Looking Ahead – Economic Data (GMT) 
• 15:00 New York Fed Survey of Consumer Expectations (May)

Looking Ahead – Events, Other Releases (GMT) 
• 15:00 Angela Merkel meets heads of the IMF, WTO, the World Bank, the ILO and the OECD for talks in Berlin
• 15:45 FedTrade operation taking 30-year Ginnie Mae (max $510 mn)
• 17:20 German Finance Minister Peter Altmaier speaks at opening of CEBIT Business Fair for Innovation and Digitization

Commentary and Analysis

EUR/USD rally loses momentum as focus turns to Fed (nL1N1TD07Q)

• Italy vow to stay in euro boosts EUR/USD to 1.1821 in Europe
• Italy 10-year yield currently down 22bp on the day at 2.91%
• EUR/USD rally loses momentum with pair dropping to 1.1790 ahead NA open
• Those short are pinning hopes coming Fed hike boosts USD Wednesday
• However, the weaker euro is certain fuel for ECB hawks on Thursday
• Over 1.1845 may spark squeeze. Bears need sub 21-DMA 1.1738

USD/JPY sees biggest one-hour gain of June as risk rebounds (nL1N1TD06I)

• Asia saw USD/JPY’s biggest on one-hour gain of June in Asia as NK is focus
• Ldn subsequently builds on this to register the fourth latest one-one gain
• Wider 10-yr UST-JGB spread also fuelling USD/JPY’s latest rise
• USD/JPY bulls rebound to focus once again on the 200-DMA
• Japanese exporter offers remain in size above 110.00, could limit gains
• Officials air differences on US-NK summit eve; Trump positive

Sterling hurt by very disappointing UK economic data (nL1N1TD06X)

• GBP/USD down to 1.3361 intra-day low on much worse than expected UK data
• Apr mfg output -1.4% vs +0.3% f/c, biggest drop since Oct 2012 nL4N1TD2Y7
• Industrial output -0.8% vs +0.2% f/c. Construction output +0.5% vs +2.0% f/c
• Goods trade deficit GBP 14.035bln vs 11.35bln f/c, widest since Sept 2016
• Data misses are blow for hawks advocating BoE rate hike on Aug 2
• 1.3441 was early Europe high (pre-UK data). 1.3355 was Friday’s low

AUD/USD supported by rise in risk appetite pre-Trump/Kim (nL1N1TD07Y)

• AUD/USD elicited fresh support pre-0.7600 after retreating from 0.7616
• 0.7616 was European am high. 0.7602 was pullback low from 0.7614 Asia high
• Ascent to 0.7614 spurred by rise in risk appetite: Nikkei closed up 0.48%
• 0.7575 was early Asia low after tense weekend G7 meeting
• Trump-Kim summit in Singapore Tuesday, AUD could react to it
• 0.7560 was AUD/USD low Friday on decline in risk appetite

COMMENT

May’s Brexit test to dictate GBP/USD’s direction 
Cable could rise towards 1.36, a key technical level, if Tory PM May successfully navigates a tricky week in the UK parliament, when MPs will be voting on the shape of Brexit. May will today continue efforts to persuade rebel MPs to back her government, ahead of House of Commons votes on Tuesday and Wednesday. Pro-EU Tory MPs have to reflect on the fact that shooting May’s Brexit plan down could weaken her leadership and result in a “hard” Brexiteer succeeding her in number 10 ahead of Britain’s scheduled EU exit in March 2019. Sterling could fall sharply if that came to pass. Ladbrokes currently quotes 11/8 for May to be replaced as PM this year versus 2/1 seven days ago. Ladbrokes and Paddy Power make prominent eurosceptic Michael Gove the favourite to be the next Tory leader, with William Hill making ardent Brexiteer Jacob Rees-Mogg the favourite. 1.36 approximates to cable’s 200-day moving average.

