Category Archives: Market News

FX Market Update 19-10

Market Briefs
• EUR/USD 0.33%, USD/JPY -0.32%, GBP/USD -0.32%, EUR/GBP 0.69%
• DXY -0.14%, DAX -0.63%, FTSE -0.35%, Brent 0.43%, Gold -1.12%
• GB Retail Sales YY 1.2% vs 2.4%, 2.1% f’cast
• German economy seen growing 2.2% in 2018 – DIHK Chambers of Commerce
• China c.bank warns against “Minsky Moment” due to excessive optimism
• Spain threatens Catalonia with direct rule from Madrid
• Oil slips but holds most recent gains on expected OPEC cuts
• Gold hits over 1-week low as dollar holds firm

Looking Ahead – Economic Data (GMT) 
• 12:30 Initial Jobless Claims (w/e Oct 14) (mkt 240k, prev 243k)
• 12:30 Continued Claims (w/e Oct 7) (mkt 1.900 mn, prev 1.889 mn)
• 12:30 Philadelphia Fed Manufacturing Index (Oct) (mkt 22.0, prev 23.8)
• 14:00 Leading Economic Indicators Index (Sept) (mkt +0.1% m/m, prev +0.4% m/m)

Looking Ahead – Events, Other Releases (GMT) 

• 13:30 FRB Kansas City’s George (non-voter, hawk) speaks on the U.S. economy; Altus
• 13:45 Fed Trade operation 30-year Fannie Mae / Freddie Mac (max $985 mn)
• 14:30 Fed conducts 7-day floating rate deposit operation (IOER +0.01%)

Currency Summaries
EUR/USD 

• EUR/USD well supported despite interest rate moves & political uncertainty
• EUR/USD moving higher even though yield spreads have been favouring USD
• Today pair resilient to escalating tensions between Catalonia & Spain
• Catalan’s elusive about independence, Spain to suspend autonomy Saturday
• EUR/USD up early to 1.1822 dips to 1.1768 then back to 1.1817
• Expectations of ECB taper appear to be main factor supporting euro

USD/JPY 

• London has had a selling frenzy, pushing USD/JPY down to 112.46
• Conversely Asia were neutral, after their shorts were heavily squeezed Wed
• Risk remains on the downside for a retest of 112.00, spot eyes expiries
• Large strikes set to expire @112.50 (850M) & 112.00 (1.4B) on Fri
• Also negative USD/JPY as daily cloud twist in mid 110s looms
• Japanese exporters have kept a lid on USD/JPY, 113.14 was the high
• BoJ DepGov Nakaso – Will adjust yield curve as need to achieve 2% CPI
• Sept trade surplus Y670.2 bln, Y559.8 bln eyed, exp +14.1% y/y, imp +12.0%
• Exports to US +11.1%, China +29.3%, Asia +18.7%, crude imp vol -5.3%
• MoF flow data wk-ended Oct 14 – Japanese buy net Y153.7 bln foreign stocks
• Y269.7 bln for-bonds bought too, foreign investors buy Y840.7 bln JPN stks

EUR/CHF
• USD/CHF failed to close abv 200DMA Wed and early Thurs sees sharp retreat
• From Wed 0.9838 high to 0.9774 and back roughly where it started the Wed session
• A sea of red on the equity screens and safety flows head back to the CHF
• Market jitters over Spain and disappointing Q3 results hurting European bourses
• European stocks stage biggest fall in almost two-months: DAX off 0.7% at one point
• This despite 13th straight bull close for Nikkei and 23k+ close for the Dow
• EUR/CHF lower but lags USD/CHF in retrace of Wed rally: 1.1525-1.1585 and 1.1550 into NY

GBP/USD 

• Cable fell another half-cent to threaten 1.3122 on big UK retail sales miss
• UK retail sales -0.8% in Sept vs -0.1% f/c. 1.3122 was Oct 12 low
• Cable also fell half-a-cent ahead of the 0830GMT UK data release
• 1.3213 was early Ldn high. 1.3228 was Asia high (1.3218 = Weds high)
• EUR/GBP rose 37 pips to 0.8977 on the big UK retail sales miss
• 0.8977 = new 1wk high. May to put her Brexit case to EU over dinner Thurs

USD/CAD 
• Mooted option-related selling helped curtail USD/CAD rise from 1.2452
• Large 1.2500 option expiry for 10am ET NY cut, USD 890mn strike
• 1.2487 = European am intra-day high. 1.2452 was European am low
• 1.2453 was Asia low (1.2450 was Oct 13 low)

AUD/USD
• Mooted offers near 0.79 may keep lid on AUDUSD if it vaults 0.7875
• Option-related supply seen in mix: 0.79 option expiries Thursday & Friday
• AUD 715mn = cumulative size of strikes. 0.7898 was last week’s high
• 0.7875 was early Europe high as continent digested Aussie jobs data beat

NZD/USD
• NZ First’s choice to go into govt with Labour-Green bloc has hit NZD hard
• NZD/USD down to 0.7027 (20wk low) during European am
• AUD/NZD up to 1.1185 (18mth high). 1.0957 was Asia low
• National Party had been in power since 2008

FX OPTIONS
• GBP vol losses limited by weak retail sales. GBP put bias steady
• EUR/USD resilient despite latest Catalan woes, Vol slide stalls
• 1 week gets ECB, 1 week EUR/USD adds 3.5 vols to 9.25/120 pips
• USD/JPY vols off lows as spot probs 113, JPY call bias weakens further
• NZD vol setbacks limited as Labour coalition hurts NZD

COMMENT
Sterling fireworks to front-run Bonfire Night
Sterling looks set for some fireworks before Bonfire Night Nov 5, three days after the BoE decides on interest rates. Doves opposed to a 25bp hike on Nov 2 got a boost from Thursday’s much steeper than expected 0.8% decline in UK retail sales in September. The weak data came 48 hours after doves were enthused by new BoE deputy governor Ramsden’s disclosure that he is not ready to vote for a rate hike .The probability of a quarter-point BoE rate hike on Nov 2 is currently 70%, according to the BOEWATCH measure on TR Eikon, versus 80% before Ramsden spoke Tuesday. The dovish shift in expectations should tee up a larger move for GBP either way on Nov 2 than if the hawks still held absolute sway. The current consensus expectation is for a 7-2 or 6-3 MPC vote to hike by 25bp. Next week’s key UK event risk is the preliminary ONS estimate of Q3 GDP (Oct 25).

