FX Market Update 22-1

Market Briefs

EUR/USD 0.37%, USD/JPY -0.06%, GBP/USD 0.43%, EUR/GBP -0.07%
DXY -0.17%, DAX flat, FTSE 0.06%, Brent 0.01%, Gold 0.18%
U.S. government workers awake to shutdown, Senate vote looms
UK economy will cope with Brexit hit as global economy grows-O’Neill
In Tokyo meeting, officials seek to forge ahead with TPP even as Canada wavers
German economy ends 2017 in “excellent” form: BuBa
Germany’s SPD wants Merkel to sweeten coalition deal
Catalonia’s ex-leader Puigdemont named candidate to lead region
Oil rises as Saudi Arabia says producers will cooperate beyond 2018
Gold inches down as dollar recovers after U.S. govt shutdown

Looking Ahead – Economic Data (GMT)

13:30 US Chicago Fed National Activity Index (Dec) (prev 0.15)
13:30 CA Wholesale Trade MM (Nov) (prev 1.5%)

Looking Ahead – Events, Other Releases (GMT)

N/A Draghi and Coeure participate in Eurogroup meeting
N/A Eurogroup finance minister’s meeting
14:00 IMF releases updated outlook for the world economy
16:45 FedTrade operation 30-year Ginnie Mae (max $760 mn)

Currency Summaries

EUR/USD

Dollar surprisingly little changed after U.S. Government shutdown
Senate set to vote at 17.00GMT
EUR/USD 1.2214-67 range in Europe, initially soft before recovering
EUR/USD opens higher at 1.2275 in Asia after closing 1.2215 last week
U.S. rate rise sees spreads to bunds widen further, (weigh EUR/USD)
Recent shift in spec positions reflects top-picking. Net long little changed
EUR 700mln @ 1.2200. No noteworthy data today. ZEW tomorrow
Support 1.2150. Resistance 1.2350. Consolidation continues. Trend firmly up

USD/JPY

USD/JPY holds own, steadies after push to 110.49 Fri on U.S. govt shutdown
BOJ to disappoint those eyeing policy shift on Jan 23
US yields rise support spot, some USD/JPY shorts squeezed
Support at 110.51 in early Asia, USD/JPY rises to hit 110.92 in early Ldn
USD/JPY a fade on rallies into tech supply above 111.00
Talk USD/JPY offers are thick from the 111.00 level upwards

CHF

EUR/CHF staged a decent recovery into the Friday close
Not out of the woods yet but a small reprieve for bull positioning
Test of longs met with Friday slide to 1.1715 before strong 1.1780 rebound
Easier from 1.1795 early Monday high: initial resistance at 1.18 Jan 17 high
Below 1.1672, Dec 29 low, and pain for bulls to intensify
SNB sight depo data shows domestic depos down but total higher nEONI1G0RW
SNB still sees CHF over valued, recent rhetoric: EUR/CHF above 1.20 likely to ease concern
USD/CHF also coming off a late Friday rally as U.S shut down impacts the Dollar
Friday low 0.9536, close 0.9647 and 0.9594-0.9635 Monday range

GBP

Cable rose to an intra-day high of 1.3915 during the European am
1.3857-1.3899 was Asia range (high before low). 1.3837 was Friday’s low
Offers expected ahead of 1.3950 (mooted option barrier level)
1.3942/45 was 19mth double-day highs last week (Jan 17/19)
Last week’s ascent to threaten 1.3950 was fuelled by US political concerns
US government still shut down Monday as Senate fails to clinch deal

USD/CAD

USD/CAD eased to a low of 1.2464 during the European am
1.2470-1.2520 was Asia range: 1.2520 = five-day high
1.2540 was Jan 17 high (day of BoC’s dovish hike)

AUD/USD

AUD/USD rose to an intra-day high of 0.8018 during the European am
0.7979-0.8003 was Asia range (high before low)
Offers expected near 0.8038 (Friday’s four-month high)

NZD/USD

NZD/USD rose to an intra-day high of 0.7308 during the European am
0.7268-0.7289 was Asia range. 0.7323 and 0.7331 are resistance levels
0.7323 was Friday’s high. 0.7331 was 17-week peak last week (Jan 17)

FX OPTIONS

Spot markets consolidates in to BoJ and ECB, little reaction to US Gov shutdown

Some short dated vol setbacks from Fridays highs, but limited buy by CB risk

Fears of further EUR gains apparent when looking at high EUR/USD call strike bias