S.Africa rand could see brief reprieve post-Fed
Like other emerging market FX, the South African rand is at the mercy of the Fed and ECB meetings this week though an overbought USD/ZAR could be ripe for a pullback. An FOMC interest rate rise is already heavily discounted but there’s still room for a post-hike knee-jerk rally in USD/ZAR should the Fed up the hawkish rhetoric. However, price action since last week’s topside break-out has tipped the charts into overbought territory and a retreat may be on the cards after the FOMC. A drop back inside the 30-DMA Bollinger envelope 13.0105 could be a viable objective with the daily tenkan at 12.87 offering value. Any pullback though would provide an opportunity to pick up dollars at cheaper levels before the fundamental backdrop takes the rand lower again

FX Market Update 8-6

Market Briefs
• EUR/USD -0.42%, USD/JPY -0.37%, GBP/USD -0.06%, EUR/GBP -0.33%
• DXY 0.31%, DAX -0.84%, FTSE -0.72%, Brent -0.93%, Gold 0.18%
• DE Industrial Output MM, -1%, 0.3% f’cast, 1% prev
• DE Trade Balance, EUR, SA, 19.4 bln, 21 bln f’cast, 22 bln prev
• G7 leaders set to clash with combative Trump over tariffs, trade
• Germany urges European unity in face of trade tensions with U.S.
• For high-stakes summit with Kim, Trump trusts his gut over note cards
• Brace for a possible “Brexit meltdown” but don’t panic, UK’s Johnson cautions – BuzzFeed
• China’s export growth steady in May, import growth faster but not from US
• France calls for more German ambition on the euro zone
• It’s up to Italy to tackle its debt pile – German FinMin
• Gold edges up ahead of G7, but dollar recovery caps gains
• Oil prices fall on dip in China demand, surging U.S. output

Looking Ahead – Economic Data (GMT) 
• 12:15 CA House Starts, Annualized, 218k f’cast, 214.4k prev
• 12:30 CA Capacity Utilization, 86% prev
• 12:30 CA Employment Change, 17.5k f’cast, -1.1k prev
• 12:30 CA Unemployment Rate, 5.8% f’cast, 5.8% prev
• 14:00 US Wholesale Invt(y), R MM, 0% f’cast, 0% prev
• 14:00 US Wholesale Sales, MM, 0.3% f’cast, 0.3% prev

Looking Ahead – Events, Other Releases (GMT) 
• No major econ events scheduled

Commentary and Analysis

Weak German data and jump for Italy yields hit EUR/USD
• Interest rate markets quickly unwind the moves previously supporting EUR/USD
• Spec of hawkish ECB forgotten as focus reverts to still elevated Italy risk
• UST/Bund 10-yr spread 6bp wider wiping most of the week’s 9bp narrowing
• Italy 10-year yield jumps as high as 3.12%
• CB buying dips underpins EUR/USD but pair still down around 50 ticks
• German Apr IP -1% vs 0.3% f/c. German trade surplus narrows weaker export

GBP/USD softer as EUR/USD falls on Italian bond yields rise
• Cable drop to threaten 1.3400 spurred by EUR/USD fall from 1.1810 to 1.1772
• EUR/USD fall influenced by Italy bond yields rise nL5N1TA0R3
• EUR/GBP down to 0.8773 (two-day low). 0.8791 was Asia low and NY low
• GBP was negatively impacted by Brexit politics Thursday: 1.3368 = cable low
• Johnson says there could be a “Brexit meltdown” – Buzzfeed
• 1.3453 was rally high from 1.3368 on BoE’s upbeat Ramsden

USD/JPY 5th biggest one-hour June drop as risk aversion up
• London sees 5th biggest one-hour USD/JPY drop of June as bears tighten grip
• Spot falls from 109.85 to 109.28 today, 1.1B 109.00 NY cut options beckons
• Downside USD/JPY fears grow in the options market
• Yen is in demand from risk averse flows via spot and options
• USD/JPY bears are now focused on tenkan at 109.19, close below will weaken
• Tenkan line is wide watched by traders, especially in Tokyo