CHART FOCUS
EUR/GBP poised for new bull cycle to 0.9100 & beyond

EUR/GBP looks set to break above the recent 0.9033 peak en route to 0.9093 — 61.8% retrace of the 0.9307 to 0.8747 (August to September) fall. This will pave the way to the 0.9100 psychological level and then 0.9175 — 76.4% of the same 0.9307 to 0.8747 drop. EUR/GBP has been hovering below the daily thinning cloud currently spanning 0.9026-0.9067. The cloud will shrink to 0.9017-0.9026 on Friday, which may be the opportunity bulls have been waiting for as it provides a clear opening to the upside. Recall bulls were frustrated by the false break above 0.9027 last week — 50% retrace of the 0.9307 to 0.8747 (August to September) fall — but they have since regrouped. Only a break and daily close back below the 0.8895 kijun line will weaken the bullish resolve and shift the overall bias back to the downside

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FX Market Update 16-10

Market Briefs

• EUR/USD -0.25%, USD/JPY -0.02%, GBP/USD 0.06%, EUR/GBP -0.28%
• DXY 0.14%, DAX 0.19%, FTSE 0.11%, Brent 1.4%, Gold 0.02%
• DE Sept Wholesale Price Index YY 3.4% vs 3.2%
• EZ Aug Eurostat Trade NSA, Eur 16.1B vs 23.2B
• May heads for Brussels after Brexit talks deadlock
• Madrid moves towards direct rule over Catalonia as deadline passes
• Canadian small business lending rises in August -PayNet
• White House pitches corporate tax cut as win for workers
• BoJ Gov Kuroda – No excesses in markets, will continue easy policy
• IMF Brekk – Sales tax hike obvious choice for Japan debt woes
• JP MoF off’ls – G20 didn’t discuss trade, FX, Japan not fx manipulator
• China cbank chief surprises with gravity-defying 7 pct H2 growth forecast

Looking Ahead – Economic Data (GMT)

• 12:30 New York Fed Empire State Manufacturing Index (Oct) (mkt 20.7, prev 24.4)
• 18:00 ECB’s Lautenschlager speaks in Washinton DC

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.52 bn)
• 01:00 FRB Kashkari participates in moderated Q&A session (with audience Q&A); Minneapolis, MN

Currency Summaries

EUR/USD

• EUR/USD in tight but lower 1.1780-1.1809 range in Europe
• Spain give Catalonia Thursday deadline to drop independence
• Merkel’s Saxony loss & Austrian far right rise weigh EUR
• Fed hawks continue to show their talons while Draghi coos
• EUR/USD down despite lower U.S. rates after softer than f/c CPI
• Buyers rather than stops emerge on first dip below 200-HMA @ 1.1784

USD/JPY

• USD/JPY has seen a 111.65-112.08 range so far Mon
• Offered USD/JPY held up by decent sized bids tipped circa 111.50
• Intra-day technical support comes in @111.60 pivot point
• On the upside there are said to be offers capping 112.10+
• Daily close below 200-DMA @111.79 will weaken the structure further
• Ramped up speculative USD/JPY longs look vulnerable
• Net USD/JPY sales on machine so far Monday contributing to an offered market

EUR/CHF

• EUR/CHF continues to slip from Thurs peak in line with a lower EUR/USD
• Probing the 21-DMA at 1.1491. 1.1518-1.1490 range Europe. 1.1525 Asia high
• Swiss domestic sight deposits fall to 471.303bln in w/e Oct 13
• Speculation remains of official bid circa 1.14. Brief spike to 1.1389 Oct 2
• USD/CHF sideways after Friday dip to 0.9705. 0.9768-0.9747 European range
• Remains supported ahead of the rising 21-DMA at 0.9720

GBP/USD

• EUR/GBP tripped stops below 0.8877 en route to 0.8857 European am low
• 0.8857 = 12-day low. 0.8877 was Friday’s low & Oct 5 low. 0.8850 = Oct 4 low
• GBP/USD traded a 41 pip range during the European am, 1.3271-1.3312
• 1.3249-1.3337 = Friday’s range. May in Brussels with Juncker/Barnier Monday
• UK Sept CPI due Tuesday, 3.0% f/c. Carney letter if CPI at/above 3.1%
• Carney to address TSC Tuesday after Ramsden/Tenreyro appointment meets

USD/CAD

• USD/CAD has risen from a European am low of 1.2471 to threaten 1.2500
• Above-figure resistance 1.2520 (Friday’s high). 1.2450 was Friday’s low
• BoC business outlook survey due at 1430GMT, may impact CAD
• On Saturday, Poloz said Canada growth to slow down in H2

AUD/USD

• AUD/USD respected its 0.7868-0.7893 Asia range thru the European am
• Higher commodity prices are a source of support for AUD
• Copper up to three-year high north of USD 7,000 tonne Monday
• Dalian iron ore closed up 3.8% Monday

NZD/USD

• NZD/USD met fresh headwind pre-0.72 during the European am
• 0.7191 = European am high. 0.7197 was Friday’s high
• NZ Q3 inflation data due 2145GMT, f/c +1.8% vs +1.7% previously
• Formation of new NZ government expected this week

FX OPTIONS

• EUR/GBP 1.7bln 0.8885-0.8900 expiries today, 1.5bln 0.8940-60 Wed’s
• GBP/USD O/n vol break even 71 pips over Tues inflation data, vols/puts bid
• EUR/USD vols heavy as ranges hold. EUR calls stay firm on risk reversals
• USD/JPY 1 week gets election, atm vol 7.5 to 9.0, risk reversal 0.9 to 1.9 JPY call
• USD/JPY inability to break away from 112 impacts realised and implied vols
• NZD 8 day downside strikes favored, Coalition result expected end of week

COMMENT

Profit-taking to weigh on EUR/USD ahead of Oct ECB

Position adjustment may weigh on EUR/USD ahead of the Oct 26 ECB meeting where there’s little certainty about its QE taper plans. German, Austrian and Spanish politics have conspired against those betting on a higher euro. So too has commentary from central bankers with most Fed speakers still talking rates up a lot more than markets are pricing, while ECB Governor Draghi has maintained his dovish bias. The deal breaker is EUR/USD’s reaction to last Friday’s U.S. data. Where the broader dollar softened on the back of the small downside miss for U.S inflation data, EUR/USD also eased–most likely due to speculative positions. Traders added to an already huge bet on a higher euro in the past two weeks but ran into tough resistance at the daily Ichimoku cloud top, now 1.1917, and so booked some profits. With little certainty over what the ECB may say next week, more profit-taking may lead to a test of the daily cloud base at 1.1703.

CHART FOCUS

USD/JPY risks slide towards 110

USD/JPY bears are grappling with the 200-DMA, which is currently at 111.79, a daily close below which will them give them momentum towards significant downside levels under the 30-DMA now at 111.47. The scope would grow for losses to the 110.00 psychological level once the 110.38/111.10 Fibonacci levels give way — 50%/38.2% retrace of the 107.32 to 113.44 (September to October) rise. USD/JPY managed to register a daily close below 112.00 on Friday — 23.6% retrace of the same 107.32 to 113.44 rise — a confirmation that the downside risk is growing. Fourteen-day momentum is at risk of a negative reading for the first time since Sept 11, which would reinforce the new found negative sentiment. If there are a series of failures to register a daily close below the 200-DMA, then this will give USD/JPY bulls a chance to regroup and minimise the downside risk.