JPY still wary of 110.00, at least over BoJ, favors low delta cheap JPY calls to cover

GBP wary of a 1.40 break, 1mth risk reversals multi year highs for GBP calls

COMMENT

Calm market should heed warning from 2013 US shutdown

The USD is relatively steady despite the U.S. government shutdown with its resilience likely linked to positioning . However, sanguine markets should take heed of what happened with the previous U.S shutdown five years ago. A lengthy 16-day shutdown in October 2013 saw the focus shift from a USD positive resolution to the potential longer-term damage to the U.S. economy. Interestingly the dollar traded higher through the 16-day shut down, the damage only coming on the day the shutdown was resolved. The index traded 79.627 Oct 3 to 80.754 on Oct 16. Reuters ran a story on Oct 17 highlighting the shift in focus from a budget deal to the effect of the shutdown on the economy and the prospects of a re-run in early 2014. That day the index fell 1.15% and lost another 0.75% in the following days to Oct 25, where the tide eventually changed. The key is the length of the shutdown and if the current impasse remains unresolved and becomes protracted, we may see a repeat of 2013. DXY Oct 2013 Chart

CHART FOCUS

GBP/USD bulls still have major Fibo in their sights

GBP/USD bulls maintain the upper hand as the market pulls away from the 1.3673 Fibo — 61.8% retrace of the (June to October 2016) 1.5022 to 1.1491 collapse — highlighting the upside scope for the 1.4000 psychological level. There is a strong possibility that cable could actually overshoot and test the 1.4189 Fibonacci level — 76.4% retrace of the same 1.5022 to 1.1491 collapse. The surge since the start of 2018 shows the overall bias has shifted decisively to the upside. GBP/USD is trading above the 30-week upper bollinger-band, currently at 1.3818, meaning the market is outside usual parameters. This is backed up by fourteen-week momentum which continues to issue positive readings. Only a weekly close back below the aforementioned 1.3673 Fibonacci level, will signal that the bull run is coming to an end.

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Wall Street Journal on Mexican Peso 22-1

The Surprising Peso Rally Probably Can’t Last Much Longer

By Ira Iosebashvili

The Mexican peso has been been one of the market’s best performing currencies this year. Some investors believe that’s made it an even riskier bet.

Mexico’s currency has surged nearly 6% against the dollar in 2018 as of Friday, making it the top performer of the 16 currencies tracked by the Wall Street Journal Dollar Index.

That rally has come as a surprise to many traders. Fears that the U.S. will pull out of the North American Free Trade Agreement, a pillar of Mexico’s economy, pummeled the peso in the closing weeks of 2017.

Analysts predicted more pain this year. In addition to Nafta negotiations — scheduled to conclude within weeks — Mexico is also dealing with the uncertainty of presidential elections this summer.

So far, though, the new year has been kind to the peso.

Some Nafta concerns eased earlier this month, after President Donald Trump told The Wall Street Journal that negotiations with Mexico and Canada were moving along nicely, a more positive portrayal than has previously been offered by his chief trade negotiator.

In the same interview, Mr. Trump said he didn’t have any timetable in the negotiations and was “a little flexible,” taking into account Mexico’s July 1 presidential and legislative elections. Negotiators have officially set a March deadline for rewriting the agreement.

The peso has also been helped by a generally weaker dollar, which has declined amid expectations that central banks abroad are getting ready to tighten monetary policy. Higher prices for oil have also buoyed the commodity-driven currency.

Yet many see storm clouds on the horizon, and warn against jumping on the peso’s unexpected rally.

Trade negotiations can take many twists and turns in the weeks ahead, analysts noted. Indeed, Mr. Trump has repeated his longstanding threat to pull out of Nafta if he isn’t happy with the results of the talks. That would be a disaster for Mexico, which sends 80% of its exports to the U.S.

Domestic political uncertainty isn’t going anywhere, either. Markets areunlikely to respond well to a win by populist left-wing candidate Andres Manuel Lopez Obrador, who is currently leading in the polls, analysts said.

A win by Mr. Obrador, together with an exit from Nafta, would likely put the peso at 22 against the dollar, from around 18.60 on Friday, estimates Juan Carlos Rodado, director of Latin American research at Natixis.

