FX Market Update 19-5

Market Briefs

• Potential worst week in 9-mths for the USD
• EUR/USD +0.56%, USD/JPY flat, GBP/USD +0.57%, EUR/GBP flat
• DXY -0.43%, DAX +0.34%, FTSE +0.51, Copper +0.65%
• Seeking a new narrative, Trump embarks on trip to Middle East
• Long queues as Iranians start voting in presidential election
• Euro zone current account surplus eases from record high
• EZ Mar Current account NSA 44.8b vs revsd 27.8b prev 27.9b
• EZ Mar Current account SA 34.1b vs revsd 37.8b prev 37.9b
• OPEC panel looking at deepening, extending oil cuts – sources; Brent +1.12%
• DE Apr Producer prices yy 3.4% vs prev 3.1%
• UK PM May’s Conservatives set to outspend Labour in election battle
• TPP trade deal members seek to move ahead without US
• Japan’s April exports seen up for 5th straight mth; +7.8 pct yr/yr vs +12.0 in March
• Gold on track for biggest weekly gain in five; Gold +0.49%

Looking Ahead – Economic Data (GMT)

17:00 Baker-Hughes Rig Count (weekly)

Looking Ahead – Events, Other Releases (GMT)

13:15 FRB St. Louis’s Bullard (non-voter, dove) on the economy and monetary policy
15:45 FedTrade Operation 30-year Ginne Mae (max $975 mn)

Currency Summaries
EUR/USD

Thursday pullback looking corrective as EUR takes off topside again
• Trading 1.1164 session high into New York from 1.1097 low
Thursday 1.1174 high initial res. But market has a 1.12+ feel about it
• Passing of Greek bailout measures latest in line of EUR positives
• Bond markets paint a very favourable picture for the EUR
• EUR 3.3bln expiries 1.1100-20 may prove magnetic later

USD/JPY

• USD/JPY recovery continues, with the envelope pushed to 111.70 from 111.12
• Tech bulls have taken cue from long tail on Thur’s candlestick
• Expect solid resistance around 112.00. Note cloud top is @112.03
• Some stops likely to have clustered above 112.05 – 50% 113.85 to 110.24 fall
• UST-JGB spread widens across curve which is underpinning USD/JPY
• Fading recovery moves ahead of 112.00 a favourable strategy
• Any further Trump woes would put USD/JPY recovery in jeopardy

EUR/CHF

• Dollar respite was short lived and USD/CHF is offered again
• 0.9804-0.9769 Europe. Could threaten 0.9759 Thurs trend low
• Tight 1.0892-1.0906 EUR/CHF range in Europe. Recovery fm Thurs 1.0867 low
• Thurs low was a 61.8% retrace of May rise, break under remains likely
• Below risks full retracement to May 3 1.0793 low & 200-day MA at 1.0783
• Hourly cloud, 1.0912/1.0924 & falling 100-HMA at 1.0920 resistance Fri
• CHF benefits from safe haven demand fueled by U.S political turmoil

GBP/USD

• GBP recouped remainder of Thursday’s ‘flash slip’ losses during European am
• 1.3011 = European am high to follow 1.2959 Asia high
• Stops below 1.2980 were tripped en route to 1.2888 low at 1735GMT Thursday
• 1.3048 = Thursday’s 8mth high after UK retail sales beat, before ‘flash slip’
• Option barrier mooted at 1.3050, with 1.35 among bull targets beyond
• Citigroup says Tories to win majority of 104-190 seats in June 8 election

USD/CAD

• USD/CAD slid to 1.3566 (3wk low) during European am as WTI rose to 50.07
• 50.07 bucks/barrel = 3wk high, on expectations of oil output cut extension
• 1.3671 was USD/CAD high Thursday, when WTI near 48 bucks/barrel
• Bids around 1.3576 based USD/CAD losses TuesdayWednesday
• 1.3576 = 38.2% of 1.3224-1.3793. Canada CPI/retail sales data due 1230GMT
• Apr CPI f/c +1.7% y/y, core CPI f/c +1.4% y/y. Mar retail sales f/c +0.4%