FX Market Update 13-10

Market Briefs

• EUR/USD 0.02%, USD/JPY -0.13%, GBP/USD 0.11%, EUR/GBP -0.1%
• DXY 0.01%, DAX 0.08%, FTSE -0.18%, Brent 2.28%, Gold 0.03%
• ECB homes in on 9 more months of bond buying, at lower volumes
• Lawmakers hit out at ECB as bad loans standoff hardens
• Germany’s economic upswing to lose some momentum in second year-half – ministry
• British PM May could have more to say on Brexit money at EU summit- spokeswoman
• “They have to pay”, EU’s Juncker says of Britain
• DE Sept CPI Final YY 0.1% vs 0.1%, f’cast 0.1%
• DE Sept HICP Final YY 1.8% vs 1.8%, f’cast 1.8%
• Trump nails Obamacare with decision to cut off billions in subsidies
• Trump to target Iran nuclear deal, Revolutionary Guard in speech

Looking Ahead – Economic Data (GMT)

• 12:30 Retail Sales (Sept) (mkt +1.7% m/m, prev -0.2% m/m)
• 12:30 Retail Sales ex-Autos (Sept) (mkt +0.3% m/m, prev +0.2% m/m)
• 12:30 Control Retail Sales (Sept) (mkt +0.4% m/m, prev -0.2% m/m)
• 12:30 CPI (Sept) (mkt +0.6% m/m, +2.3% y/y; prev +0.4% m/m, +1.9% y/y)
• 12:30 CPI ex-Food and Energy (Sept) (mkt +0.2% m/m, +1.8% y/y; prev +0.2% m/m, +1.7% y/y)
• 14:00 Business Inventories (Aug) (mkt +0.4% m/m, prev +0.2% m/m)
• 14:00 U of Michigan Consumer Sentiment Index (prelim Oct) (mkt 95.0, prev 95.1)
• 14:00 U of Michigan Current Conditions Index (prelim Oct) (mkt 111.3, prev 111.7)
• 14:00 U of Michigan Expectations Index (prelim Oct) (mkt 84.7, prev 84.4)
• 15:00 Cleveland Fed Median CPI (Sept) (prev +0.2% m/m)
• 17:00 Baker-Hughes Weekly Oil Rig Count (prev 748, -2 w/w, +320 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 12:30 FRB Rosengren opens conference on monetary policy rules; Boston, MA
• 14:25 FRB Evans speaks in moderated discussion at financial literacy summit; Green Bay, WI
• 15:30 FRB Kaplan speaks in moderated Q&A session at CFA conference; Boston, MA
• n/a Fed Vice Chair Fischer steps down

Currency Summaries

EUR/USD

• EUR/USD fairly static ahead of today’s big U.S. CPI/retail sales releases
• Early session saw EUR/JPY sell-off about 50 ticks
• Likely pre-data position adjustment, given large size of spec EUR/JPY longs
• Cross has recouped most of those losses, EUR/USD range 1.0815-52
• UST/bund spreads wider today influenced by most recent ECB speculation
• ECB seen extending bond buys but lower size of purchases

USD/JPY

• Bulls hoping U.S. CPI digs them out of a hole, causes a short squeeze
• Squeeze may run into 112.50 supply, large (1.6B) 112.60 expiry a beacon
• Bulls are hanging on despite heavy selling from 112.30 to 111.86 earlier
• Buyers have forced a minor recovery to 112.16 where they hit a wall
• Stops likely clustered below 200-DMA @111.82 which is proving pivotal
• USD/JPY trending water circa the 112.10 hourly pivot

EUR/CHF

• EUR/CHF slips from Thurs peak in line with a lower EUR/USD
• Shooting star on candles Thurs after a new trend high = reversal signal
• Lower low Friday half way to confirming. 1.1555-1.1525 European range
• 21-DMA key support at 1.1491, break opens up a further drop
• Touted official bid circa 1.14. Spike to 1.1389 Oct 2 short lived
• USD/CHF plays a very tight 0.9758-48 range in Europe. 100-HMA caps
• Holds off 21-DMA support at 0.9712 but still below Wed’s 0.9767 peak
• Treading water ahead of US CPI & RS data releases Friday

GBP/USD

• Cable extended north to an 11-day peak of 1.3322 during the European am
• Stops above 1.3300 were tripped en route to that high
• Ascent fuelled by hopes of Brexit transition deal for Britain
• 1.3249 = pullback low from 1.3322 on fresh Brexit mutter (pessimistic)
• EUR/GBP slid to an eight-day low of 0.8877 during the European am
• 0.8930 = subsequent rally high on fresh Brexit mutter (pessimistic)

USD/CAD

• Modest 19 pip range for USD/CAD during European am, 1.2456-1.2475
• 1.2450 & 1.2465 option expiries for 10am ET NY cut, USD 921mn strikes
• US Sept inflation & retail sales data due 1230GMT. CPI f/c +0.6%
• BoC business outlook survey may impact CAD Monday

AUD/USD

• AUD is benefitting from higher metals prices: Dalian iron ore up 5% Friday
• 0.7849 = Ldn am high for AUD/USD. 0.7844 was Asia high
• Resistance levels include 0.7875 (last week’s high) & 0.79

NZD/USD

• NZD/USD ticked up to a fresh 8-day high of 0.7153 during European am
• 0.7153 = 101 pips above Monday’s 19-week low
• NZ political fog should finally lift next week: NZ First board meeting Monday

FX OPTIONS

• EUR/USD vols peak with spot but EUR calls remain bid on risk reversls
• 2wk vol propped by Oct ECB and 2mth captures Dec ECB and FOMC
• USD/JPY 1mth vol at 6 week lows, 1mth realised just 5.1 amid stagnant spot
• USD/JPY risk reversals hold firm downside bias in to election
• GBP/USD gamma bid amid recent spot moves/Brexit headlines
• NZD 1-2 week vols propped as markets await coalition results

COMMENT

U.S. retail sales may jolt range-bound USD/JPY
U.S. retail sales may jolt USD/JPY traders’ week long calm. USD/JPY has traded a tight 111.86-112.85 range this week, but given moves on retail sales release days, the range today may exceed that of the prior four days. USD/JPY vols have sunk, so the overnight ATM straddle for USD/JPY (indication of expectations for the day’s range) is just 52 pips. The last three retail sales releases have been much busier for USD/JPY traders. Sept 15 saw a 178 pip range, Aug 15 124 pips and July 14 122 pips. The average 141 pips suggest 111.00-113.50 are the extremes of a data reaction today. Large JPY shorts have been widely reported in advance of the event. The greater focus has been on the vulnerability of these bets to the loss of bullish momentum. The 200-DMA at 111.82 is key on a closing basis yet the resilience of support above the 200-DMA during the consolidation phase since late September depicts USD/JPY in bullish light.

CHART FOCUS

USD/ZAR slump gathers momentum, 13.00 beckons
USD/ZAR bears are gathering momentum and have the 61.8% Fibo at 13.1636 and the daily cloud at 13.1775/13.0294 in their sights. A break and close under 13.1636 (the 61.8% retracement of the September to October 12.73 to 13.865 rise) favors a full retracement to 12.73. The price has been falling since Monday’s rejection at the upper 30-day Bollinger while Wednesday’sbreak and close below the daily Tenkan line helped bolster the downside view. The 30-DMA at 13.3279 was the initial bear target and is very close on Friday. A break under the average could open the path for a deeper fall to the lower Bollinger at 12.7572 which is close to the aforementioned Sept 6 12.73 rally origin. Only a break back above the Tenkan line at 13.6138 would alter the bearish set up and open up 14.00 again

Futuro del peso mexicano 13-10

  • Today’s US data will likely determine if the dollar’s heavy tone this week is more corrective or if this year’s downtrend is resuming
  • China reported its September trade figures
  • Japan’s Ministry of Finance confirmed that foreign investors returned to Japanese equities
  • The MAS kept policy steady at its semiannual policy meeting, as widely expected

The dollar is mostly weaker against the majors ahead of key US data.  The Antipodeans are outperforming, while the euro and Nokkie are underperforming.  EM currencies are mixed.  KRW and ZAR are outperforming, while HUF and SGD are underperforming.  MSCI Asia Pacific was up 0.5%, with the Nikkei rising 1%.  MSCI EM is up 0.2%, with the Shanghai Composite rising 0.1%.  Euro Stoxx 600 is up 0.3% near midday, while S&P futures are pointing to a lower open.  The 10-year US yield is flat at 2.32%.  Commodity prices are mostly higher, with Brent oil up 2%, copper up 0.4%, and gold flat.