Historically, the peso has been vulnerable to election jitters. Since 1994, the currency has declined an average of nearly 6% against the dollar in the months leading up to a presidential election, the firm’s research shows.

Futuro del peso mexicano 22-1

  • NAFTA talks commence Tuesday and risk provides fresh support to vols now
  • Market optimistic of an agreement, but options favoured to cover tail risk
  • 1wk 10.75 to 7.0 post BoC, now 8.0, 1mth vol down 1.0 to 6.9 but now 7.3
  • Implied premium to realised vol another indication of impending risk/events
  • Realised/actual vols measure fair value based on previous spot moves
530= 100 DMA
Futuro del peso mexicano 22-1

FX Market Update 19-1

Market Briefs

EUR/USD 0.25%, USD/JPY -0.4%, GBP/USD 0.01%, EUR/GBP 0.18%
DXY -0.17%, DAX 0.94%, FTSE 0.27%, Brent -0.58%, Gold 0.55%
Clock running out for U.S. Congress to avert government shutdown
GB Retail Sales YY Dec, 1.4%, 3.0% f’cast, 1.6% prev
GB Retail Sales Ex-Fuel YY Dec, 1.3%, 3.0% f’cast, 1.5% prev
DE Producer Prices YY Dec, 2.3% 2.3% f’cast, 2.5% prev
EU Current Account NSA, EUR Nov, 37.8B, 35.9B prev
EU Current Account SA, EUR Nov, 32.5B, 35.9B prev
Japan govt upgrades economic view for first time in 7 months
Bitcoin use under scrutiny in Indonesian island of Bali
China’s Q4 GDP growth backed by continued strength in services, agriculture
China’s money rates inch up amid taxes, expectations of tight policy
Oil prices fall as U.S. output rise outweighs crude stock falls
Gold up on weaker dollar, but heads for first weekly loss in 6 weeks

Looking Ahead – Economic Data (GMT)

15:00 U of Michigan Consumer Sentiment Index (prel Jan) (mkt 97.0, prev 95.9)
15:00 U of Michigan Current Conditions Index (prel Jan) (prev 113.8)
15:00 U of Michigan Expectations Index (prel Jan) (prev 84.3)
16:15 New York Fed Staff Nowcast for Real GDP (Q4’17) (prev +3.9% q/q AR)
16:15 New York Fed Staff Nowcast for Real GDP (Q1’18) (prev +3.2% q/q AR)
19:00 Baker-Hughes Weekly Oil Rig Count (prev 752, +10 w/w +230 y/y)

Looking Ahead – Events, Other Releases (GMT)

N/A Continuing resolution funding the government expires
N/A German Chancellor Angela Merkel and IMF Managing Director Lagarde meet for informal talks in Berlin
13:45 Fed’s Bostic speaks in Nashville
16:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $885 mn)
18:00 Fed’s Quarles speaks in Washington
18:30 Fed’s Williams speaks in San Francisco

Currency Summaries

EUR/USD

EUR/USD well bid most of European session trading 1.2252-1.2295
Quick retreat followed push to the high when corp sellers emerged
Data positive with the EZ c/a surplus growing to EUR 32.5bln in Nov
End of QE spec underpinning yields sees 10 year German yield near 0.60%
Inflation expectations up 5-yr-5-yr swap at new 2018 peak nr 1.78%
US infl exp also up strongly. Puts Michigan expectation @ 15GMT in spotlight

USD/JPY

Throughout Asia and London there has been flows from USD to JPY
USD/JPY has fallen from 111.13 to 110.49, sustained selling on EBS
USD/JPY bears eye important 110.15 Fibo, 200-DMA caps at 111.73
110.15 — 61.8% Fibo 107.32-114.73 major rise
Risk aversion ahead of US Senate vote as political fight erupts
Option premiums highlight US Government shutdown fears

CHF

Decent shift into the CHF since Jan 15 1.1833 low vs the EUR
New pullback low for EUR/CHF Fri at 1.1715 but bids kicked hard from there
30-DMA comes at 1.1712 then a gap to 1.1684-92 lows from Jan 8 through 11
Latest nudge lower seen as U.S state funding vote shapes risk aversion
However, EUR/CHF is beginning to display reversal hints on the charts
Potential hammer candle today and 10-WMA continues to provide trend support
USD/CHF, as with the cross, hinting at a reversal as new 0.9536 lows are not held
Spot has work to do to get higher and broad based USD losses are significant
Dollar faces uncertainty ahead of U.S Senate vote on state funding
EUR/CHF Daily Chart:

GBP

Cable rose to 1.3945 after dropping to 1.3905 on big UK retail sales miss
1.3945 = fractionally fresh 19-month high. 1.3942 was Wednesday’s high
1.3941 was pre-UK retail sales data high vs 1.3892 early Europe low
Stops likely above 1.3950 and 1.4000 (option barrier level)
EUR/GBP up to 0.8829 after the much worse than expected UK retail sales
0.8807 was pre-data release low. 0.8801 was Thursday’s one-month low

USD/CAD

USD/CAD elicited fresh support at 1.2400 after falling from 1.2436
1.2436 was the European am high. 1.2400 was also the Asia low
There is a large 1.2400 option expiry for the NY cut, USD 651mn strike
Canada Nov mfg sales data due 1330GMT, +2.0% f/c

AUD/USD

AUD/USD rose to a four-month high of 0.8038 during the European am
Greenback continues to suffer on the risk of a US government shutdown
0.8021 was the Asian session high. 0.8023 was Wednesday’s high
IMM data circa 2100GMT should show further rise in net AUD long position
2018 began with speculators holding biggest net AUD short for 23mths

NZD/USD

NZD/USD rose from 0.7285 to 0.7323 during the European am
0.7287-0.7311 was Asia range. 0.7331 was Wednesday’s 16wk peak
Offers near 1.10 are keeping lid on AUD/NZD: 1.0992 = early Europe high
1.1002 was Wednesday’s two-week high. 1.1053 = early Jan high

FX OPTIONS

Solid demand for USD puts and vols in US related FX markets

Event risk from US Government shutdown fear is fuelling demand

Very high premiums for Monday expiry vols, 1-week expiries too

Additional event risk from BoJ Tuesday and ECB on Thursday

Cable wary of 1.40 break, 1-month risk reversl bias 9yr high for GBP calls

COMMENT

Dollar to extend drop whatever happens in U.S. Senate

The dollar remains under intense pressure, with traders ignoring recent positives such as higher bond yields, talk of repatriation and the spending bill making its way through the U.S. House of Representatives. The dollar index is on course for tests in the medium-term of 90.000 and the 88.423 Fibo — 61.8% of the 78.906-103.82 (2014 to 2016) bull run, regardless of whether the spending bill makes it through the U.S. Senate. The natural instinct of the FX market has been to sell the dollar, the USD index has undergone a steady decline from the 2017 103.82 “Trump trade” peak posted last January. Last week USD bears overcame a significant hurdle by registering a weekly close below 91.363 Fibo — 50% retrace of the same 78.906 to 103.82 rise. Those hoping that the avoidance of a U.S. government shutdown (a risk heightened by U.S. Senate obstacles) will result in a reversal of the dollar’s fortunes will probably be left disappointed. Weekly Bollinger Chart:

CHART FOCUS

GBP/USD gains bringing long-term levels into play

Cable bulls are edging closer to longer-term upside objectives with the 1.50s calling. Having closed above a 1.3457 trend line, off the July 2014 1.7192 high back in November, further long-term levels have come into view. Monthly channel resistance comes at 1.4015 and 200-week moving average at 1.4412. A big outside month high at 1.5022 from June 2016 is also in the frame along with a 1.5014 Fibo off the July 2014 1.7192 high and October 2016 1.1491 low. Jan 15 saw the price move above a 23.6% Fibo off the 2.1162 November 2007 high and 1.1491 flash crash low from October 2016 at 1.3773. The next Fibo port of call from this move is 1.5185, which also ties in with the current value for the 100-month moving average. A breach of the 30-month moving average, back on Jan 2 at 1.3574, adds to the longer-term bullish argument. Note that the monthly Bollingers are tightening, which suggests the market may be entering a period of tighter monthly ranges, which could weaken any potential for the bullish move towards the 1.50s

FX Market Update 18-1

Market Briefs

EUR/USD 0.38%, USD/JPY -0.04%, GBP/USD 0.22%, EUR/GBP 0.18%
DXY 0.09%, DAX 0.37%, FTSE -0.39%, Brent -0.1%, Gold 0.18%
Republicans in U.S. Congress rush to gain support to avoid shutdown
GB RICS Housing Survey Dec, 8, 0 f’cast, 0 prev
Republicans in U.S. Congress rush to gain support to avoid shutdown
China’s 2017 GDP growth accelerates for first time in 7 years
Euro zone bond yields head back towards multi-month highs, supply weighs
Oil holds near 2014 high, supported by threat of Nigeria attack
Gold inches higher as dollar pares gains