AUD/USD

• AUD met headwind at 0.7470 after extending north from 0.7407 (Asia low)
• Offers just shy of 0.7470 capped AUD/USD rise from 0.7409 Thursday
• Dalian iron ore closed up 3.2% Friday, source of support for AUD
• More AUD/USD offers tipped at 0.75 (AUD/USD sub-0.75 since May 3)

NZD/USD

• NZD/USD scaled intra-day peak of 0.6907 as AUD/USD rose to 0.7470
• Simultaneous AUD/NZD rise to 1.0820 (23-day high). 1.0787 = Asia high
• AUD/NZD traded as low as 1.0695 Thursday, before Aussie jobs data

FX OPTIONS

• Risk sentiment recovers for now, vols give back some of the mid week gains
• USD/JPY vols rose the most so fall hardest, still above lows however
• 1mth USD/JPY risk reversals much slower to ease, suggests market still wary
• EUR/USD vol setbacks stall as spot pushes higher, EUR call bias peaks
• AUD buyers 1mth risk reversals from 8 year low AUD puts
• USD/CAD 1 week vol higher on BoC and OPEC capture.

COMMENT

GBP/USD looks toppy

GBP/USD looks toppy. Short-covering was the basis of the rally from 1.2110 in March to 1.3048 yesterday with traders seen too bearish. Few were actually bullish the pound but the price action suggests that many have got long. The first sign of longs was evident in the reaction to strong CPI data this week with GBP selling off when it should have rallied. Yesterday’s dump late in the NA session is another indication of a long, and perhaps overlong GBP position. GBP/USD dived from 1.3000 to 1.2888 in minutes. That was the move anticipated on the trigger of stops above 1.3000 barriers which instead resulted in hours of grinding, choppy, price action that failed to knockout more barriers at 1.3050. Aside a brief dip below the 21-DMA in April GBP/USD has been bullish above this line throughout the Mar/May correction. A close under the 21-DMA will likely prove too much for a market now long GBP for Brexit.

CHART

Euro bulls fight back versus yen

EUR/JPY bullish prospects have improved with the cross set for a retest of the recent 2017 125.81 high if it manages to register a daily close back above the tenkan line, currently 124.19. The cross left a long tail on Thursday’s candlestick line as EUR/JPY recovered after Wednesday’s bearish black candle. Bulls will already be encouraged by the failure to register a daily close below 123.23 on Thursday – 23.6% retrace of the 114.86 to 125.81 rise – and seem poised to capitalise on Friday’s gains. Both the tenkan and kijun lines are flat, indicating neutral momentum which bulls need to be mindful of. If the cross fails to register a daily close above the aforementioned tenkan line, this would be a setback for the bulls. A break below Thursday’s 122.57 low would put bears back in command

FX Market Update 18-5

Market Briefs

• EUR/USD -0.35%, USD/JPY -0.42%, GBP/USD +0.55%, EUR/GBP -0.88%
• DXY flat, DAX -1.06%, FTSE -1.46, Copper -1.9%
• UK shoppers shrug off inflation pressure; +2.3% vs revsd -1.2% prev -1.8%
• GB Apr Retail sales yy +4.0% vs revsd +2.0% prev 1.7%
• Trump campaign had at least 18 undisclosed contacts with Russians
• Bank of England’s growth and pay forecasts too optimistic-poll
• ECB to signal a move away from QE by Sept on better data-poll
• Japan’s economy expands at fastest pace in a year in Jan-March
• Support for Macron’s party grows before French parliamentary election-poll
• EU looks to build alternative to London for capital market – document
• Smaller cities keep China property market hot in April
• Greece needs to clear more hurdles before ECB bond buys: Coeure
• Oil down as market stays well supplied despite OPEC cuts; Brent -1.88%
• Mexico central bank seen holding key rate, pointing to future hikes

Looking Ahead – Economic Data (GMT)