Futuro del peso mexicano 13-10

FX Market Update 12-10

Market Briefs

• EUR/USD -0.03%, USD/JPY -0.12%, GBP/USD -0.31%, EUR/GBP 0.26%
• DXY 0.05%, DAX -0.03%, FTSE 0.18%, Brent -0.9%, Gold 0.23%
• EZ Aug Industrial Production YY 3.8% vs 3.2%, f’cast 2.6%, r’vsd 3.65%
• UK small businesses not changing plans in face of Brexit – survey
• Banks filling London staffing gaps before Brexit – Hays
• GB Sept RICS Housing Survey 6 vs 4, f’cast 4
• DE Oct TR IPSOS PCSI 58.02 vs 57.13
• GB Oct TR IPSOS PCSI 49.20 vs 47.78
• U.S. House to vote on $36.5 billion disaster relief package
• Trump expected to sign order side-stepping Obamacare rules

Looking Ahead – Economic Data (GMT)

• 12:30 US Initial Jobless Claims (w/e Oct 7) (mkt 251k, prev 260k)
• 12:30 US Continued Claims (w/e Sept 30) (mkt 1.935 mn, prev 1.938 mn)
• 12:30 US PPI Final Demand (Sept) (mkt +0.4% m/m, +2.5% y/y; prev +0.2% m/m, +2.4% y/y)
• 12:30 US Core PPI Final Demand (Sept) (mkt +0.1% m/m, +2.0% y/y; prev +0.1% m/m, +2.0% y/y)
• 12:30 CA New Housing Price Index (Aug) (mkt 0.3%, prev 0.4%)
• 15:00 US EIA Weekly Petroleum Status Report
• 18:00 US (tentative) Treasury Budget (Sept) (CBO $6 bn, prev Sep $33.445 bn)

Looking Ahead – Events, Other Releases (GMT)

• 12:00 FRB St. Louis’s Bullard speaks to Reuters editors
• 14:30 Fed Governor Brainard participates in panel on monetary policy; Washington, DC
• 14:30 Fed Governor Powell speaks on emerging markets; Washington, DC
• 14:30 ECB President Draghi speaks at the Peterson Institute event on monetary policy; Washington, DC
• 15:45 FedTrade operation 30-year Fannie Mae and Freddie Mac (max $2.2 bn)

Currency Summaries

EUR/USD

• EUR/USD 1.1880 high matching a 50% retrace 1.2092-1.1669 decline
• Daily Kinsen line also 1.1880. Pair eases to 1.1852 ahead NA open
• More strong EZ data ignored for now. Aug Industrial output 1.4% vs 0.5% f/c
• EUR 1.4bln expiries 1.1870-1.1905 adding to resistance of cloud top 1.1917
• EUR 2bln expiries may attract if a market long EUR decides to pare risk
• U.S. PPI today to give some insight for the major U.S. CPI release Friday

USD/JPY

• USD/JPY net selling flows this week might haunt bears
• Stops above 113.00 might become vulnerable
• Expect increased volatility on break sub 200-DMA @111.84 or above 113.44
• Narrow 112.21-53 range as long gamma market continues to take its tol
• Huge Expiries. Thu: 112.00 (1.8B), 112.40-60 (2.9B). Fri: 112.50-60 (2.0B)
• Japanese importers remains circa 112, Japanese exporters ahead of 113
• Sept dom corp goods prices +0.2% m/m, +3.0% y/y, as eyed, highest in 9 yrs
• Sept bank loans Y516.81 trln, +3.0% y/y, Aug +3.2%, July +3.3%.
• PM Abe’s LDP on track for solid majority, maybe 2/3 – Nikkei poll
• Global banks are after Japan’s cash – Nikkei

EUR/CHF

• EUR/CHF rises to a new trend high at 1.1557, tracking EUR/USD north
• 1.1534-1.1558 range in Europe and remains bid into NY
• Not much resistance until the 1.1588 Sept 25 German vote collapse day high
• Then post-1.20 SNB floor break high at 1.1623
• USD/CHF firmer, plays 0.9713 to 0.9750, supported above 0.9707 21-DMA
• A close above the 10-DMA at 0.9749 is required for run at 0.9770+
• U.S CPI data Friday is the next key event risk

GBP/USD

• Cable met fresh headwind pre-1.3268 in early Ldn trade after similar in Asia
• 1.3268 is 38.2% of 1.3659 (Sept 20 high) to 1.3027 (last Friday’s low)
• 1.3222 = cable low since 1.3262 early Ldn high. 1.3265 was Asia high
• Large 1.3200 option expiry for 10am ET NY cut, GBP 503mn strike
• Profit-taking on longs helped deflate EUR/GBP from 0.8988 to 0.8950
• 0.8950 = European am low. 0.8988 was Wednesday’s high

USD/CAD

• USD/CAD lift from 1.2434 (early Ldn 1wk low) aided by profit-taking on shorts
• 1.2484 (Tuesday’s low) is now a resistance level, with 1.2500 beyond
• Size of 1.2500 option strike for 10am ET NY cut is now USD 836mn

AUD/USD

• AUD/USD extended north to a 1wk high of 0.7836 in early European trade
• Ascent influenced by copper price rise to 1mth high of USD 6,850/tonne
• 0.7810 (Wednesday’s high) is now a support point

NZD/USD

• NZD/USD ticked up to fresh one-week high of 0.7124 during European am
• Some short NZD positions have been squeezed en route to that high
• 0.7052 = recent 19-week low. NZ govt decision expected by end of next week

FX OPTIONS

• 7 billion USD/JPY option expiries between 112-113 today NY cut
• USD/JPY 1 month vol new 6wk lows. JPY calls bid on election tail risk
• EUR/USD vols and EUR calls up with spot. Risk reversals 8 year highs
• GBP vol and put setbacks limited, highlight ongoing downside spot fears
• AUD/USD 1mth vol new setback lows. NZD vols premium, coalition awaited

COMMENT

UK CPI data rise could seal deal for BoE Nov hike

Sterling may get a boost if next week’s UK inflation figures show annualized CPI accelerated to 3.0% or higher in September, from a five-year high of 2.9% in August. A CPI number of 3.0% or more could cement the consensus expectation of a 25bps BoE interest rate hike next month (Nov 2). A hawkish shift in BoE expectations on the back of last month’s hawkish hold was the prime reason GBP was the best performing G10 currency in September. A new month then ushered in pain for late-to-the-party GBP bulls, before the pound recovered this week. The UK inflation data will be published on Tuesday (Oct 17), with the UK earnings report due a day later. More immediately, BoE chief economist Haldane is a slated panellist at a Rethinking Macro Policy Conference in Washington at 1745 GMT. Back in June, sterling rallied on the back of a hawkish steer from former dove Haldane.

CHART FOCUS

Dollar bulls should brace for more bouts of weakness

Dollar bulls should brace themselves for deeper falls as USD index seems to have established a significant peak at last week’s 94.267 high. Worryingly for bulls, the index has dropped this week to break the 200-WMA at 92.933. A close below the 200-DMA on Friday could prompt significant falls in coming weeks back towards the 2017 91.011 low posted in September. Recall last week there was a spectacular failure above 94.034 — 23.6% retrace of the 103.82 to 91.011 2017 fall — resulting in a lot of dollar bulls getting trapped. Fourteen-week momentum remains negative, as has been the case since March, highlighting the underlying offered structure of the index. If there is a failure to sustain this break below the 200-WMA into next week, then this will give bulls room to regroup.

