FX Market Update 24-8

Market Briefs

• EUR/USD -0.13%, USD/JPY 0.32%, GBP/USD 0.12%, EUR/GBP -0.27%
• DXY 0.18%, DAX 0.38%, FTSE 0.4%, Brent -0.21%, Gold -0.27%
• GB GDP 2nd Release QQ Q2 0.3% vs 0.3%, 0.3% f’cast
• GB GDP 2nd Release YY Q2 1.7% vs 1.7%, 1.7% f’cast
• GB Business Invest QQ Prelim Q2 0.0% vs 0.6%, 0.4% f’cast
• GB Business Invest YY Prelim Q2 0.0% vs 0.7%, 0.5% f’cast
• Markets eye the central banking conference in Jackson Hole
• Gold eases ahead of Jackson Hole central bankers meet
• ECB policymaker Hansson says not concerned about strength of euro – Bloomberg
• China says will use all necessary means to defend interests against US trade probe
• Mexico to introduce new inflation methodology in 2018
• Oil steady as storm heads into Gulf of Mexico

Looking Ahead – Economic Data (GMT)

• 12:30 Initial Jobless Claims (w/e Aug 19) (mkt 238k, prev 232k)
• 12:30 Continued Claims (w/e Aug 12) (mkt 1.950 mn, prev 1.953 mn)
• 12:30 Revised Building Permits (Jul) (prev 1.223 mn SAAR)
• 14:00 Existing Home Sales (Jul) (mkt 5.57 mn SAAR, prev 5.52 mn SAAR)
• 15:00 KC Fed Manufacturing Index (Aug) (prev 4)
• 15:00 KC Fed Composite Index (Aug) (prev 10)

Looking Ahead – Events, Other Releases (GMT)

• 03:45 Fed Trade operation 30-year Fannie Mae / Freddie Mac (max $2.125 bn)
• 22:00 FRB Kansas City releases program for its Jackson Hole 2017
• N/A Jackson Hole 2017 Economic Policy Symposium

Currency Summaries

EUR/USD

• EUR/USD static ahead Jackson Hole speakers tomorrow
• European range just 1.1785-1.1808 after 1.1782-1.1823 in Asia
• Last three days highs 1.1820-30, last three lows between 1.1731-35
• Pricing for U.S. hikes in next 2 years hits fresh 2017 lows weighing USD
• In contrast bond markets reflect less chance ECB taper, US/bund spread wider
• Aside JH, US existing home sales today IFO & US durables Friday

USD/JPY

• USD/JPY 108.85-109.42 today. 10-DMA/Tenkan 109.54/78 resistance
• Mon/Fri lows 108.64-61 underpin, buyers ahead. hourly cloud top 108.53
• Range trade certainly apparent when looking at options – vols falling
• 1wk down 1.25 and 1mth 0.8 on the week, despite Jackson hole event risk
• Further room to fall with realised vols still over 1.0 below implieds
• No large expiries today – 109.00 (368M), 109.25-30 (320M), 109.45-50 (350M)

EUR/CHF

• USD/CHF a little lower, 0.9667 to 0.9645 after Wednesday bear close
• Base of the daily cloud at 0.9615 is back in sight
• A close below 0.9600 looks pivotal into Jackson Hole
• EUR/CHF offered in Europe, rejection fm TL off Aug highs weighs
• Cross plays 1.1407 to 1.1375 on the day thus far. TL is at 1.1422 Thurs
• Swiss Q2 industry orders rise 2.8 pct y/y. Q1 rvsd to -4.2%

GBP/USD

• GBP bounces back after a weak start
• GBP/USD opened 1.2800 and traded to a 1.2774 low
• Back to opening levels ahead release of UK GDP revisions
• Q2 GDP unchanged 0.3% qq and 1.7% yy
• Q2 business investment sours, 0.0% yy from 0.7% Q1 and 0.5% f/c
• GBP initially then rebounds to 1.2825 ahead NA session

USD/CAD

• USD/CAD 1.2537-1.2561 today. Tues 1.2526 low supports
• Pivots 0.61.8% of 1.2414-1.2778 at 1.2553. Bids 1.2525-1.2500
• Offers in to 1.2600. 1.2598 was Wed’s high, now resistance
• Awaits JH, so 1.2525-1.2600 expected to hold pre Yellen Fri
• 1wk vol settles 7.0 – break even 97 pips for straddle

AUD/USD

• AUD/USD extends Wed’s 0.7882 low – 0.7916-0.7866 today
• 61.8% of 15-17 Aug 0.7808/0.7962 move is 0.7867 to prop
• Recall Wed’s – corp buyers touted 0.7875 and 0.7840
• Recent 21DMA pivot 0.7918 now initial resistance
• NZD sales weigh on AUD this week, but AUD still within range
• Falling implied vols highlight range trade, interest limited

NZD/USD

• 0.7283-0.7198 Wed’s slide, marginal extension to 0.7192 Thursday
• Yesterday’s NZ GDP downgrade in the government forecasts weighs
• NZD/CAD sellers im abundance – 0.9234-0.9020 this week
• NZD/USD nearing 100/200DMA 0.7169/26, daily cloud base 0.7139
• Expect bids ahead of those levels. Recoveries limited to 0.7203
• Little resistance until offers mid 0.72’s buy 55HMA
• Option vols underpinned and risk reversals higher for NZD puts

FX OPTIONS

• Market relatively quiet as JH awaited – key Yellen and Draghi speak Friday
• Friday expiries wont capture speakers so next week vols underpinned
• Option premium a struggle to cover however as spot markets consolidate
• USD/JPY vols falling, 1mth down 1.25, 1mth 0.8, but still premium to realized
• NZD still favoured over AUD vol amid spot weakness and election risk

CHART FOCUS

EUR/GBP trend is your friend

Upside risk remains for EUR/GBP and bulls look to target the 0.9403 peak from October 7 2016. Overbought technicals, including the slow stochastic, suggest that some corrective action is due ahead of a fresh leg higher. If the signals are correct then any pullback will provide better levels to join the bull trend. Support lies at the Tenkan and 10-DMA props at 0.9145 and 0.9143. The 10-DMA has supported the market well in recent times and any break is probably limited and short lived. On the upside above the upper 30-D Bollinger at 0.9242 resistance is likely at 50/100 intervals, until the 0.9403 October 7 ‘flash crash’ peak. Note that outside of Oct 7 2016 high the cross has not traded above 0.9200 since Oct 2009 so this week’s rise to 0.9236 is pretty significant for the bulls.

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