12:30 Initial Jobless Claims (May 13 week) (prev 236k)
12:30 — Continued Claims (May 6 week) (prev 1.918 mn)
12:30 Philadelphia Fed Manufacturing Survey (May) (mkt +19.8, prev +22.0)
14:00 Leading Indicators (Apr) (mkt +0.4% m/m, prev +0.4% m/m)

Looking Ahead – Events, Other Releases (GMT)

15:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.625 bn)
17:15 FRB Cleveland’s Mester (non-voter, hawk) on the economy and monetary policy; Minneapolis, MN

Currency Summaries
EUR/USD

• EUR/USD 1.1174 in Asia hits 1.1107 low In Europe
• EUR/GBP selling behind initial pressure (UK data, cable 1.30 break)
• EUR/JPY then slammed 123.70-122.59 on latest US news
• Expect EUR/USD buyers between May 16 1.1097 high & May 17 1.1080 low
• Key supports @ May 8 high 1.1024, 100-HMA 1.1022 and 1.1000
• Rates have turned fav EUR/USD bounce: US/bund May 18

USD/JPY

• USD/JPY continues to drop, today falling from 111.24 to 110.31
• Narrower UST-JGB spread corresponds with weaker USD/JPY
• Spot has taken out the 110.52 Fibo
• 110.52 – 61.8% retrace of the 108.13 to 114.38 rise
• Bulls rout persists as Trump woes weigh on risk
• Stops, which were layered below 110.50, have been triggered
• Price action sets up test of 110.00
• Daily cloud, 111.14-112.12, weighs
• BoJ DepGov Iwata– Nothing on exit from policy, depends on rates at time
• EconMin Ishihara – Economy recovering but no clean escape from deflation
• Japan Q1 GDP +0.5% q/q, +2.2% AR, +0.4/+1.7% eyed
• MoF flow data May 13 week – Japanese good buyers of foreign bonds again
• MoF flow data – Foreign investors add to Japan portfolios

EUR/CHF

• Renewed CHF strength looks to test Wed’s 0.9774 6-mth high vs USD
• USD/CHF 0.9822-0.9783 Europe. Wed close under 61.8% of Trump rally 0.9853
• 76.4% Fibo is next support at 0.9737
• CHF has gained in recent days amid Trump concerns
• The slide in EUR/CHF Wed stopped bang on the 50% of May rise at 1.0890
• Speculation that the SNB remains active despite a softer CHF recently
• 1.0929-1.0893 today. 61.8% Fibo next level of support at 1.0867
• SNB to keep expansive monetary policy – Jordan in paper

GBP/USD

• Cable finally vaulted 1.30 after big UK retail sales data beat at 0830GMT
• UK retail sales +2.3% in Apr vs +1.0% consensus expectation
• 1.3046 = 8mth high for cable after stops above 1.3000 tripped
• 1.2987 was pre-data release high vs 1.2937 early Ldn low
• EUR/GBP down to 0.8541 courtesy of UK retail sales data beat
• 0.8530 is former resistance turned support, high after Macron 1st round win

USD/CAD

• 1.3650 offers capped USD/CAD after it vaulted 1.3641 (Wednesday’s high)
• Option-related interest suspected in mix: large 1.3650 expiry Friday
• USD 600mn strike. More offers tipped at 1.3660 (1.3659 = Tuesday’s high)
• 1.3619 (Asia top) is now support. Key support 1.3576, 38.2% of 1.3224-1.3793
• 1.3576 approximates to Tuesday/Wednesday low. 1.3582 = Asia low
• BoC meets next week (May 24), expected to keep key interest rate at 0.5%

AUD/USD

• AUD/USD retreated to 0.7433 during European am vs 0.7468 Asia 15-day top
• Retreat influenced by decline in risk appetite: S&P e-minis -0.14% 0915GMT
• S&P 500 closed -1.82% Wednesday. 0.7409 = Asia low, pre-Oz jobs data