AUD/USD threatens Monday’s low on loss of risk appetite
• AUD/USD eyeing Monday’s low of 0.7558 after breaking below 0.7576
• 0.7576 was the early Europe low and a Fibo support level
• Recovery rally from 0.7576 topped out five pips shy of 0.7600
• AUD losses fuelled by risk aversion: Hang Seng closed -1.8%
• DAX -1%, S&P e-mini -0.6%. Ldn copper -1.05
• 0.7500 among AUD/USD bear targets (0.7514 = June 1 low after NFP/AHE beats)

USD vulnerable to selling as Fed, ECB eyed (nL2N1T9275)
The dollar could see another round of selling ahead of next week’s Federal Reserve and ECB meetings given its struggle to gain upward traction despite the recent rebound in U.S. Treasury yields. Technicals also suggest further falls, with the USD index, which tracks the greenback versus a basket of six currencies (the euro and the yen are its two biggest constituents), registering its first negative 14-day momentum reading since mid-April. A resumption of EUR/USD gains would have a huge negative effect on the dollar index as despite intraday weakness, euro bulls retain the upper hand going into next Thursday’s ECB meeting where the central bank looks set to discuss an end to its QE. Yen is in demand from risk averse flows via spot and the options market. USD/JPY seems to be heading for a test of 109.00, putting further downward pressure on the USD index. The dollar normally falls in June, a daily close by the index below the 30-DMA (which is at 93.383) will pave the way to 92.440 Fibo — 38.2% of the 88.251 to 95.030 (2018) rise.

UK wages may offer GBP reprieve from Brexit travails 
An upside surprise in UK earnings data next Tuesday may offer the pound a reprieve from its Brexit travails which are back in focus with crunch votes next week. The earnings report is due before a series of UK House of Commons votes on Brexit scheduled for Tuesday evening, before the focus likely turns to UK inflation data Wednesday. Headline earnings growth is forecast at 2.6%, unchanged from previously, with ex-bonus earnings growth forecast at 2.9%. An earnings beat would be a further boost for hawks advocating a BoE rate hike on Aug 2, following this week’s hawkish shift in BoE expectations–which helped inflate GBP/USD to a 16-day high of 1.3472. Annualized CPI is forecast to rise to 2.5% from April’s 13-month low of 2.4%. UK ONS May retail sales data, due Thursday, adds to the event risk for GBP next week. Annualized retail sales growth is forecast to rise to 2.4% from 1.4% in April.

Italy risk and Fed hike to send EUR/USD back to 1.15 
Italy risk remains elevated yet EUR/USD is 270 pips above last week’s low and with the Fed set to hike next week may have been set-up for a fall. A sell-off looks very likely with a 1.1500 retest to follow any close below the 21-DMA at 1.1745. Italian bonds suggest risks for the euro remain very high with the 10-year yield 3.09 percent compared to a closing high last week of 3.10 percent, (traded high 3.38 percent). Yet EUR/USD has staged a rally of almost 3 percent from the lows seen during the turmoil last week. Current EUR/USD strength is even more surprising considering the pair usually undergoes a period of pressure ahead of a U.S. hikes with moves down ahead Dec and March Fed moves around 2 percent. For a change there’s a EUR/USD drop has not been factored in relation to higher U.S. rates but the spread for benchmark U.S./German bond yields is only 10bp below the high for the divergence driving EUR/USD down

FX Market Update 6-6

Market Briefs
• EUR/USD 0.44%, USD/JPY 0.34%, GBP/USD 0.24%, EUR/GBP 0.16%
• DXY -0.28%, DAX 0.37%, FTSE 0.35%, Brent 0.57%, Gold -0.04%
• ECB to debate ending bond buys next week: Praet
• Plausible that ECB can end bond buys this year: Weidmann
• EU set to impose extra tariffs on U.S. imports from July
• EU lawmaker rules out “mutual recognition” for UK financial firms
• Pressuring May, UK’s Labour tries to force new single market deal
• Iran’s uranium enrichment plans are close to the “red line” – French minister
• Gold ticks up on soft dollar, investors cautious amid trade tensions
• Oil prices higher on Venezuela exports concerns