Looking Ahead – Economic Data (GMT)

13:30 Initial Jobless Claims (w/e Jan 13) (mkt 252k, prev 261k)
13:30 Continued Claims (w/e Jan 6) (prev 1.867 mn, a 44-year low)
13:30 Housing Starts (Dec) (mkt 1.275 mn SAAR, prev 1.297 mn SAAR)
13:30 Building Permits (Dec) (mkt 1.290 mn SAAR, prev 1.298 mn SAAR)
13:30 Philadelphia Fed (Jan) (mkt 25.0, prev 26.2)
16:00 EIA Weekly Petroleum Status Report
N/A Atlanta Fed GDPNow (Q4) (prev +3.3% q/q AR)

Looking Ahead – Events, Other Releases (GMT)

16:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $365 mn)
23:05 Fed’s Mester speaks on monetary policy; New York, NY
N/A IMF’s Lagarde speaks at a conference in Frankfurt

Currency Summaries

EUR/USD

EUR/USD 1.2187-1.2223 in European session bereft of news or data
Worries about a U.S. Govt shutdown saw pair to 1.2287 in NA yesterday
Higher U.S. yields subsequently weigh as Asia trades down to 1.2165
U.S. Philly Fed data at 13.30GMT f/c 25.0 in Jan from 27.9 in December
Initial claims also 13.30GMT are f/c lower to 250k from 261k
EUR 2bln option expiries 1.2180-1.2220 may be anchoring spot ahead 15GMT cut

USD/JPY

USD/JPY range has been 111.10-111.48 so far
Higher US yields and risk-on mood sees a higher USD/JPY than Wed
Model funds said to be major buyers, Japanese names took profit on longs
Further gains likely to be limited by 50% Fibo at 111.97
111.97 — 50% retrace of the 113.75 to 110.19 fall
Interim supply at calculated VWAP at 111.29 level and Thur’s 111.48 peak
Large NY cut expiries at 110.80 (1.5B), 110.00 (1.4B) may draw

GBP

Cable traded a 42 pip range through the European am, 1.3805-1.3847
1.3805 = pip under Asia low. 1.3847 = pip above high just after Ldn fix Weds
Hawkish shift in BoE expectations despite cable jump to 1.3942 Weds
25bp BoE hike in Sept close to being priced in (BOEWATCH/Eikon)
1.3942 = highest level for cable since Britain voted to leave EU
Reuters poll-20% chance of disorderly Brexit vs 25% in Dec and 30% in Oct

CHF

CHF a little firmer vs EUR and USD despite equity market rally
Cross hunkering down on the 10-DMA at 1.1750 from an indecisive Wed session
Fairly steady ebb and flow within the underlying updraft: 1.1833 key topside
SNB stance remains favourable for EUR/CHF bulls: 1.20 likely comfort level
Could afford a run to 1.1610 and still call a climb to the former SNB floor
USD/CHF engulfing line Wed but so far lacking any bullish confirmation Thurs
A new 2018 low at 0.9573 Wed and looked oversold but today’s close now key
Swiss Dec producer price data tomorrow, +1.8% previous
EUR/CHF Daily Chart: http://reut.rs/2DgscqX

USD/CAD

USD/CAD traded a quarter-cent range thru European am, 1.2433-1.2458
1.2468 was Asia high, peak since Thursday’s NY afternoon low of 1.2372
Large 1.2460 option expiry for NY cut, USD 780mn strike

AUD/USD

AUD/USD rose to 0.7988 during the European am, from 0.7942 Asia low
0.7942 was plumbed after profit-taking on long positions, from 0.8000
0.8000 was knee-jerk high after strong Aussie jobs data at 0030GMT
0.7941 = 38.2% of 0.7807 (Jan 9 low) to 0.8023 (Wednesday’s 17wk high)

NZD/USD

NZD/USD rose to a high of 0.7304 during the European am
0.7246 was Asia low. 0.7331 was Wednesday’s 16-week high
AUD/NZD is holding below 1.10: 1.0990 was Asia high