NZD/USD

• NZD/USD retreat to 0.6915 influenced by a decline in risk appetite
• S&P e-minis -0.39% at 0948GMT. S&P 500 closed down 1.82% Wednesday
• 0.6952 = 1wk high for NZD/USD in Asia (0.6951 was last week’s high)

FX OPTIONS

• USD/JPY vols and risk reversals poised for deeper spot weakness
• EUR/USD vols peak with spot but remain well above recent/long term lows
• Cable gamma paid as expected when 1.30 barriers breached, vols propped
• AUD vols tick higher despite firmer spot – value levels at recent/2yr lows

COMMENT

GBP/USD through 1.30, next stop 1.35

The announcement of an early election last month helped Cable break through 1.2780/00 and, since then, a soft dollar environment and strong UK retail sales has helped the unit break above 1.30 where previously a move above this level had been thwarted by importer hedging related demand.
A move to 1.35 over the next 2-months seems likely now especially as EUR/USD has also managed to break firmly above 1.10. The dollar is softer against a large majority of both DM and EM currencies this year despite a Fed that surprised in March and likely to hike again in June. The backdrop of rate differentials has not helped dollar bulls and what we are still seeing is an unwinding of short dollar positions.
But it’s not just about the dollar, a reduction in bearishness toward the GBP (and EUR) has also been eroded due to optimism over a longer transition period (no election in 2020) and better eurozone data (especially the soft data). It seems likely that we could go back to the upper end of the 1.28-1.35 trading range that was seen last year following the June EU referendum and ahead of the October flash crash.
The pain trade currently is still in the direction of GBP shorts re-evaluating their bearish views. Selling from importers is likely to help make upside less of a one-way bet.

CHART

Weekly cloud top potential for cable

GBP/USD looks to be building for a test of the top of the weekly cloud at 1.3356 as it rises further into the cloud after breaking 1.300. A retracement of the 2016 May to October drop is underway. The 38.2% Fibo of that fall was broken at 1.2840 in April and long players are now targeting the next retracement level, the 50% Fibo, at 1.3257. Daily slow stochastics have risen from oversold levels and show room to run, the upper 30-day Bollinger is closer to the market resistance at 1.3165. Note that Bollinger bands historically contain price action so could see an adjustment lower ahead of a fresh run north. Those looking to enter long GBP trades should use any pullbacks as an opportunity to join the trend. The 10- and 21-DMAs are near-term supports at 1.2938 and 1.2902, respectively.

Futuro del peso mexicano 18-5

  • USD/MXN open NY 19.12, early NY range 19.035-19.14; Wed close 18.7825
  • Trump political woes hits EM CCYs , weak oil adds to MXN slide
  • US jobless claims at 8.30 AM NYT, Banxico rate decision 1PM no chg exp’d
  • USD/MXN res 19.2100 o/n high, 19.2392 upper 21-d Bolli, 19.299 Apr 26 high
  • Supt 19.0571 10-HMA, 18.9675 55-HMA, 18.90 50% Fib of 18.59-19.21 rise
  • ST volatility rises abv 200-DMA

Futuro del peso mexicano 18-5

FX Market Update 17-5

Market Briefs

• EUR/USD +0.01%, USD/JPY -0.66%, GBP/USD +0.22%, EUR/GBP -0.15%
• DXY -0.08%, DAX -0.4%, FTSE flat, Copper -0.12%
• S.Korea’s Moon says “high possibility” of conflict with North as missile crisis builds
• Merkel’s conservatives extend lead over Social Democrats -poll
• GB Mar Avg wk earnings 3m yy +2.4% vs prev 2.3%, first pay squeeze since 2014
• GB Apr Claimant count unemp chng +19.4k vs revsd +33.5k prev 25.5k
• GB Mar ILO Unemployment rate 4.6% vs prev 4.7%
• BOJ’s Kuroda says told Abe will continue with ultra-easy policy
• JP Mar core machinery orders +1.4 % m/m vs prev 1.5%
• Oil dips on U.S. inventory build, defies OPEC-led cut efforts, Brent -0.06%
• Gold rises to two-week high amid Trump concerns, +0.75%
• EZ Apr Inflation final yy 1.9% vs prev 1.9%