Looking Ahead – Economic Data (GMT)
• 11:00 US MBA Mortgage Applications, -2.9% prev
• 11:00 US Mortgage Market Index, 356.1 prev
• 11:00 US MBA Purchase Index, 242.7 prev
• 11:00 US MBA 30-Yr Mortgage, 4.84% prev
• 12:30 US International Trade $, -49 bln f’cast, -49 bln prev
• 12:30 CA Building Permits MM, 3.1% prev
• 12:30 CA Trade Balance C$, -3.40 bln f’cast, -4.14 bln prev
• 14:00 CA Ivey PMI, 70.4 prev
• 14:00 CA Ivey PMI SA, 71.5 prev

Looking Ahead – Events, Other Releases (GMT)
• 11:15 Irish Finance Minister speaks at event in Dublin
• 13:30 ECB Member of the Supervisory Board Pentti Hakkarainen speaks in Lisbon
• 17:10 ECB Member of the Supervisory Board Ignazio Angeloni speaks in Brussels

Currency Summaries
*NOTE: Focus for this section will shift to a more topical, regional-based coverage that spans multiple currencies. Please look for this change in the coming days.

EUR/USD
• EUR/USD boosted as traders mull risk of a more hawkish ECB position
• ECB’s Weidmann says ending bonds buys this year would only be first step
• ECB’s Praet says ending bond buys at end 2018 is up for discussion
• Probability of Jun 19 hike rises to 70%, hike almost fully priced in July
• 10-Year bund yield rises to a 1 1/2 week high up 6bps on the day
• EUR/USD trades 1.1771 above 21-DMA @ 1.1753. 38.2% Apr/May drop is 1.1855

USD/JPY
• Yen has been sold on the continued “risk on” environment
• On Tuesday the talk was of big Japanese megabank offers above 110.00
• Japanese exporters also mixed in, so these might limit USD/JPY gains
• Recall the high on Tuesday was 110.01, range today has been 109.79-110.19
• Market now grapples with the 200-DMA, needs close above

GBP/USD 
• Cable extended north to a two-week high of 1.3438 during the European am
• Ascent influenced by EUR/USD short-covering on risk of more hawkish ECB
• ECB monetary policy meeting next week (June 14), 7 days before BoE MPA
• EUR/GBP rose by a quarter-penny to 0.8767 during the European am
• 1.3418 was GBP/USD high in Asia, with ensuing retreat basing circa 1.3400
• 1.3400 is a former resistance level (1.3398 was Monday’s high)

USD/CHF
• EUR/CHF rose to a nine-day high of 1.1620 during the European am
• Ascent fuelled by hawkish comments from ECB chief economist Praet
• There is an ECB monetary policy meeting next week (June 12)

USD/CAD
• USD/CAD is eyeing 1.2915 after falling from 1.2955 (European am high)
• 1.2915 was Tuesday’s low–before the jump to 1.3068 (11-week high)
• Canada April trade data due 1230GMT. May Ivey PMI due 1400GMT
• 1.2900 option expiry for 10am ET NY cut (1400GMT), USD 425mn strike
• Bank of Canada Financial System Review due 1430GMT

AUD/USD
• Profit-taking on longs helped deflate AUD/USD to 0.7639 during European am
• 0.7673 was six-week high in Asia after the Australian Q1 GDP beat
• Prior profit-taking on longs helped deflate AUD/USD to 0.7595 Tuesday
• A US bank reportedly went long near 0.7595, initial target 0.7810, stop 0.7475
• 0.7810/13 = April high. Stop set two pips under last week’s low (May 30)

NZD/USD
• NZD/USD rose to a five-week high of 0.7060 in early European trade
• Ascent aided by a rise in risk appetite: Nikkei closed up 0.38% today