FX OPTIONS

EUR/USD consolidates, vol profits booked, but riskies hold firm topside bias

1-week expiry get ECB and EUR related vols opened higher as a result

GBP vols hold firm, 1mth GBP call bias record highs, 1.40 barriers eyed

USD/JPY vol setbacks limited despite 111.00 recovery, await BoJ Tues

AUD/USD vols remain firm with spot pushing new recent highs above 0.8000

USD/CAD vols settle lower after BoC risk premium priced out

COMMENT

EUR/USD rally has likely peaked for now as ECB eyed

Spot and option market pricing this week suggests that EUR/USD’s rally, which accelerated after key 1.2100 barriers were taken out, is likely to pause ahead of the ECB’s policy meeting next week . The market peaked at 1.2323 Wednesday before dropping back sharply to end under the previous day’s 1.2196 low at 1.2185. This key day reversal suggests that a top is in place. Option market pricing reinforces this view, with vol supply coming back to the market again as profits are booked on longs. The benchmark 1-month ATM implied vol sold good amounts at 7.2 and 7.1 today from 7.5 yesterday and a 7.85 high Monday (5.75 before 1.2100 barriers were erased). One-week option vols have stayed firm, however, with expiry rolling over the Jan 25 ECB meeting now . Risk reversals along the curve (implied vol premium for EUR calls over EUR puts) retain a strong topside bias (since 2009) to highlight option market fears of potential further EUR/USD gains over the near- to medium-term. EURUSD daily:

CHART FOCUS

USD/JPY rebound should be stemmed by weekly cloud top

Despite USD/JPY’s strong recovery moves from Wednesday’s 110.19 low, last week’s bearish long black candlestick line still weighs heavily on the market and means the overall trajectory remains to the downside. Our expectation is for another test of the key 110.15 Fibonacci level — 61.8% retrace of the 107.32 to 114.73 (September to November) rise — which has so far managed to prevent a deeper decline this week. A break below 110.15 will expose 110.00 psychological level initially and then 109.07 — 76.4% of the same 107.32 to 114.73 gain. Our view is that traders should aim to get short close to the weekly cloud top, now at 111.74, in anticipation of an eventual drop. Our negative view holds while USD/JPY trades below the weekly cloud top. Only a close at the end of this week above the cloud will signal that the overall risk has shifted back to the upside

FX Market Update 15-1

Market Briefs

• EUR/USD 0.78%, USD/JPY -0.41%, GBP/USD 0.52%, EUR/GBP 0.18%
• DXY -0.67%, DAX -0.42%, FTSE -0.14%, Brent -0.09%, Gold 0.36%
• DXY working through tech suport, eyes 200MMA at 88.295
• Euro holds three-year highs as dollar weakens further
• EZ Eurostat Trade NSA, Eur Nov, 26.3B, 18.9B prev
• Berlin and Paris step up push for euro zone reform deal
• BOJ Kuroda’s optimism on economy, price outlook sends yen to 4-month high
• China c.bank injects 398 bln yuan via MLF, citing tight liquidity
• Oil hovers below $70 highs, clouded by rise in U.S. output
• Gold hits over 4-mth high as dollar index slumps to 3-yr lows

Looking Ahead – Economic Data (GMT)

• No data scheduled as markets are closed for Martin Luther King, Jr. Day

Looking Ahead – Events, Other Releases (GMT)

• 18:15 BoE’s Silvana Tenreyro speaks at Queen Mary University, London

Currency Summaries

EUR/USD

• EUR/USD’s rapid rise is maintained in Europe with pair up to 1.2296
• Europe opened 1.2224 after Asia traded 1.2188-1.2241 range
• NA traded 1.2218 peak Jan 12 (1.2110 low and 1.2125 open)
• Fast pace of move today in part due poor liquidity thanks US MLK holiday
• Option market thought to be short gamma and generating more EUR buying
• Rates move in opposition to EUR/USD rise today wider US/German yield spreads
• 2’s 3bp wider. 10’s 4 wider but i/rates ignored for time being
• EUR longs also grow net long EUR 18bln from 16bln
• Rise mainly due to paring of short bets, reduced by EUR 1.5bln

USD/JPY

• USD/JPY weak, scope for losses to 110.15 — 76.4% Fibo 107.32-114.73
• Stops below Nov 110.85 low triggered, spot falls from 111.18 to 110.52
• Talk more stops below 110.15 and 110.00 with Japan life insurers in wait below

CHF

• Slightly softer tone early Monday but higher levels calling
• EUR crosses generally holding a bid and likely to limit EUR/CHF decline
• Much talk of the cross closing the gap to former SNB 1.20 floor
• Little reason for the bull run to stop unless the ECB attempts to curb EUR gains
• EUR/CHF continues to respect a long-term support line, today at 1.1690
• SNB sight depo increase latest week for both domestic and total
• USD/CHF sharply lower in line with broad USD fall: 0.9565 Sept 15 low supp.