Looking Ahead – Economic Data (GMT)

11:00 MBA Weekly Mortgage Application Indices
14:30 EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)
13:45 FedTrade Operation 30-year Ginnie Mae (max $975 mn)
15:45 FedTrade Operation 15-year Fannie Mae / Freddie Mac (max $600 mn)

Currency Summaries
EUR/USD

• Good start for EUR/USD bulls as pair trades up to 1.1122
• Then swift pullback to 1.1080
• 1.1092-1.1122 rise took 13 hours, 1.1122-1.1080 nearer an hour
• Risk-off feel to broader trade centred on Trump supports dip buys
• EUR/USD buyers line up orders ahead 1.1000
• US rates ease in light of latest Trump shenanigans:
• Break 1.1129 61.8% 1.1616-1.0340 drop needed to inspire bulls

USD/JPY
• Trump political woes sees flows back into yen, concern over tax agenda rises
• USD/JPY has fallen from 113.13 to 112.26, before stabilising
• On the way down stops circa 112.70/112.80 were triggered
• Daily cloud, which spans 111.41-112.24, provides relief for USD/JPY bulls
• Expect a decent build up of bids around 112.00
• UST-JGB spread narrows, USD/JPY 30/60-day correlation high across curve
• Japan Mar core machinery orders +1.4% m/m, -0.7% y/y, +2.1% and +0.6% eyed

EUR/CHF
• CHF gained to 7-wk 0.9820 high vs USD amid Trump concerns
• U.S political uncertainty keeps USD under pressure, safe haven flows into CHF
• The rise in the franc broke below key USD/CHF Fibo support at 0.9853
• 0.9853 is the 61.8% Fibo of the Trump 0.9550-1.0343 rise
• A close below risks a full retracement to the Nov 9 0.9550 low
• EUR/CHF post French election rally to 1.0987 may have peaked
• Cross above 1.09 for now but retracement of 1.0793-1.0987 underway
• 38.2% Fibo pierced today. 50%/61.8% Fibos at 1.0890/1.0867

GBP/USD
• Something and nothing day for GBP traders
• GBP/USD near opening 1.2930 level within 1.2907-53 range
• Test of 1.3000 barriers proving elusive again
• EUR/GBP snaps back after trading to 0.8616 so over 200-DMA/daily cloud
• Real money selling turned the tables on those long, cross to 0.8563
• GBP/JPY down slightly today in line Trump concerns and soft stocks
• UK jobless up but U/R rate down, average earnings small downside miss

USD/CAD
• USD/CAD fell 1.3720-1.3601 Mon as oil rallied, based 1.3575 y/day
• Light crude now consolidiates middle of Mon’s 47.75-49.66 range
• Broader USD weakness keeps a lid on USD/CAD, 1.3580-1.3635 today
• 1.3575 is 38.2% of 1.3224-1.3793 and wkly cloud top, bears need close below
• Tues high 1.3659, 10DMA 1.3672 and Mon’s 1.3720 peak resistance levels

AUD/USD
• AUD/USD lower amid combination of AUD/JPY sales and EUR/AUD demand
• NYT report Trump/Comey/Flynn investigation fuelling risk aversion
• 0.7440-0.7391 so far today, stopped by alleged corp bids at 0.7390
• Mons 0.7386 low support before Fri 0.7369 low. 10dma is at 0.7394
• Dalian Iron ore gains and S&P reaffirmation of Aus AAA rating underpinned
• Mon’s 0.7446 recovery peak caps before 21dma 0.7453. Offers in 0.7440’s
• Expiries at both ends of range today – 0.7400 (462M), 0.7440 (502M)
• Implied vols AUD puts by recent/2.5yr lows – highlight lack of d/side fears