FX OPTION EXPIRIES WED 6 JUNE
• EUR/USD: 1.1600 (1.2BLN), 1.1650 (1.5BLN), 1.1680-1.1700 (742M)
• 1.1750-60 (1BLN), 1.1800 (1.8BLN), 1.1825 (1.4BLN)
• GBP/USD: 1.3425 (303M). AUD/USD: 0.7600-10 (546M), 0.7650-55 (402M)
• NZD/USD: 0.7000 (271M)
• USD/CAD: 1.2860-65 (490M), 1.2880 (370M), 1.2900 (425M)
• USD/JPY: 108.85 (432M), 109.00 (1.4BLN), 109.70-75 (750M), 110.00 (502M)
• EUR/JPY: 127.00 (773M), 128.50 (1.8BLN)

COMMENT

UK MPs’ Brexit votes could roil sterling next week
Sterling is in for another Brexit sentiment test next week when UK MPs vote on PM May’s EU exit blueprint. The votes on June 12 could simultaneously increase the probability of a relatively ‘soft’ Brexit–which would be positive for GBP, while casting doubt on whether May will remain PM through Britain’s scheduled EU exit in March 2019. A May exit before Brexit could destabilise the pound. The opposition Labour Party said in a statement Tuesday that it had submitted an amendment to the EU withdrawal bill calling on the government to negotiate full access to the EU’s single market. This was headlined by the Times newspaper on Wednesday as “Labour bids for ‘softest’ Brexit deal in new shift”. MPs in the Commons will debate the Brexit legislation next Tuesday, with votes expected after 1800 GMT. May’s government will ask MPs to overturn some of the 15 changes to its Brexit legislation made by peers in the Lords.

CHART OF THE DAY

EUR/USD short-covering may dominate as June ECB eyed 
EUR/USD short-covering may dominate ahead of the June 14 ECB meeting with potential to boost the pair as high as 1.1962, though gains beyond 1.2000 seem unlikely. The June ECB meeting is on the market’s radar after ECB chief economist Praet said today policymakers will debate ending its bond purchases, lifting EUR/USD. Recent euro weakness and a pickup in inflation is boosting the chance of a more hawkish spin from the ECB, prompting some of those short EUR/USD to start covering positions. With EUR 7.5 billion shorts added in May alone, the likelihood of EUR/USD being well supported in early June is high and a close over the 21-DMA at 1.1753 may prompt a rally towards 1.1855 or 1.1962, 38.2/50% retracements of April-May 1.2414-1.1510 drop. It would take a rally over May’s peak at 1.2084 to really rattle EUR/USD bears and with the 200-DMA at 1.2012 and notable option interests around 1.2000-1.2100, that’s unlikely. Failure to close over the 21-DMA suggests a strong test of 1.14-1.15

FX Market Update 5-6

Market Briefs
• EUR/USD -0.05%, USD/JPY -0.08%, GBP/USD 0.53%, EUR/GBP -0.56%
• DXY -0.02%, DAX 0.92%, FTSE -0.54%, Brent -1.29%, Gold 0.06%
• EU Markit Serv Final PMI, 53.8, 53.9 f’cast, 53.9 prev
• EU Markit Comp Final PMI, 54.1, 54.1 f’cast, 54.1 prev
• FR Budget Balance, -54.34 bln, -33.10 bln prev
• FR Markit Serv PMI, 54.3, 54.3 f’csat, 54.3 prev
• FR Markit Comp PMI, 54.2, 54.5 f’cast, 54.5 prev
• DE Markit Services PMI, 52.1, 52.1 f’cast, 52.1 prev
• DE Markit Comp Final PMI, 53.4, 53.1 f’cast, 53.1 prev
• GB BRC Retail Sales YY, 2.80%, -4.20% prev
• GB Markit/CIPS Serv PMI, 54, 53 f’cast, 52.8 prev
• Italy’s “government for change” seeking parliament’s backing
• Spain’s Socialists to name Maria Jesus Montero as new budget minister – PM aide
• Financial services to remain ‘national priority’ after Brexit – UK minister
• Qatar accuses Saudis of reckless behaviour after military threat report
• Gold steady amid rising risk appetite and U.S. rate-hike prospects
• Brent crude tilts lower as investors weigh supply rises

