FX Market Update 18-8

Market Briefs

• EUR/USD +0.15%, USD/JPY -0.39%, GBP/USD +0.19%, EUR/GBP flat
• DXY -0.08%, DAX -0.61%, FTSE -0.98%, Brent flat, Gold +0.55%
• EUR/JPY extends losses through Europe to 127.83, firms into NY
• Spanish police shoot five suspects dead after driver kills 13 in Barcelona
• China’s new home price growth cools in July – statistics bureau
• DE Jul Producer Prices mm 0.2% vs 0%, f’cast 0.1%
• DE Jul Producer Prices yy 2.3% vs 2.4%, f’cast 2.2%
• EZ Jun Current account sa 21.2b eur vs 30.5b eur
• Oil nudges higher on tightening supplies, weak dollar
• Gold prices rise for a third day, buoyed by geopolitical worries

Looking Ahead – Economic Data (GMT)

• 14:00 U of Michigan Consumer Sentiment Index (prelim Aug) (mkt 94.0, prev 93.4)
• 14:00 U of Michigan Current Conditions Index (prelim Aug) (mkt 113.3, prev 113.4)
• 14:00 U of Michigan Expectations Index (prelim Aug) (mkt 81.0, prev 80.5)
• 15:15 New York Fed Staff Nowcast for Q3 GDP Growth (prev 1.96% q/q AR)
• 17:00 Baker-Hughes Oil Rig Count (weekly) (prev 768; +3 w/w, +372 y/y)

Looking Ahead – Events, Other Releases (GMT)

• 14:15 FRB Dallas’s Kaplan in Q&A session at community college event; Dallas
• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.475 bn)

Currency Summaries

EUR/USD

• EUR/USD opens 1.1738 trades down to 1.1722 & 1.1745 ahead NA entry
• Early flows dominated by EUR/JPY selling as cross reaches 127.83
• Cross rebounds (55-DMA 127.83). Daily cloud top @ 127.98 key on close basis
• Cross rallies to 128.31 after Japanese demand supports USD/JPY
• EUR up in conjunction to 1.1775. Whippy market will lead to long liquidation
• ECBhold, US political risk/low rates will underpin a period of position adj

USD/JPY

• USD/JPY weighed in Europe but move down loses momentum around 109
• Opens 109.30 in Europe and trades 109.42-108.96 range
• Weaker stocks a key driver of selling interest
• Nikkei futures down 60 points today after N-225 shed 232 points or 1.8%
• Decent buying emerge around 109 boosting cross/JPY ahead NA open
• Weekly cloud base 108.83, Aug 108.72 low and 2017 low 108.13 key
• Over today’s 109.58 peak needed to alleviate downside pressure

EUR/CHF

• Another day and another new low for EUR/CHF. 1.1270 today vs 1.1282 Thurs
• Closing in on key tech support at 1.1261, 50% Fibo of Jul-Aug rise & Aug 9 low
• Close under the 38.2% at 1.1326 Thurs confirmed retracement is underway
• 1.1261 break opens up 1.12 fig support & 1.1195 which is 61.8% of above move
• Marginal new low at 0.9602 for the USD/CHF pullback vs 0.9605 Thurs
• Bidding interest tipped ahead of 0.96 supports the pair for now
• Aug’s 0.9583 low is support below

GBP/USD

• Cable tripped stops above 1.2900 en route to 1.2919 European am high
• 1.2900 was Thursday’s NY high as Cohn speculation hurt USD
• S&P 500 closed down 1.5% Thursday, steepest fall for three months
• ONS said number of foreign residents visiting Britain up 8% y/y in Q2
• EUR/GBP is 20% above & GBP/USD 14% below 23 June 2016 low/high
• Britain voted to leave EU 23 June 2016: Brexit scheduled for 30 March 2019

USD/CAD

• USD/CAD extended south from 1.2691 to 1.2635 during European am
• 1.2691 was risk aversion-spurred high in Asia
• Canada July inflation data due 1230GMT, +1.2% f/c vs +1.0% in June
• CAD could catch bid if CPI above f/c re: BoC autumn rate hike expectations

AUD/USD

• AUD/USD helped to 0.7931 European am high by higher metals prices
• Dalian iron ore closed up 6.6% Friday. 0.7901 was AUD/USD high in Asia
• 0.7870 = Asia low re: risk aversion (S&P 500 closed down 1.5% Thursday)

NZD/USD

• Short-covering helped inflate NZD/USD to 0.7330 European am high
• NZD/USD had traded sub-0.73 in Asia, with 0.7278 marking session low
• 0.7335 was Thursday’s high (0.7331 was Monday’s high)

FX OPTIONS EXPIRIES

• EUR/USD 1.1650 (1.14BLN), 1.17 (1.0BLN), 1.1780 (510M), 1.18 (852M)
• USD/JPY 109.00 (431M), 110.00-30 (1.586BLN), 110.60 (714M)
• GBP/USD 1.2950 (797M), 1.3000 (532M), 1.2800 (410M)
• EUR/GBP 0.9000 (302M), 0.9315 (217M)
• AUD/USD 0.7900 (667M) USD/CAD 1.2550-1.2580 (1.266BLN)

COMMENT

Odds stacking up against USD/JPY speculative longs

USD/JPY is at critical levels with the odds stacking up against specs who are sitting on large and mainly losing bets on a USD/JPY rise. For now, the pair is attracting buying from corp and option traders who have seen USD/JPY swing between 108-115 this year. Their interest is reflected in the price action with moves lower coming slowly. Some notable bounces, often without news or data to support them, look flow driven. But, the odds are rising against specs USD longs. U.S. politics are a key risk, adding to the low for long U.S. rate view that is a millstone around the neck of USD bulls. Sharp sell-offs for stocks in the past 24 hours may prove decisive. Bearish techs are now evident for the Nikkei and risk aversion is boosting the yen. A USD/JPY close under the weekly Ichimoku cloud at 108.83 would be very bearish and a break of 108.00 options (108.13 2017 low) could spark a rush to exit longs.

CHART FOCUS

EUR/CHF risks deeper fall below 50% Fibo

EUR/CHF is nearing a key technical level at 1.1261 where a break will open the path for a deeper retracement under 1.12. The 1.1261 level is the 50% Fibo of the July to August 1.0984-1.1537 rise. Thursday’s pullback broke and closed under the 38.2% Fibo of the same move at 1.1326. A 38.2% Fibo is the minimum technical requirement for a correction and the close below confirms a retracement is underway. A break of the aforementioned 50% retrace at 1.1261, also the Aug 9 low, could bring the respective 61.8% level into play at 1.1195. Thursday’s price action also closed below the 21-DMA. EUR/CHF has not traded under the average since late June which is where the last leg up began. Such an event helps reinforce the bearish structure on the charts

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