FX Market Update 29-8

Market Briefs

• EUR/USD 0.53%, USD/JPY -0.6%, GBP/USD 0.28%, EUR/GBP 0.26%
• DXY -0.46%, DAX -1.71%, FTSE -1.27%, Brent -0.66%, Gold 0.77%
• DE Gfk Consumer Sentiment Sep 10.9 vs 10.8, 10.8 f’cast
• GB Nationwide house price mm Aug -0.1% vs 0.3%, r’vsd 0.2 %, 0.1% f’cast
• GB Nationwide house price yy Aug 2.1% vs 2.9%, 2.5% f’cast
• North Korea’s “reckless” missile launch over Japan sharply escalates tension
• No EU-UK trade talks until divorce issues settled – EU’s Juncker
• Oil prices gyrate as market grapples with U.S. hurricane damage
• Gold hits 9-1/2-month high as North Korea tensions escalate

Looking Ahead – Economic Data (GMT)

• 12:55 Redbook Same-Store Sales Index (weekly) (prev +3.2% y/y)
• 13:00 S&P / Case-Shiller 20-City House Price Index (Jun) (mkt +5.7% y/y, prev +5.7% y/y)
• 14:00 Consumer Confidence Index (Aug) (mkt 120.3, prev 121.1)
• 14:30 Dallas Fed Texas Service-Sector Outlook Survey (Aug) (prev 10.5)
• 14:30 Dallas Fed Texas Service Revenues Index (Aug) (prev 15.7)

Looking Ahead – Events, Other Releases (GMT)

• 13:45 Fed Trade operation 30-year Fannie Mae / Freddie Mac (max $1.9 bn)
• 15:00 FRB Chicago’s Evans (voter, dovish) opens Large-Bank Directors Conference; Chicago, IL

Currency Summaries

EUR/USD

• EUR/USD opened at 1.1974 so elevated vs prior rise
• Traded 1.1922-84 range Monday and 1.1774-1.1941 last Friday
• Quickly rose above 1.2000 to 1.2070 after Europe opened without any data
• A bad day for stocks (DAX -1.6%) likely supported EUR as a liquid asset
• German consumer confidence rises to 10.9 in September from 10.8
• Yields lower as investors seek safety in bonds, led by UST, weighs USDUSD/JPY

USD/JPY

• Some USD/JPY players caught long remain hopeful of a recovery
• Risk aversion caused by NK missile shoot over Japan hurt USD/JPY
• Narrowing UST-JGB spreads depress USD/JPY
• Dived from 109.25 to 108.33, subsequent recovery capped by 109.00
• Heavy offers circa 109.00, bids likely ahead of 2017 108.13 low
• Quick rebound from 108.27 after previous 108.33 session low breached
• Market seems determined to put up a fight ahead of 108.00 barriers
• Break below 108.00 barriers will weaken spot further

EUR/CHF

• Big USD/CHF losses in London to 0.9428 from 0.9531. 0.9551 was Asia high
• CHF is gaining against the dollar as carry trades unwind
• 0.9428 is a new 2017 low, lowest since July 2015 (0.9260 low w/e Aug 28)
• Soggy USD/CHF not helped by slipping Fed hike hopes
• Technically oversold, could see corrections ahead of fresh leg lower
• EUR/CHF heavy in Europe, dragged lower by USD/CHF. Plays 1.1444-1.1375
• Now a double top on the charts at 1.1444/1.1445

GBP/USD

• GBP continues to slide after more bad news
• UK’s Nationwide reports further slowing in house prices
• House prices fell 0.1% in August with YY rate slowing to 2.1%
• GBP TWI 74.50, lowest since early Nov & compares to 73.70 Brexit low
• GBP/USD flatters to deceive as USD weakness outstrips that for GBP
• GBP/USD 1.2942-78, 21-DMA 1.2962. Aug 11/14 highs 1.3032/22

USD/CAD

• CAD closed NY 1.2504, peaked 1.2536 early Asia but pressured since
• USD weakness early London most noticable against EUR spills over
• USD/CAD hits 1.2440 low before meeting minor demand
• Break of July/2yr low 1.2414 opens potential to May 2015 lows at 1.1920
• Dealers wary of 200 week MA 1.2432, close below Friday reinforces bear view

AUD/USD

• AUD/JPY selling hit AUD/USD lower in Asia on NK missile test
• AUD/JPY 87.07-85.67, recoveries capped by 100HMA 86.47 since
• Break of 85.50 cloud base/11 Aug 85.40 low would target 22 June low 83.68
• AUD/USD 0.7969-0.7906, but recovers. Mon’s 0.7973 peak caps
• Offers still seen pre 0.8000, above to target 27 July/2yr high at 0.8066
• Option market not concerned, vols well below last weeks highs as ranges hold

NZD/USD

• AUD/NZD 1.0982-28, Mon’s 1.0983/16 Mar 1.1020 highs cap cross
• NZD/JPY hit lows since early June on risk averse JPY demand – 79.25-78.29
• NZD/USD, 0.7264-0.7219 but decent bounce since amid broader USD sales
• NZD/USD stops tripped above 200HMA 0.7266 for 0.7281
• NZD still well within daily cloud, solid support 100/200DMA 0.7178/29
• 21 and 55 DMA’s resistance at 0.7315/22 and risking cloud top just above

FX OPTIONS

• EUR/USD profit taking on ITM EUR calls via 1.2000-50 RKI
• EUR vols higher with spot, 3mth risk reversals 7 year highs for EUR calls
• USD/JPY vols and JPY call bias lifted on 108.00 barriers fears
• AUD, NZD and CAD vols only marginally firmer as broader ranges hold
• Light demand for longer dated GBP related vol/GBP puts continues

COMMENT

EUR/USD’s fast rise is a bullish sign

The ease at which EUR/USD is rising is a strong sign of more gains to come. Traders have been hesitant to turn long EUR/USD and this has led to a sustainable rise. Bets on a EUR/USD rally via cash are a mere 9 billion euros compared to bets on a EUR/USD fall in late 2014 which swelled to a much larger size of around 25 billion. Economists and analysts have shared traders lack of belief in a big EUR/USD rise. Furthermore the rapid break of 1.2000 makes it quite clear that options traders are also ill-prepared for a rise to these levels. While FX traders are poorly positioned, the current weak spot for stocks is fuel for a higher EUR. The single currency has fared well during risk averse periods and is supported by a huge current account surplus which. This position is held by USTs in bond markets where demand is driving down yields and weighing the USD.

CHART FOCUS

USD/TRY bears look to weekly cloud base – Reuters

USD/TRY bears are targeting the base of the weekly cloud at 3.3659, while the December 2016 low at 3.3410 is a further downside objective. Spot has been inching through the weekly cloud since the middle of July, a trend which continued last week with a significant bearish close. For now USD/TRY is staging a recovery from Friday’s 3.4350 base. The falling 10-DMA at 3.4847 is resistance and a potential stall point for the rise. The thin daily cloud (for the next week) may also exert some influence higher but the technicals suggest that spot is unlikely to rally that far. A rejection from the 10-DMA and a resumption of the bear trend is the more likely scenario

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