Looking Ahead – Economic Data (GMT) 
• 12:30 CA Labor Productivity Rate, 0.2% prev
• 12:55 US Redbook YY, 4.3% prev
• 13:45 US Markit Comp Final PMI, 55.7 prev
• 13:45 US Markit Svcs PMI Final, 55.7 prev
• 14:00 US ISM N-Mfg PMI, 57.5 f’cast, 56.8 prev
• 14:00 US JOLTS Job Openings, 6.400 mln f’cast, 6.550 mln prev

Looking Ahead – Events, Other Releases (GMT) 
• 11:20 The Head of Division at Bank of England, Martin Etheridge, speaks in London
• 17:30 Jens Weidmann, president of Deutsche Bundesbank, speaks in Brussels

Currency Summaries
*NOTE: Focus for this section will shift to a more topical, regional-based coverage that spans multiple currencies. Please look for this change in the coming days.

EUR/USD 
• EUR/USD trades a tight range close to 1.1700 anchored by options
• EUR/USD 1.1684-1.1708 in Asia and 1.1684/1.1716 in Europe
• EUR 2.8 bln expiries 1.1680-1.1725 today
• EZ data disappointed. EZ sales 0.1% vs 0.5% f/c. Service PMI slips to 53.8
• In contrast U.S. May services ISM is f/c higher to 57.5 from 56.8
• Data is due at 15.00GMT when today’s options will expire

USD/JPY
• An elevated USD/JPY trades a narrow 109.73-110.01 range so far today
• Yen has been sold on weak Japan data and continued “risk on” environment
• Wider 10-year UST-JGB yield spread has also continued to prop USD/JPY
• 30-day log correlation between USD/JPY and 10-year UST-JGB spread is high
• USD/JPY bulls face twin obstacles, 61.8% Fibo and 200-DMA
• Spot could rise to 111.50, according to options

GBP/USD
• Cable rose to 1.3384 after UK service sector PMI beat, 54.0 vs 53.0 f/c
• 1.3335 was high before the 0830GMT data release
• EUR/GBP down to 0.8743 on UK data beat vs 0.8785 early Europe high
• Service PMI beat follows UK manufacturing and construction PMI beats
• IHS Markit says May PMIs point to UK GDP growing at 0.3-0.4% in Q2
• BoE kept rates unchanged in May after meagre GDP growth of 0.1% in Q1

USD/CHF
• EUR/CHF has fallen to 1.1523 from an early Europe high of 1.1561
• Bids may emerge near 1.1500 (1.1503 was last Friday’s low)
• 1.1500 option expiry for 10am ET NY cut, EUR 226mn strike

USD/CAD
• USD/CAD has risen to 1.2972 from an early Europe low of 1.2915
• NAFTA fears are helping weigh on the CAD
• Mexico set to impose 20% tariff on U.S. pork legs – sources (Reuters)
• Offers expected around 1.3000 (1.3009 was last Friday’s high)

AUD/USD
• Profit-taking on longs helped deflate AUD/USD to 0.7623 European am low
• AUD/USD rose over 1% to a six-week high of 0.7666 Monday
• Bids are tipped near 0.7600 (former resistance level)
• Australian Q1 GDP data is due Wednesday at 0130GMT, +0.9% f/c
• RBA flagged upbeat outlook alongside unchanged cash rate decision

NZD/USD
• NZD/USD met headwind pre-0.7048 after rising from 0.7019 (late Asia low)
• 0.7048 was Monday’s 1mth high after rise in risk appetite boosted NZD
• GDT auction result expected circa 1400GMT, may impact NZD

FX Options
• Front end G10 Implied vols return to pre spike levels as calm returns
• Back end vols and EUR put options still underpinned by lingering euro concerns
• Lower vol levels attracting some demand now to limit deeper declines
• Huge 5bln expiries 1.1675-1.1750 today helping to contain EUR/USD again
• USD/JPY flows in to sub 1-month strikes toward 111.50 suggest upside potential