NZD/USD
• NZD/USD 0.6884-0.6928 in Asia but drops back to 0.6881 in London
• Sales of NZD/JPY adding weight in London – 77.81-34 so far
• Initial NZD/USD support Tues 0.6862 low, then Mon/Fri/Thur 0.6853/27/18
• AUD/NZD 1.0788-25 Asia/early London but recovers 1.0750 since

FX OPTIONS

• US political woes hurt USD and help fuel risk aversion/JPY gains, Vols up
• EUR/USD short topside covering boosts vols and EUR calls along the curve
• Low absolute levels fuelling demand as pair tests/breaches 1.11 barriers
• USD/JPY vols ramped up. AUD vols/puts still lack demand at 2.5yr lows
• GBP/USD 1mth 1.0 above Fri’s long term low. 1.30 barriers cap GBP


COMMENT

Sterling bulls running out of fuel

We continue to advocate picking a top ahead of 1.3000/1.3032 in GBP/USD as sterling bulls are running out of fuel. GBP/USD failed to tackle 1.3000 barriers on Tuesday on higher UK CPI, only reaching 1.2958 which is instructive of the sheer scale of supply above including 1.2990 which was the 2017 high posted on May 8. Trump woes which hit the dollar in Asia [nL2N1II0BO] again failed to lift GBP/USD close to the 1.3000 level. The March-May rise from 1.2110 to 1.2990 was fuelled, in part, by a squeeze on sterling shorts. As of last Tuesday, IMM speculative net short contracts fell to 46,798 from 81,364 the preceding week, meaning a further pursuit of shorts maybe less successful. If the market breaks 1.3000, it still has to regain the important 1.3032 Fibonacci level – 76.4% retrace of the 1.0520 to 2.1162 (1985 to 2007) rise – in order to exert further upward pressure

Futuro del peso mexicano 17-5

  • USD/MXN opens NY 18.6790, holds nearby, o/n range 18.75-18.6250
  • Pair shrugs off higher oil and lower UST yields, hovers near 3-wk low 18.59
  • No Mex/US data, Banxico Thurs; Market sees 73% chance  for hold
  • USD/MXN supt 18.6250 Wed low, 18.59 Tues low, 18.5481 lwr 21-d Bolli
  • Res 18.6658 daily pvt, 18.7405 upper 21-h Bolli, 18.8333 2nd daily pvt res
  • ST vol slight bid, remains below 200-DMA

Futuro del peso mexicano 17-5

 

Futuro del peso mexicano 16-5

  • USD/MXN opens NY 18.7035, holds nearby; early NY range 18.7010-18.7575
  • Risk remains firm on higher oil, equities, US yields rise slightly
  • Recent MXN gains (IMM shift to long MXN) likely keeps Banxico on sidelines
  • USD/MXN sup at Mon/Tues dbl bottom near 18.63, 18.5420 2nd daily pvt supt
  • Res 18.7501 hrly cloud base, 18.80 Mon high, 18l.8830 21-DMA
  • MXN vol steady ahead of exp’d c.bank hold Thurs;

Futuro del peso mexicano 16-5

FX Market Update 16-5

Market Briefs

• EUR/USD +0.65%, USD/JPY -0.22%, GBP/USD -0.06%, EUR/GBP +0.76%
• DXY -0.36%, DAX -0.09%, FTSE +0.54%, Gold +0.35%, Copper -0.57%
• Euro hits six-month high, its highest level since Nov 9 2016 in Europe at 1.1049
• Kuroda says “quite sure” BOJ can smoothly withdraw stimulus
• JP PM: will continue to deploy fiscal monetary/structural steps for econ revival
• Oil rises on expectations of extended supply curbs; Brent +0.41%
• Euro zone expands trade surplus despite protectionist calls
• EZ Mar Eurostat Trade NSA 30.9b vs prev 17.8b
• EZ Q1 GDP Flash estimate qq 0.5% vs prev 0.5%
• EZ Q1 GDP Flash estimate yy 1.7% vs prev 1.7%
• German investor morale rises as economy “in good shape”
• DE May ZEW Economic sentiment 20.6 vs prev 19.5
• DE May ZEW Current conditions 83.9 vs prev 80.1
• UK inflation jumps more than expected in April to hit highest since 2013
• GB Apr Core CPI yy +2.4% vs prev 1.8%
• GB Apr CPI yy +2.7% vs prev 2.3%
• GB Apr RPI yy +3.5% vs prev 3.1%
• GB Apr PPI Core output yy NSA +2.8% vs prev 2.5%
• Norway Q1 mainland GDP 0.6% vs rvsd 0.4% prev, 0.5% exp
• Riksbank proposes switch to CPIF and +/- 1.0% around 2.0% inflation target

