FX Market Update 30-8

Market Briefs

• EUR/USD -0.23%, USD/JPY 0.12%, GBP/USD 0.05%, EUR/GBP -0.25%
• DXY 0.26%, DAX 0.45%, FTSE 0.24%, Brent -0.88%, Gold 0.08%
• EZ Aug Economic sentiment 111.9 vs 111.2, 111.3 r’vsd, 111.3 f’cast
• GB Jul Consumer Credit 1.179B vs 1.458B, 1.351B r’vsd, 1.500B f’cast
• JP Jul Retail sales 1.9% yy, 1.0% f’cast, May 2.2% r’vsd
• JP Jul Crude oil imports -2.5% yy, LNG 3.6%, thermal coal 13.6%
• German negotiated wages post strongest increase on record in Q2
• GB mortgage approvals jump, lending to non-fin institutions a record high
• Swiss KOF indicator falls to 104.1 pts in August
• Swiss investor sentiment indicator falls to 25 pts in Aug
• Moody’s says G20 GDP growth to exceed 3 pct, warns of geopolitical risks
• U.N. condemns “outrageous” N.Korea missile launch, Pyongyang says more to come
• UK looking to replicate EU’s external trade deals after Brexit -PM May
• Crude slips, gasoline jumps as storm shuts a fifth of U.S. fuel output
• Gold slips on stronger dollar; geopolitical risks support

Looking Ahead – Economic Data (GMT)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:15 ADP National Employment Report (Aug) (mkt +185k, prev +178k)
• 12:30 Real GDP (prelim Q2) (mkt +2.7% q/q AR, advance +2.6% q/q AR)
• 12:30 Real Final Sales (prelim Q2) (mkt +2.7% q/q AR, advance +2.6% q/q AR)
• 12:30 Core PCE Price Index (prelim Q2) (mkt +1.0% q/q AR, advance +0.9% q/q AR)
• 14:30 EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

• 13:15 Fed Governor Powell speaks on “Key Areas of Focus of Supervisory Reform”; Chicago
• 15:45 Fed Trade operation 15-year Fannie Mae / Freddie Mac (max $600 mn)

Currency Summaries

EUR/USD

• Quieter day with activity lessened by whipsaw start to the week
• Stocks rebound and softer JPY and EUR greet European traders
• EUR/USD eases very slightly but data underpins
• Higher German state and Spanish CPI data while EZ biz climate improves
• EUR/USD support @ 100-HMA & Aug 2 high 1.1910
• EUR 400mln exp today at 1.2000. Month-end flows tomorrow

USD/JPY

• Tech outlook is for more gains due to cloud twist in 111.60s next week
• Risk back on in Tokyo, effects of NK missile over Japan ebbs
• Market made a spectacular recovery from Tue’s 108.27 low
• Japanese institutional investors said to have been good buyers
• Stops triggered above 110.05 relatively light to push to 110.18
• Decent offers touted close to the 110.40 level

EUR/CHF

• USD/CHF recovery from over 2 year low after N.Korea concerns ease
• Dive to 0.9428 Tues followed by swift rebound to close near open/high
• Hammer/Doji reversal on candles, but easing again after near cloud rejection
• Plays 0.9572-0.9539 in Europe. 100-HMA helps cap on hourly charts
• Could see some further whipsaw price action below cloud. Base @ 0.9583
• EUR/CHF offered in line with a lower euro. Plays 1.1451-1.1403
• Doji reversal on techs but bears require Tenkan break at 1.1355
• 100-HMA at 1.1400 lends support intraday but rebounds exp limited

GBP/USD

• GBP TWI 74.70 today after 74.50 low yesterday. Mixed UK data
• GBP/USD resistance @ 21-DMA 1.2947 and daily Ichimoku cloud top @ 1.2944
• Support at cloud base 1.2858 & 200-HMA 1.2868
• UK consumer confidence data @ 23.01GMT f/c -13 from -12 lowest since 2013

USD/CAD

• USD/CAD based 1.2440 early Tues climbed steadily higher to 1.2550
• Broader USD recovery driving the pair up. 200HMA capped
• Setback to 1.2501 today, back to 1.2539, 200HMA 1.2540 caps again
• 10DMA 1.2549. USD 1bln 1.2450 expiry NY cut looks out of reach
• 200 week MA 1.2433 remains key bear signal if close below Friday
• 1 week vols will jump Thursday when expiry captures 6 Sept BoC

AUD/USD

• Good Q2 construction and upward Q1 revision
• Combined with CNH gains after Moody’s China upgrade to bost AUD
• AUD stalled pre 0.8000 offers (0.7996), back to 0.7957 since
• 55HMA 0.7954 support, Daily Kijun/10/21DMA’s 0.7937/27/14, Tue low 0.7906
• 0.8010 stops, break opens 1 Aug 0.8043 and 27 July 2yr high 0.8066

NZD/USD

• RBNZ Gov Wheeler reiterated preference for lower NZD
• NZD/USD hit 0.7269-31, but has since recovered to 0.7277
• Well within Tues 0.7219-98 range support/resistance
• AUD/NZD helped through 1.10 by good AU data, 16 Mar 1.1020 peak caps
• 1mth NZD related vols gain with expiry capturing RBNZ on top of election now

FX OPTIONS

• USD recovers and risk sentiment improves, vols still looking firm
• Decent intraday spot ranges and impending data risk (NFP Fri) help prop
• EUR/USD still biased higher – 3mth risk rev near Tues 7yr high EUR calls
• USD/JPY 1wk vol looks good value at 100 pips for the straddle
• NZD 1mth vols capture RBNZ, 1mth trades 1.6 above AUD/USD
• USD/CNH short downside coverage, may exacerbate deeper declines

CHART FOCUS

USD/JPY set for gains to 111.60

USD/JPY set for further gains in coming sessions as a “cloud twist” above in the 111.60s next week will act as a magnate for bulls. The long tail left on Tuesday’s candlestick line highlights the rejection of the downside when it found support at 108.27, ahead of the 108.13 2017 low registered back in April. Market managed to post a daily close above 109.74 – 23.6% retrace of the 114.49 to 108.27 (July to August) fall – reinforcing the new found upside potential. USD/JPY bulls need to overcome the kijun line initially which currently comes in at 110.24 and then the 110.65/111.38 Fibonacci levels – 38.2%/50% of the 114.49 to 108.27 drop. As the tenkan and kijun lines are negatively aligned, sustained falls back below the tenkan line at 109.22 would lead to a deterioration of the current bullish outlook.

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