COMMENT

UK CPI upturn next week may lift sterling 
UK inflation data for May due next week will dictate sterling’s fortunes and the currency could catch a bid if the report shows annualized CPI rose from April’s 13-month low of 2.4%. A CPI rise would be a welcome boost for hawks advocating a BoE rate hike on Aug 2, as annualized CPI has been on a downward trajectory since scaling a five-year peak of 3.1% last November. The pound’s 3.43% fall against the USD last month could contribute to a reversal of the recent CPI downtrend, as could higher oil prices. The BBC reports that the RAC says UK petrol prices rose by six pence a litre in May, the biggest monthly increase since the RAC began tracking prices 18 years ago. UK earnings data is also due next week, a day before the inflation figures. On Monday, BoE MPC member Tenreyro said the timing of BoE rate hikes is an “open question”.

CHART OF THE DAY

EUR/USD set for usual June rise as focus turns to ECB
EUR/USD looks poised to head higher in coming weeks, especially if the new Italian government does not distract market focus away from the ECB, and as EUR/USD normally makes gains in June. An analysis of EUR/USD’s performance for each June since the year 2000 shows it has risen in 12 of the last 18 years, gaining on average 63 pips or 0.62%. Last week’s political uncertainty in Italy helped EUR/USD trade the eighth widest one-week range of 2018 (218 pips), but spot ended last week very close to where it started. Despite this indecision, the fact that last week’s candlestick line had quite a long lower shadow is normally a sign the market has rejected the downside. EUR/USD traders’ focus will increasingly turn to the timing of any ECB monetary tightening, especially as euro zone inflation was well above expectations in May. The rising and thick Ichimoku weekly cloud, which currently spans a 1.1216-1.1681 region, is providing a major technical prop for EUR/USD.

FX Market Update 4-6

Market Briefs
• EUR/USD 0.59%, USD/JPY 0.05%, GBP/USD 0.31%, EUR/GBP 0.25%
• DXY -0.45%, DAX 0.26%, FTSE 0.74%, Brent -1.05%, Gold 0.1%
• EU Sentix Index, 9.3, 18.4 f’cast, 19.2
• EU Producer Prices YY, 0%, 0.3% f’cast, 0.1% prev
• GB Markit/CIPS Cons PMI, 52.5, 52 f’cast, 52.5 prev
• China says in principle door is open to talks with U.S. on trade
• With Trump tensions high, Merkel reaches out to Macron on Europe
• Singapore designates special zone for Trump-Kim summit
• Turkish inflation climbs in May, fuels rate hike expectations
• Gold firms as dollar wilts, but U.S. rate hike view curbs gains
• U.S. crude eases for 3rd day on expectations of higher supplies

Looking Ahead – Economic Data (GMT) 
• 13:45 ISM-New York Index, 779.3 prev
• 13:45 ISM NY Biz Conditions, 64.3 prev
• 14:00 US Employment Trends, 108.1 prev
• 14:00 US Factory Orders MM, -0.5% f’cast, 1.6% prev

Looking Ahead – Events, Other Releases (GMT)
• 17:00 BoE’s MPC member Silvana Tenreyro speaks in Guildford, UK

Currency Summaries

EUR/USD
• EUR/USD extends the recovery made in wake of formation of Italian Govt
• Pair hits 1.1734, further above 23.6% retr drop made from 1.2414 on Apr 17
• Targets 38.2% retrace of the 1.2414-1.1510 drop at 1.1855
• Italy risks were a core driver for EUR 7.5bln of shorts added in May
• Large size bearish bets suggests euro to be well supported during correction
• Risks lie up with next pivot seen at 21-DMA @ 1.1770

USD/JPY
• Spot underpinned by UST-JGB 10-year spread widening. 109.45-77 range today
• BoJ QQE trim, U.S jobs fueled Friday’s 8th biggest one-day rise
• USD/JPY closed up 65 points on Friday, the largest one-day gain since May 15
• Bullish assault Friday was stymied by decent offers near kijun line
• Kijun line, which remains at 109.76, is widely watched in Tokyo
• Battle to persist around kijun, as huge 110 NY cut (1.7B) expiry may draw