Looking Ahead – Economic Data (GMT)

12:30 Housing Starts (Apr) (mkt 1.260 mn, prev 1.215 mn)
12:30 — Building Permits (Apr) (mkt 1.270 mn, prev 1.267 mn)
12:55 Redbook Weekly Same-Store Sales Index
13:15 Industrial Production (Apr) (mkt +0.3% m/m, prev +0.5% m/m)
13:15 — Capacity Utilization (Apr) (mkt 76.3%, prev 76.1%)
13:15 — Factory Output (Apr) (mkt +0.3% m/m, prev -0.4% m/m)

Looking Ahead – Events, Other Releases (GMT)
18:30 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.625 bn)

Currency Summaries
EUR/USD

• Suggests 1.1050 barrier. Few vanilla options 1.11+:
• Buying mainly led by optimism for the EZ after favourable elections
• Rates markets are supporting EUR/USD too but with bonds lagging/tracking FX
• Germany’s ZEW missed a 22 f/c but at 20.6 in May is best since Aug 2015

USD/JPY

• 2.2 yards of 114.00 option strikes set to expire on Thurs which may draw
• There are said to be good sized offers towards 114.00
• Decent amount of bids near 113.00, 100-DMA props just below
• 30/60-day correlated UST-JGB yield spread across the curve
• Recent narrowing of yield spread has weighed on spot in recent days
• Reports Japanese players bought US Treasuries on yield uptick last week
• USD/JPY trades a modest 113.25-113.79 range so far this session
• EUR/JPY bias for 125.68 pivot point, then 126.00 beyond
• Cross cleared stops above 125.00, rising from 124.60 to 125.54

EUR/CHF

• USD/CHF pullback extends through 61.8% Fibo of May rise at 0.9954
• Broad based dollar weakness weighs. DXY -0.4% Tues, off 5% fm Jan peak
• Spot tests 0.9922 low, risk for full retracement to the May 5 0.9859 base
• Weekly cloud twist by 0.9870 helping pull price lower
• EUR/CHF stays steady, supported by EUR/USD rise above 1.10
• Cross lifts to 1.0958 then eases to 1.0941 ahead of NY
• Retracement risk remains. 38.2% Fibo of the May rise is at 1.0913

GBP/USD

• EUR/USD moves initially inspires GBP/USD buying
• Pair rises 30-40 pips from around 1.2900 in advance UK inflation data
• CPI highest since Sept 2013 @ 2.7% beating estimates
• GBP/USD 1.2958 on data release then surprisingly lower to 1.2875
• 21-DMA @ 1.2882 pivotal (close basis). Data move suggest traders long GBP
• 1.3000 barriers remain key above

USD/CAD

• Oil rallied strongly y/day after Saudi/Russia oil output cut talk, boosted CAD
• USD/CAD fell 1.3720-1.3601 Monday but recovers 1.3659 today
• Oil off its highs and CAD consolidates. Didn’t close below 21DMA 1.3623
• Focus remains OPEC 25-26 May – keeps bid under 2wk vol 7.5/160 pips
• 1mth vol 7.3 (6.1 to 7.45 spike after 1.3600-1.3790 rally late Apr/early May)