GBP

• Cable extended north to 1.3819 during European am on fresh USD selling
• 1.3819 = highest level since Britain voted to leave EU (on 23 June 2016)
• 1.3770 (Asia high) is now a support point. 1.3728 was Asia low
• Asia high was 3 pips shy of 23.6% of 2.1162 (2007 top) to 1.1491 (2016 low)
• Boris Johnson fears “waste of time” watered-down Brexit – report in The Sun
• Sun said Johnson told friends “I’d rather have us stay in than leave like that”

USD/CAD

• USD/CAD fell to a six-day low of 1.2405 during the European am
• Drop courtesy of fresh across-the-board selling of the greenback
• 1.2438-1.2472 was Asia range. 1.2459 was pre-weekend low
• BoC meeting Wedneday: 76% chance of hike-BOCWATCH/Eikon

AUD/USD

• AUD/USD rose to a fresh 16-week high of 0.7967 during the European am
• 0.7960 was Asia high. 0.7925 was Friday’s high. 0.7900 was Asia low
• IMM speculators flipped to net long AUD position in week to Jan 9
• Specs held biggest net AUD short for 23 months in week to Jan 2

NZD/USD

• NZD/USD extended north to threaten 0.73 during the European am
• 0.7298 = 16-week high. 0.7282 was Asia high. 0.7278 was Friday’s high
• IMM specs maintained net NZD short position in week to Jan 9
• 11th consecutive week for net NZD short (after 20 weeks net NZD long)

FX OPTIONS

• Vols up across the board, EUR/USD curve outpaces others in G10
• Market short topside, vols and EUR calls continue to gain with spot, 1.25 eyed
• GBP vols much higher too with 1.3700 and 1.3800 barriers erased. 1.40 targeted
• USD/JPY 110 barriers vulnerable. 1mth vol 1.5 above recent and 3-year lows
• Noted buyers for 23 Jan BoJ and 25 Jan ECB risk cover

COMMENT

Speculators turn net AUD position on its head, again

AUD/USD bulls may find the pair faces steeper hurdles to jump to get to 0.81 than it has during its one-and-a-half cent rise over the past week, given the latest positioning shifts by speculators. IMM gross AUD shorts were slashed by 18,312 contracts to 46,889 in the week ended January 9, with gross AUD longs simultaneously upped by 7,172 contracts to 52,347. This flipped the net position to long AUD from the biggest AUD short for 23 months. With AUD/USD having finally vaulted the key 0.7900 resistance level on Friday, the next IMM data may show a further decline in gross AUD shorts. The last time the market was net long AUD before January 9 was in the week ended December 12–ahead of the largest positioning shift against the AUD since 2007. AUD/USD has risen to a 16-week high of 0.7966 Monday: stops on residual shorts may be sheltering above 0.8000. AUD IMM:

CHART FOCUS

GBP/USD surge means another major Fibo now in view

Last week’s GBP/USD surge shows the overall bias has shifted decisively to the upside. Our view is that cable is still adjusting to a higher equilibrium which is likely to be near the 1.4000 psychological level. GBP/USD is trading above the 30-week upper bollinger-band, currently at 1.3723, meaning the market is outside usual parameters. There is a strong possibility that cable could actually overshoot an test the 1.4189 Fibonacci level — 76.4% retrace of the 1.5022 to 1.1491 (June to October 2016) collapse. The close at the end of trading on Friday Jan 12 above the 1.3673 Fibo — 61.8% retrace of the same 1.5022 to 1.1491 fall — was a very bullish signal. This is backed up by fourteen-week momentum which continues to issue positive readings. If the market fails to perform another weekly close above the aforementioned 1.3673 Fibonacci level, this might be an early warning that the bull run is coming to an end. Long-Term Fibonacci