FX Market Update 11-10

Market Briefs

• EUR/USD 0.06%, USD/JPY -0.2%, GBP/USD -0.11%, EUR/GBP 0.19%
• DXY -0.06%, DAX 0.1%, FTSE -0.04%, Brent 0.28%, Gold 0.2%
• UK preparing for no deal, but no spend on contingency arrangements yet -Hammond
• Early 2018 is crunch time for banks’ Brexit decisions – UK official
• Three quarters of Americans favor higher taxes for wealthy -Reuters/Ipsos poll
• Spain govt formally agreed to ask catalan govt if it had declared independence or not
• Japan Aug core machinery orders +3.4% m/m, +4.4% y/y, +1.1% and +0.8% eyed
• Japan government ups assessment of sector, picking-up, bodes well for CAPEX
• Oil rises on signs of tighter market, but 2018 looks more uncertain
• Gold prices hold steady ahead of Fed minutes

Looking Ahead – Economic Data (GMT)

• 07:00 MBA Weekly Mortgage Application Indices
• 10:00 JOLTS (Aug) (prev job openings level 6.170 mn (record high))
• 11:00 TR Ipsos PCSI (Oct) (prev 60.77)

Looking Ahead – Events, Other Releases (GMT)

• 11:15 FRB Chicago’s Evans discusses U.S. monetary policy in an era of low inflation; Zurich, Switzerland
• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.25 bn)
• 17:10 New York Fed EVP Potter speaks on “American Exit Strategies”; New York, NY
• 18:00 FOMC Minutes (from September 19-20 meeting)
• 18:40 FRB San Francisco’s Williams speaks at community leaders event; San Francisco, CA
• 20:30 ECB Board Member Praet speaks in New York
• 01:10 FRB Atlanta’s Bostic speaks on balance sheet normalization; Hong Kong

Currency Summaries

EUR/USD

• EUR/USD 1.1796-1.1835 in Asia then higher to 1.1845 in Europe
• Influential sellers emerge & pair trades swiftly to 1.1802 before NA open
• Moves in bond markets & U.S. futures supported the early rise
• Continuing uncertainty in respect Catalonia is one factor weighing
• A top was likely given strength of technical resistance 1.1830-60
• Results of U.S. CPI Friday needed to determine bigger FX/rates moves

USD/JPY

• USD/JPY has relapsed from 112.58 to reach 112.19 on Wednesday
• Asia was a heavy net seller of USD/JPY once it peaked @112.58
• Offshore investor demand for Nikkei, currency hedges propped USD/JPY
• Conversely, London has been net a buyer of USD/JPY but it remains offered
• Japanese importers looking to buy sub-111, exporters sales from pre-113.00

USD/CHF

• USD/CHF lower on the day in line wth broader softer dollar
• 0.9740-0.9767 rise then lower to 0.9742 in Europe
• Back below 10-DMA 0.9747, close under opens the path for further weakness
• EUR/CHF erases gains and drops 1.1509 from early European 1.1539 high
• Above the 21-DMA at 1.1484 stays bullish but below opens up 1.14 again
• Touted official bid by 1.14 in EUR/CHF. Spike to 1.1389 Oct 2 short lived

GBP/USD

• Cable fell from 1.3211 to a low of 1.3176 during the European am
• 1.3176 was also pullback low from Tuesday’s Ldn am high of 1.3203
• EUR/GBP rose to 0.8968 European am high as Catalan tensions eased
• 0.8968 = highest level since Monday. Offers expected ahead of 0.90
• First PMQs since May’s Tory conference speech disaster 1100-1130GMT
• On Tues, May refused to say how she’d vote in another Brexit referendum

USD/CAD

• USD/CAD rose to an intra-day high of 1.2530 during the European am
• 1.2497-1.2521 was Asia range. 1.2555/58 & 1.26 are resistance levels
• FOMC minutes due 1800GMT. Fed rate hike expected Dec 13

AUD/USD

• Modest 20 pip range for AUD/USD during European am, 0.7775-0.7795
• Mooted bids at 0.7750 could prop pair if range base broken
• 0.7750 was Tuesday’s low. 0.7810 was six-day high in Asia
• China steel futures fell 2.5% to 2mth low in Asia, closed down 2.2%

NZD/USD

• NZ political uncertainty continues to weigh on the NZD
• NZ First’s coalition choice not expected before Friday at the earliest
• NZD/USD eased to an intra-day low of 0.7063 during the European am
• AUD/NZD rose to threaten 1.1022 during the European am
• 1.1022 = Tuesday’s high. 1.1022 = 61.8% of 1.1142-1.0827

FX OPTIONS

• Firmer EUR/USD sees pick up in vols and EUR call demand
• USD/JPY short dated risk skewed to downside, especially over elections
• Still 15bln USD/JPY expiries in 112-113 zone remaining this week to contain
• GBP vol/put setbacks limited with renewed GBP weakness expected
• NZD gamma bid in to coalition announcement. Strong NZD vol premium to AUD

COMMENT

Italy politics may ruffle euro’s post-Catalonia calm

Italian politics could soon be elbowing its way into the spotlight and impact the euro just as the political temperature in Catalonia cools. The Italian lower house of parliament is due to hold two confidence votes on Wednesday to try to force through an electoral law that is likely to penalise the 5-Star Movement (M5S), ahead of the national election due by May 2018. M5S is among Italian opposition parties keen on a parallel currency to flank the euro. Recently published data showed Italy’s Target 2 liabilities rose by 18.3 billion euros to a new record high 432.5bln in September. The liabilities are not an issue as long as Italy remains in the euro–an issue M5S has long been vocal about though last month it said a referendum on Italy’s membership of the euro is its “last resort”. The Nov 5 regional election in Sicily–a bellwether of Italian politics for decades, could provide clues ahead of the national election.

CHART FOCUS

USD/ZAR bears gain momentum after Tenkan break

USD/ZAR could see a deeper retreat to the 30-DMA at 13.3003 following Monday’s rejection from the upper 30-day Bollinger. Similar action was seen around the Bollinger on Sept 28, Oct 3 and 6. Pullbacks from these highs were previously held by the daily Tenkan line up until now. Downside pressures Wednesday has seen the price probe through the Tenkan line at 13.6475 which opens the path for a further slide. Monday’s Doji reversal was confirmed by a lower low and close Tuesday which fits with the view of a return to lower levels. Weekly charts show potential for the first bearish close since breaking into the cloud mid-September. The weekly cloud base is at 13.3138 and a break risks a drop to the key 200-WMA support level at 12.8486. Those short USD/ZAR are hopeful of a close under the Tenkan Wednesday to confirm the bear view, while a close back above suggests the bull run is not done yet

USD / JPY 10-10

As a direct result of Fri’s poke to another new high for the past month’s impressive rebound, the 240-min chart below shows that the market has identified 29-Sep’s 112.21 low as the latest smaller-degree corrective low it now has to sustain gains above to maintain a more immediate bullish count.  It’s failure to do so will confirm a bearish divergence in momentum, stem the rally and expose at least an interim correction of the rally from 08-Sep’s 107.31 low.  Per such we are considering 112.20 our new short-term but key risk parameter from which traders are advised to rebase and manage the risk of a cautious bullish policy.