GBP/USD
• Cable up to 11-day high just shy of 1.3400 after UK construction PMI beat
• 52.5 vs 52.0 f/c. Follows UK mfg PMI beat Friday (service PMI due Tuesday)
• Cable closed above10DMA for first time since April 18 on Friday (June 1)
• GBP has risen vs USD in June for 12 of the past 18 years
• EUR/GBP helped to 0.8765 European am high by M&A news
• UK-based DS Smith to buy Europac in EUR 1.9bln deal

USD/CHF
• EUR/CHF has traded 22 pip range thus far Monday, 1.1532-1.1554
• Modest range follows big moves on Italian political news last week
• IMM net CHF short up to biggest since mid-2007 in week to May 29
• Swiss referendum on a radical “sovereign money” plan Sunday (June 10)
• Polls suggest the Swiss will reject the plan

USD/CAD
• USD/CAD dropped to threaten 1.2900 during the European am
• Decline accompanied broad USD weakness. 1.2931-1.2959 was Asia range
• 1.2819-1.3047 were parameters for USD/CAD during wild week last week

AUD/USD
• More AUD/USD shorts squeezed during European am climb to 0.7650
• 0.7650 = 6wk high. Gains aided by rise in risk appetite and Aussie data
• Australian April retail sales +0.4% vs +0.2% f/c
• IMM net AUD short upped to highest since Feb 2016 in week to May 29
• More AUD shorts may cover if AUD/USD vaults 0.7660 resistance level
• 0.7660 = 61.8% of 0.7813 (April high) to 0.7413 (May’s 11-month low)

NZD/USD
• NZD/USD extended north to four-week high of 0.7037 during European am
• Gains aided by rise in risk appetite: Nikkei closed up 1.37%
• 0.7052 (May high) and 0.7100 are resistance levels

FX Options
• G10 implied vols see big paring of Italian and broader risk hedges
• Front end implied vols have fully retraced last week’s spikes
• EUR puts and JPY call premiums under pressure, back end slower to ease
• AUD/USD vols underpinned after spot gains and with RBA and GDP pending
• Big 109-110 JPY expiries and EUR/USD 1.1700-50 and 1.1800-25 this week

COMMENT

Trio of BoE MPC speakers may impact GBP this week 
Sterling may react to three slated speeches from BoE MPC members this week, beginning with Tenreyro at the University of Surrey in Guildford at 1700GMT. Tenreyro was one of the seven MPC members who voted against raising interest rates last month. Two of the other six who voted to keep the Bank Rate at 0.5%, Cunliffe and Ramsden, will speak within 72 hours of Tenreyro: Cunliffe at the Futures Industry Association International Derivatives Expo in London on Tuesday at 1000GMT; Ramsden at a Barclays inflation conference in London on Thursday at 1500GMT. Cunliffe and Ramsden were the two MPC members who voted against last November’s BoE rate hike, although Ramsden turned more hawkish in a newspaper interview published in February. The pound could benefit if the speeches from the MPC members raise the probability of an Aug 2 BoE rate hike from its current 33%. This week’s key UK data release is the Markit/CIPS service sector PMI due Tuesday at 0830GMT: 53.0 forecast.

CHART OF THE DAY

GBP/USD may find favour in June after tough May 
GBP/USD was battered in May, with the pound closing the month down a whopping 473 points, or 3.43% but there’s a good chance of a sustained recovery in June, as it is a month which usually sees cable gains. The pound’s strength in June could partly be down to shorts squaring positions after May’s seasonal selling. An analysis of GBP/USD’s June performance since the year 2000 shows it has risen in 12 of the last 18 years, closing up 0.44% on average. The failure to register a monthly close below the 1.3275 Fibo on Thursday — 38.2% retrace of the 1.1491 to 1.4377 (2016 to 2018) gain — gave bruised GBP/USD bulls some much needed respite. GBP/USD closed up 54 points on Friday after May’s above-forecast UK manufacturing PMI, having shrugged off strong U.S jobs data. If UK data improves throughout June, it will increase the chance of a BoE rate hike later this year and fuel further demand for the pound this month.