FX Market Update 28-8

Market Briefs

• EUR/USD +0.09%, USD/JPY -0.13%, GBP/USD +0.11%, EUR/GBP -0.08%
• DXY -0.32%, DAX -0.54%, FTSE -0.08%, Brent -0.04%, Gold +0.47%
• Houston crippled by catastrophic flood, mass evacuations ordered
• U.S. gasoline surges as Tropical Storm Harvey closes refineries
• Japan govt keeps upbeat economy view, signals 2nd longest expansion
• EZ Jul M3 SA 4.5% vs 5%, f’cast 4.9%
• Kuroda: Japan’s 4% growth rate not sustainable
• Kuroda: Inflation far away from 2% target
• Gold climbs to one-week high after central bankers’ comments

Looking Ahead – Economic Data (GMT)

• 12:30 Advance Goods Trade Deficit (Jul) (prev advance $63.9 bn)
• 12:30 Advance Wholesale Inventories (Jul) (prev advance +0.6% m/m)
• 12:30 Advance Retail Inventories (Jul) (prev advance +0.6% m/m)
• 14:30 Dallas Fed Texas Manufacturing Outlook Survey (Aug) (prev 16.8)

Looking Ahead – Events, Other Releases (GMT)

• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.475 bn)

Currency Summaries
EUR/USD

• Extended Fri’s 1.1941 high to 66 early Asia, setback to 1.1918, met demand
• Consolidation ensues, techs bullish, plenty of dip buyers below
• 1.1890 post Yellen high, 1.1866 pre Draghi setback low, likely bid levels now
• Size buyer 1wk 1.20 vs selling 1.1875 options today also indicative of support
• Options positioned for gains to/above 1.20 since late June hawkish Draghi
• Psychological 1.20 barrier key resistance. 1.2168 is 50% of 1.3995-1.0340 fall

USD/JPY

• Traders loath to sell USD/JPY sub-109 on continuing Japanese bid interest
• Good support still 108.60-80 – multiple lows in area last week
• Subdued trading in Europe session due to London holiday
• Narrow USD/JPY range of 109.03-109.40 seen so far
• USD/JPY hardly moved on Kuroda JH comments

EUR/CHF

• EUR/CHF 1.1359 pre Draghi – 1.1409 after. 1.1368-1.1425 today
• Pivots 10/21DMA’s 1.1374/1.1404. Firmer EUR underpins
• USD/CHF extends Fri’s 0.9661-0.9548 fall to 0.9527 today
• Limited support until 27 July 0.9490 low
• Break opens 21 July 2yr low 0.9439

GBP/USD

• GBP/USD spiked higher as opposition Labour backs soft brexit
• Cable rose from 1.2876 to hit 1.2946, ahead of the subsequent relapse
• Gains from Friday’s 1.2796 session low, triggered 1.2920 stops
• EUR/GBP sees a modest 0.9236-0.9264 range
• UK holiday, low key EZ data schedule – suggests consolidation into NY
• Cross set to head much higher technically in m-term

USD/CAD

• USD/CAD 1.2466 Fri. 1.2485-64 so far Monday
• Next support 1 Aug 1.2452 low, 31-30 July 1.2433-20 lows
• 200 week MA key at 1.2432, close below Friday would reinforce bearish bias
• 27 July 2 year low 1.2414 underpins ahead of alleged 1.24 barriers for now
• Market awaits NFP Friday – 1wk vol 6.8/92 pips break even

AUD/USD

• Improved risk appetite and USD weakness supporting AUD/USD for now
• Closed back over 21DMA Friday and now support at 0.7916
• Offers 0.7950’s. 0.7954 Fri’s high, 0.7949 today, more offers pre 0.8000
• 0.7993 was 02 Aug high, above there and 0.8000 opens 27 July/2yr hi 0.8066
• AUD/NZD aiding support over recent sessions with NZD weak pre election
• Option vols drift lower as ranges hold – 1mth is 7.9 from 8.65 early last week

NZD/USD

• NZD/USD trades tight 0.7332-56 range Monday, well within daily cloud
• Fri’s high 0.7258, Tenkan-sen/10DMA 0.7265. Offers by Wed’s 0.7283 high
• AUD/NZD support keeping a lid on NZD, 5th day of higher highs 1.0979
• AUD/NZD on track to test 17-16 Mar 1.1000-20 (highs since Apil 2016)
• NZD range trade likely pre 23 Sep NZ election and 27 Sept RBNZ
• 1mth options capture events, but vol drops back to 9.0 from 9.5 for now
• NZD put options also peak, reinforces range expectations pre events

FX OPTIONS

• Plenty of barriers/triggers surround EUR 1.20, market not short above
• Huge 1.20 vs 1.1875 risk reversals trading – buying 1.20 strike 600mln a leg
• USD/JPY vols heavy as 108.50-110 range holds, vols better value vs realised
• AUD and NZD vols suffer as spot ranges hold. NZD awaits election and RBNZ
• 1wk vols get NFP Fri, but US holiday next Monday to dampen incentive

CHART FOCUS
EUR/GBP likely to head much higher

Medium-term bulls remain in control with growing scope for eventual gains through 0.9403 2016 peak, as fourteen week momentum remains very positive (this has been the case since July). Another bullish development was the significant close above 0.9144 which is 76.4% retrace of the 0.9403 to 0.8305 2016 drop. Therefore a weekly close above the 0.9403 level will strengthen bulls further for 0.9627, which is a level not seen since 2009.

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