 

USD JPY 10-10

FX Market Update 10-10

Market Briefs

• EUR/USD 0.42%, USD/JPY -0.28%, GBP/USD 0.38%, EUR/GBP 0.08%
• DXY -0.33%, DAX -0.05%, FTSE 0.21%, Brent 0.93%, Gold 0.51%
• DE Aug Trade Balance, EUR, SA 21.6B vs 19.5B, f’cast 20.0B, r’vsd 19.3B
• GB Sept BRC Retail Sales YY 1.90% vs 1.30%
• GB Aug Construction O/P Vol YY 3.5% vs -0.4%, f’cast 0.2%, r’vsd 2.7%
• GB Aug Industrial Output YY 1.6% vs 0.4%, f’cast 0.8%, r’vsd 1.1%
• GB Aug Manufacturing Output YY 2.8% vs 1.9%, f’cast 1.9%, r’vsd 2.7%
• GB Aug Goods Trade Balance GBP -14.24B vs -11.58B, f’cast -11.20B, r’vsd -12.83B
• China says will have no problem meeting 2017 growth target, may beat it
• BOJ Governor Kuroda pledges to stick with quantitative easing

Looking Ahead – Economic Data (GMT)

• 10:00 US NFIB Small Business Optimism Index (Sep) (prev 105.3)
• 12:15 CA Sept House Starts, Annualized f’cast 210k, prev 223.2k
• 12:55 US Redbook Same-Store Sales Index (weekly) (+4.1% w/w)

Looking Ahead – Events, Other Releases (GMT)

• 14:00 FRB Minneapolis’s Kashkari speaks at regional economic conditions conference; Minneapolis, MN
• 16:00 Catalonia regional leader Carles Puigdemont to address a session
• 18:30 FedTrade operation 15-year Fannie Mae and Freddie Mac (max $500 mn)
• 00:00 FRB Dallas’s Kaplan participates in moderated Q&A session; Stanford, CA

Currency Summaries

EUR/USD

• Mon’s hawkish ECB Lautenschlaeger boosts EUR/USD in Asia (range 1.1740-80)
• Europe adds to those gains slightly reaching 1.1789
• Weaker USD/CNY influences lower USD/EM. Weighs slightly big USD
• EUR dips on unexpectedly soft French IP which fell 0.3% vs +0.4% f/c
• Strong industrial output (5.7% yy vs 2.8% f/c) later boosts EUR
• No U.S. data to influence proceedings today. EUR 580mn expiries @ 1.1750

USD/JPY

• USD/JPY slips from 112.83 to break 112.40 where a pivot point resides
• USD/JPY bears seem to be homing in on Sep 29 112.22 low, 112.27 lowest
• Scope for losses to the 112.00 psychological level if 112.22/32 breaks
• Heavy trading volume in the 112.60s means tough to get back above there
• Failure above 113 heightens downside risk
• Spot heavy as NK threat lurks in the background

USD/CHF

• USD/CHF was a little lower Tuesday in Europe, 0.9790-0.9770
• Prior highs/prev 38.2% Fibo at 0.9770 came back under pressure but hold
• Broader uptrend intact but below the 10-DMA at 0.9746 risks a deeper slide
• Bulls need a break of the 200-DMA at 0.9830 and Fri’s 0.9840 peak
• EUR/CHF continues to rise, new rebound high at 1.1525 late Asia/early Europe
• Now a little easier, 1.1525-1.1511, but holds above pivotal 21-DMA at 1.1482
• Not much resistance until the 1.1588 Sep 25 German vote collapse day high
• Swiss headline jobless rate flat at 3.0 pct in Sept

GBP/USD

• Cable rose to a high of 1.3203 on better than expected UK output data
• Aug construction output +0.6% vs flat f/c. Mfg output +0.4% vs +0.2% f/c
• Annualized industrial output +1.6% vs +0.8% f/c. 1.3186 = pre-data high
• Offers expected near 1.3220 (stop-loss city after 1.3220 break Oct 5)
• 1.3200 & 1.3210 option expiries today & Thursday, GBP 871mn strikes
• Fifth round of Brexit talks continue today. EU summit next week

USD/CAD

• USD/CAD has fallen to 1.2495 from 1.2555 (Asia high)
• 1.2527-1.2558 was Monday’s range (Canada holiday Monday)
• Canada Sept housing starts data due 1215GMT, 210k f/c
• Canada Aug building permits data due 1230GMT, -1% f/c
• Large 1.2500 option expiry Thursday, USD 749mn strike

AUD/USD

• AUD/USD met headwind pre-0.78 after its early Ldn break thru 0.7790
• 0.7797 = early Ldn high. 0.7798 = Oct 6 high. 0.7790 was Asia high
• More offers expected near 0.7820, 23.6% of 0.8105 (Sept 20 top) to 0.7733

NZD/USD

• AUD/NZD extended north to test 1.1022 in early European trade
• 1.1022 = 61.8% of 1.1142-1.0827 (Sept range). 1.1020 was Monday’s high
• NZD/USD respected its 0.7056-0.7088 Asia range thru the European am
• NZ First leader Peters says won’t announce coalition choice on Thursday
• Also refused to be drawn on whether to expect an announcement by Friday

FX OPTIONS

• NZD related short dated vol gains highlight coalition concerns
• Japan election favours risk revesals to hedge low tail risk
• USD/JPY vols at m-term lows as 20bln 112-113 expiries contain spot
• GBP vols/puts peak but setbacks limited, with GBP bias still lower
• EUR/USD vols languish at post ECB setback lows. No Catalonia risk premium

COMMENT
China FX policy unlikely to bow broader USD for long
China’s FX policy is unlikely to lead the broader dollar lower for long as authorities seem less inclined towards a stronger currency. Wider USD/EM is also likely to track rising U.S. rates. After a week-long Chinese holiday when USD rose broadly, a higher USD/CNY was logical when markets reopened. Instead, the pair has moved swiftly lower, seemingly influenced by the authorities. It’s prudent to bet this is no sea-change in thinking over currency, but a move inspired by rapid fluctuations in CNY’s value. The CNY’s rapid rise was vocally opposed by China when USD/CNY was in the low to mid-6.40s. With investors holding large yuan longs, the following USD/CNY rally unfortunately proved just as rapid as the prior fall. This seems to have inspired a more covert operation to lift the CNY. Given the clear message about CNY gains only a month ago, when USD/CNY was less than 2% from current levels, it’s sensible to assume China wants less volatility not a stronger currency.