AUD/USD

• AUD 0.7406-35 in Asia. Resistance Mon 0.7446 peak, 21DMA 0.7461
• Highs seen after RBA mins, little changed from April. Lows after AUD/JPY sales
• Bids touted around 0.7400, dip to 0.7398 early London. Offers 0.7450
• China announcment one belt road project props commods/AUD [nL4N1IH4TW]
• Support may prove fleeting, AUD/commods could come back under pressure
• 10DMA 0.7393 initial support before Mon’s 0.7386/Fri’s 0.7369 lows
• Implied vols l/term lows, risk rev low end of post US election 2.0-0.6 AUD puts

NZD/USD

• Opened Asia at 0.6879, traded 0.6876/0.6906 range
• Some weight on commods early London – NZD 0.6865
• Risk trades undone as JPY demand renewed steering NZD/JPY cross lower o/n
• Speculation safe haven JPY bid linked to latest White House news [nL2N1IH1O9]
• Relative NZD outperformance vs AUD saw cross off 0.4% to 1.0747
• GDT auction perennial wildcard for kiwi & cross as WMP futures price lower


FX OPTIONS

• EUR short covering lifts vols/EUR calls as EUR gains today
• Huge 1.10 EUR/USD expiry Thursday a potential draw on setbacks
• 1mth vol gets ECB, FOMC, UK MPC to underpin related vols
• USD/JPY in a long gamma zone to cap vol demand there for now
• AUD/USD vols back near recent/2yr lows – potential value, AUD puts cheap

COMMENT

Riksbank proposals open up dovish/hawkish debate

Sweden’s c.bank has proposed the reintroduction of an inflation tolerance band and a move to core inflation (CPIF) from headline CPI, prompting questions whether the Riksbank is moving to a more dovish or hawkish bias. The difficulty of managing both inflation and inflation expectations has led to the new approach. Although the measures will likely reduce the need for further stimulus, there is also the view that the Riksbank will tolerate inflation moves below the 2.0% target by introducing the +/- tolerance band. The Riksbank’s main aim will be to anchor inflation expectations rather than change monetary policy. For, now the market has taken the proposals as dovish, pushing EUR/SEK to a five-month high of 9.7480. Link to Riksbank press release

CHART

Euro aims for 126.99 Fibo vs yen

Euro has managed to clear the 124.77 Fibonacci level – 38.2% retrace of the 149.79 to 109.30 (December 2014 to June 2016) fall – but needs to sustain this break until the end of May when it has a chance to register a critical monthly close above. Monday’s long white candlestick line adds to the underlying bullish market structure, increasing the odds that 126.99 – 76.4% retrace of the 132.45 to 109.30 fall – will be tested in coming sessions. Tenkan points north are reinforcing near-term positive momentum in the market. While longer-term 14-month momentum remains marginally negative, the chance is growing for this indicator to flip to positive readings for the first time since December 2014. A failure to register a monthly close above the 124.77 level will weigh on bulls in coming months

US Treasury 10 years 12-5

Suspected Resumed T-Note Bear’s Gotta BEHAVE Like One

Posted on 5/12/2017 7:39 AM by Dave Toth

In 04-May’s Technical Blog following that day’s break below 125.065 we introduced the prospect of a peak/reversal environment that could be major in scope, even resurrecting what we believe is a new secular bear market to eventual new lows below the 122-1/4 multi-year support.  If such a bear has resumed however, it should be expected to BEHAVE like one, evidenced by trendy, impulsive price action down.

The 240-min chart below shows the past week’s latest proof of weakness and vulnerability below late-Apr/early-May 125.06-area support.  This resumed weakness has left Mon’s 125.135 high and 03-May’s 125.265 high in its wake as the latest smaller- and larger-degree corrective highs it now should sustain losses below to maintain a more immediate bearish count.  It’s failure to do so will raise the odds and then confirm the sell-off attempt from 18-Apr’s 126.20 high as a 3-wave and thus corrective affair that would resurrect the larger-degree recovery from Dec’16’s low.  Per such, 125.14 and 125.27 are considered our new short- and longer-term risk parameters from which an

US T 10 year 12-5advised bearish policy and exposure can be objectively rebased and managed.