CHART FOCUS
GBP/CHF set to charge higher, upper Bolli beckons
Technicals favor a GBP/CHF return towards the upper 30-day Bollinger at 1.3292 following the rebound from the 30-DMA. Friday and Monday saw the price spike just under the average but close back above and subsequently climb to test 1.2904 on Monday. The cross holds close to the high on Tuesday, and also Tenkan and 38.2% Fibo at 1.2912/1.2915. 1.2915 is the 38.2% Fibo retracement of the 1.3196-1.2742 September to October drop. The 38.2% retrace is the minimum technical requirement for a correction and those looking to play the GBP/CHF long side again are hopeful of a move above the Fibo to pave the way to further gains. A close above the 38.2% could bring the 50% and 61.8% Fibos into play at 1.2969 and 1.3023, respectively. On a note of caution, keep an eye on the 30-DMA, now support, at 1.2802 as a close under the line risks further weakness and would deter the bulls

FX Market Update 9-10

Market Briefs

• EUR/USD 0.06%, USD/JPY -0.01%, GBP/USD 0.61%, EUR/GBP -0.55%
• DXY -0.1%, DAX 0.02%, FTSE -0.17%, Brent -0.49%, Gold 0.6%
• DE Aug Industrial Output MM 2.6% vs 1.90%, f’cast 0.7%, r’vsd -0.1%
• ECB still concerned about existing stock of bank bad loans-Mersch
• ECB says euro zone banks well prepared for rate shocks
• Bank of France keeps French Q3 GDP growth forecast at 0.5 pct
• EZ Oct Sentix Index 29.7 vs 28.2, f’cast 28.5
• Brexit talks stutter, but EU leaders might give May break
• Oil prices stable after OPEC signals possible further action
• Gold hits 1-week high amid renewed North Korea fears

Looking Ahead – Economic Data (GMT)

• 14:00 Conference Board Employment Trends Index (prev 134.6)

Looking Ahead – Events, Other Releases (GMT)

• US Holiday: Columbus Day (Banks Closed, Markets Open)

Currency Summaries

EUR/USD

• Quiet day thanks to Japan, U.S, and Canada holidays
• EUR/USD making small gains just above Friday’s closing level @ 1.1739
• Asia 1.1716-1.1747. Europe 1.1720-45
• EUR 1.5bn expiries @ 1.1700 and EUR 1bln at 1.1765
• 200-HMA @ 1.1751 looks key short-term:
• Strong German industrial output data +2.6% in August (f/c 0.7%)
• Euro zone investor morale hits 10-year high in October

USD/JPY

• USD/JPY jumped to 112.85 on GBP/JPY buying in early Asia
• Reversed to fall to 112.34 later in the Asian session
• Could be subdued by large expiries this week between 112 & 113
• Option sellers ahead of 113.00 likely to cap while NK concerns weigh
• Bullish but beware of repeated failures above 112.99 Fibo
• 112.99 — 61.8% retrace of the 118.66 to 107.32 fall
• Immediate support between recent 112.22/32 session lows
• Decent support likely all the way down to 200-DMA @111.91

USD/CHF

• USD/CHF is off Friday’s peak in line with a softer dollar
• Plays extremely tight 0.9788-0.9877 range in Europe
• Likely to be gain consolidation ahead of fresh leg higher while above 0.9770
• 0.9770 was a previous key support & 38.2% Fibo. 50% Fibo is resist at 0.9878
• EUR/CHF gradually inching higher, managed a close just above 21-DMA Fri
• Avg @ 1.1477. 1.1467-1.1485 range. Kijun line resistance @ 1.1493
• Thick rising cloud lends support. Top @ 1.1407. Likely prop
• Could be some official support circa 1.14, not been sig below since early Sept
• Swiss domestic sight deposits fall to 472.875bln in w/e Oct 6

GBP/USD

• Cable rose to test 1.3150 (Asia high) during the European am
• GBP buoyed by absence of major negative weekend news for UK PM May
• EU officials believe EU leaders could soon offer May a hand
• 1.3175 (100HMA) & 1.3200/20 are cable resistance levels
• EUR/GBP eased to an intra-day low of 0.8929 during the European am
• Last week’s rise to threaten 0.90 fuelled by speculation about May’s future

USD/CAD

• Modest 21 pip range for USD/CAD thus far Monday, 1.2527-1.2548
• 1.2526-1.2600 was Friday’s range (high before low)
• Friday’s IMM data showed CAD net long position highest since Nov 2012

AUD/USD

• AUD/USD eased to an intra-day low of 0.7750 during the European am
• 0.7782 was Asia high (0.7786 = 100DMA). 0.7733 = Friday’s 12wk low
• Profit-taking on longs has helped deflate AUD/NZD from 1.1020 to 1.0951
• 1.1020 = 3wk high in Asia on NZ political uncertainty after final vote count

NZD/USD

• NZD/USD helped off 0.7052 to 0.7085 by profit-taking on kiwi shorts
• 0.7052 = Asia low on NZ political uncertainty after final vote count
• Simultaneous AUD/NZD decline from 1.1020 (3wk high) to 1.0951
• 0.7052 = lowest level for NZD/USD since May 30. 0.7059 = Friday’s low

FX OPTIONS

• Huge USD 22bln+ USD/JPY 112 to 113 expiries this week help contain spot
• 2 week-1month JPY calls bid on risk reversals due to Japan election tail risk
• EUR/USD still contained, reflected by low front end vols. EUR calls remain bid
• GBP/USD 1mth risk reversals ramped to 0.7 GBP puts vs 0.1 GBP calls last week
• NZD vols back en vogue amid coalition talks. 1 month expiry gets RBNZ

COMMENT

Huge JPY gamma, GBP puts ramped

USD/JPY sees USD 22 billion+ expiries in 112-113 zone this week to contain spot and pressure vols. Two-week vol jumps to 9.5 from 8.0 on Japan election capture, but risk premiums have taken a hit over recent sessions, with 1-month back at 8.8 from 10.3 (settles 9.0 for now). Cheaper OTM JPY calls preferred as election tail risk seen as low, keeps 1-month risk reversals 1.5 and 2-week jumps 0.8 to 1.7 JPY calls. EUR/USD contained in low 1.17s, keeping pressure on vols, curve well off initial post-ECB highs, 1-month 7.1 from 8.75 and 3-month 6.9 from 8.4. Risk reversals still bid for topside, 1-month 0.35 EUR calls. GBP/USD 1-month risk reversals 0.7 GBP puts from 0.1 GBP calls early last week, to highlight concerns about deeper GBP declines. Vols ramped up last week as GBP fell, 1-month almost regaining initial post-September MPC high 9.25 from 7.7. EUR/GBP vols/skew gain in similar fashion. NZD vols bid on weaker spot/coalition concerns, 1-month gets RBNZ now.

CHART FOCUS

Growing scope for a AUD/USD correction

Technicals suggest AUD/USD is due a correction of the broader downtrend which could see a rise to the Oct 4 high at 0.7875 and then the cloud top at 0.7929. A lift back inside the daily Ichimoku cloud (base at 0.7803) looks likely. The 10-DMA is close to the market resistance at 0.7786 and the 10-DMA at 0.7827 is a hurdle further up. The 10-DMA has capped the market on its last descent and a break and close above would be significant. Friday closed up on the day after setting a new trend low at 0.7733 and formed a bullish hammer reversal. A higher high and close Monday is required to confirm and if so there is potential for a retracement of the September-October 0.8105 to 0.7733 fall. The 38.2% retrace, at 0.7875, is the minimum requirement for a correction and coincides with the Oct 4 high, strengthening the significance of any break. A fresh fall and new low today would negate the correction theory and see the bear trend resume

FX Market Update 6-10

Market Briefs

• EUR/USD 0.01%, USD/JPY 0.04%, GBP/USD -0.41%, EUR/GBP 0.43%
• DXY 0.02%, DAX 0.08%, FTSE 0.21%, Brent -0.49%, Gold 0.16%
• ECB to release more data on corporate bond holdings
• Cautious BoE in no rush to restrict algorithmic trading
• Franco-German bonds would be a good move, senior Merkel ally says
• FDP leader wants tougher euro zone policy, no new German debt
• UK productivity falls at joint-fastest rate since 2013 – ONS
• DE Aug Industrial Orders MM 3.6% vs -0.7%, f’cast 0.7%, r’vsd -0.4%
• GB Sept HalifaxHousePrice 3M/YY 4.0% vs 2.6%, f’cast 3.6%
• French trade deficit narrows in August as exports rebound
• Japan’s economy likely posted 2nd best stretch of post-war growth – index
• BOJ’s bond holdings fall for first time since deploying stimulus in 2013
• Japan’s new party vows to scrap over-reliance on fiscal, monetary steps

Looking Ahead – Economic Data (GMT)

• 12:30 US Nonfarm Payrolls (Sept) (mkt +90k, prev +156k)
• 12:30 US Private Nonfarm Payrolls (Sept) (mkt +83k, prev +165k)
• 12:30 US Manufacturing Payrolls (Sept) (mkt +10k, prev +36k)
• 12:30 US Unemployment Rate (Sept) (mkt 4.4%, prev 4.4%)
• 12:30 US Average Hourly Earnings (Sept) (mkt +0.3% m/m, prev +0.1% m/m)
• 12:30 US Workweek Hours (Sept) (mkt 34.4, prev 34.4)
• 12:30 CA Employment Change (Sept) (mkt 14.5k, prev 22.2k)
• 12:30 CA Sept Unemployment Rate (Sept) (mkt 6.3%, prev 6.2%)
• 14:00 US Wholesale Inventories (Aug) (mkt +0.9% m/m, prev +0.6% m/m)
• 14:00 US Wholesale Sales (Aug) (mkt 0.0% m/m, prev -0.1% m/m)
• 14:00 CA Ivey PMI (Sept) (prev 56.8)
• 17:00 US Baker-Hughes Weekly Oil Rig Count (prev 750, +6 w/w, +325 y/y)
• 19:00 US Consumer Credit (Aug) (mkt +$16.0 bn, prev +$18.50 bn)

Looking Ahead – Events, Other Releases (GMT)

• 13:15 FRB Bostic speaks at workforce development conference; Austin, TX
• 15:45 FedTrade operation 30-year Fannie Mae and Freddie Mac (max $2.2 bn)
• 16:15 FRB Dudley speaks at Council for Economic Education event; NY
• 16:45 FRB Kaplan speaks at workforce development conference; Austin, TX
• 17:50 FRB Bullard speaks on standard of living; St. Louis, MO

Currency Summaries

EUR/USD

• EUR/USD slow day ahead US jobs data 1.1686-17 in Asia 1.1687-07 Europe
• Over EUR 6bln vanilla option expiries between 1.1640-1.1750 today
• Option trades see little action on NFPs with o/n ATM straddle just 55ps
• Key support including 100-DMA and daily cloud base near 1.1600
• Major resistance 1.1830-60. NFPs f/c a soft looking 90k due hurricanes
• Average earnings eyed 0.3% (0.4% is highest print for earnings since 2008)

USD/JPY

• USD/JPY bulls seem poised for steady climb to July’s peak
• Market has risen from 112.76 to 113.07, heaviest trading @112.85 & 112.99
• Decent support way down to the 200-DMA @111.93, calculated VWAP @112.90
• Offers said to be in size up to 113.30, with large stops clustered above
• Market expectation is that a 113.30 break will see increased volatility
• Our expectation is that a 113.30 break will not see fireworks

USD/CHF

• USD/CHF close abv 0.9771 38.2% Fibo 2017 1.0335-0.9422 triggered further gains
• Fresh 0.9800 high but consolidation intraday below. Pullback shallow to 0.9791
• USD/CHF helped higher by rising dollar, set for 4th week of gains
• The close above the Fibo now targets the 200-DMA at 0.9840
• US jobs data is key event risk in NY. F/c 90k
• Tight 1.1452/1.1463 range for EUR/CHF in Europe after Thurs close under 21-DMA
• Thick rising cloud lends sppt. Unlikely to see brk below cloud top at 1.1403
• Swiss forex reserves up in Sept, 724.415bln vs 716.928
• Experts recommend SARON as Swiss franc Libor alternative – SNB

GBP/USD

• GBP continues to suffer on the back of UK political uncertainty
• Divisions over PM May’s future have burst into open with plot to topple her
• Cable down to 1.3060 during European am, EUR/GBP up to 0.8954
• 1.3060 = 4wk low. 0.8954 = 3wk high. 0.8961 = 38.2% of 0.9307-0.8747
• Cable could extend south to/thru 1.3000 if US earnings above +0.3% f/c
• NFP f/c 90k. Sunday newspapers could make tough reading for May

USD/CAD

• USD/CAD met headwind pre-1.26 after heading north early Europe
• 1.2594 = 5wk high. Big 1.26 expiry next week, USD 1.2bln strike (Oct 12)
• Fibo resistance level just beyond figure: 1.2609 = 76.4% of 1.2778-1.2063
• Canada/US jobs reports due 1230GMT, Canada employment f/c +14.5k
• 1.2663 (Aug 31 high) among USD/CAD bull targets if jobs data stars align
• 12% chance of BoC hike Oct 25-BOCWATCH/Eikon. 40% pre-Poloz last week

AUD/USD

• AUD met headwind pre-0.7785 after rising from 0.7743 (Asia 12wk low)
• 0.7778 = European am high. 0.7783/85 = 100DMA/Tuesday’s low
• Drop to 0.7743 courtesy of dovish steer from RBA’s Harper in WSJ

NZD/USD

• NZD/USD fell from 0.7110 to 0.7084 during the European am
• 0.7084 = fresh 4mth low. USD up across the board pre-US jobs data
• Earnings f/c +0.3%, NFP f/c 90k, jobless rate f/c 4.4%

FX OPTIONS

• Huge 6bln EUR/USD expiries 1.1640-1.1750 keep spot sticky
• Vols find a floor, EUR calls stay bid. No signs of Catalonia concerns
• USD/JPY vol setbacks base for now, but JPY calls bid on election tail risk
• AUD vols firmer on spot decline. NZD gamma sought
• GBP vol and put demand at the fore on political woes/GBP decline
• Limited premiums for NFP with reactions likely muted amid weather distortions

COMMENT

New week may not lift UK May or sterling gloom
Prospects for a sterling revival next week do not look good as UK political uncertainty on the back of divisions about UK PM May’s future intensify. The pound is headed for its worst week since the first seven days of October 2016–a week which culminated in the pound’s flash crash. The awful week for GBP comes after it was the best performing G10 currency in September–courtesy of a hawkish shift in BoE expectations. The Sunday newspapers may not make pleasant reading for May, and could help raise the UK political temperature to boiling point. Forty-eight Conservative MPs need to write to the chairman of the Conservative party’s 1922 backbench committee to trigger a formal leadership challenge: current estimates suggest 30-35 might have their pens at the ready.

CHART FOCUS

Cable under pressure, August low beckons
GBP/USD fortunes have reversed markedly in recent weeks and risks collapsing to the August 1.2774 low. Cable bulls were as recent as last week eyeing a possible test of 1.4000, but instead ran into huge supply ahead of 1.3673 — 61.8% retrace of the 1.5022 to 1.1491 (June to October 2016) drop. This has caused them to buckle and cede ground to bears who are seeking to close below 1.3147 at the end of NY on Friday — 23.6% retrace of the 1.1491 to 1.3659 rise. If bears are successful, this will drive cable to the 30-WMA at 1.2920 initially below which will unmask 1.2831 — 38.2% retrace of the same 1.1491 to 1.3659 gain. Sustained trading above the 30-week upper Bolli band for a few weeks highlighted the overbought nature of the market. Failure to register a weekly close below 1.3147 Fibonacci level may thwart the bears.