FX Market Update 31-1

Market Briefs 

  • USD/JPY +0.05%, GBP/USD -0.5%, EUR/USD +0.1%
  • DXY +0.03%, DAX +0.1%, Brent -0.03%, Gold +0.3%
  • Trump dooms dollar to worst January since 2008 – Rtrs
  • UK Dec Mortgage approvals 67.898k vs prev 67.461k rvsd. 69k f/c
  • UK Dec Mortgage lending 3.798bln vs prev 3.141bln rvsd. 3.3bln exp
  • UK Dec BOE Consumer credit 1.039bln vs prev 1.929bln rvsd. 1.7bln f/c
  • Uk Dec M4 Money supply growth -0.5% m/m vs prev 0.4%
  • Foreign investors sold net GBP 2.97 bln gilts in Dec
  • DE Dec Retail sales -1.1% y/y vs rvsd +3.5% prev
  • EZ Jan Inflation, flash 1.8% y/y vs prev 1.1%
  • ECB’s Villeroy says concerns about rising inflation are “exaggerated” – Rtrs
  • EZ Q4 GDP flash prelim 0.5% q/q, 1.8% y/y vs prev 0.4%/1.8% rvsd. 0.5%/1.7% f/c
  • EZ Dec Unemployment rate 9.6% vs prev 9.7% rvsd. 9.8% f/c

Looking Ahead – Economic Data (GMT)

  • 13:30  Employment Cost Index (Q4) mkt +0.6% q/q AR, prev +0.6% q/q AR
  • 13:30  — Wages and Salaries (Q4) prev +0.5% q/q AR
  • 13:30  — Benefits (Q4) prev +0.7% q/q A)
  • 13:55  Redbook Same-Store Sales Index (weekly) prev +0.3% y/y
  • 14:00  S&P/ Case-Shiller / CoreLogic House Price Index (Nov) mkt +5.1% y/y, prev +5.1% y/y
  • 14:45  Chicago PMI (Jan) mkt 55.0, prev 54.6
  • 15:00  Consumer Confidence Index (Jan) mkt 113.0, prev 113.7
  • 15:00  Housing Vacancies and Homeownership (Q4)
  • 15:30  Dallas Fed Texas Service Sector Outlook Survey (Jan) prev 19.4
  • 15:30  Dallas Fed Texas Services Revenues Index (Jan) prev 20.6

Events US Events Calendar  

  • Looking Ahead – Events, Other Releases (GMT)
  • 11:45  FedTrade operation 30-year year Fannie Mae / Freddie Mac (max $1.625 bn)
  • 13:00  FOMC begins two-day meeting (see Fed Outlook )

Currency Summaries

EUR/USD

  • EUR/USD sees a little flurry of activity around data releases
  • Sharp rises for Spanish & French inflation due energy
  • EZ reflects same. Headline 1.8% yy in Jan, core unch @ 0.9%
  • ECB’s Villeroy says inflation concerns are exaggerated
  • Month-end EUR/GBP buying buoys EUR/USD for a time
  • Europe 1.0685-10725. 1.0685-1.712 Asia. Month-end buying tipped

USD/JPY

  • USD/JPY risk for a test 112.50 barriers, Jan 112.52 low an also an hourly pivot
  • BOJ left policy unchanged as expected, but lifted growth forecasts
  • Lifting of growth forecasts pushed spot to 113.24. Talk buyers ahead of 113.00
  • Recovery has reached 113.96
  • EUR/JPY range has been 121.31-122.02
  • GBP/JPY long black candlestick line on Monday weighs

USD/CHF

  • USD/CHF loss consolidation theme. 0.9966 the European AM high
  • 0.9938 was an early Asian low, just ahead of yday’s base
  • Risk remains for deeper retreat. Mon 0.9934 lowest low since Nov 14
  • EUR/CHF lifted away from 1.0637 low, recovery limited to 1.0663
  • Bias stays with the bears. June 24 1.0623 Brext low next historical support

GBP/USD

  • GBP/USD tripped stops sub-1.2478 en route to Ldn am low 2 pips shy of 1.2410
  • 1.2410 = 38.2% of 1.1983-1.2674. 1.2478-1.2516 was early Ldn range
  • 1.2478 break influenced by news foreign investors were net sellers of gilts in Dec
  • First monthly net sale of gilts by foreign investors since July
  • Month-end buying flagged as factor in EUR/GBP rise from 0.8559-0.8635 during Ldn am
  • 0.8635 = 1wk high. 0.8578 was Monday’s high, after prior month-end demand talk

USD/CAD

  • USD/CAD met fresh headwind at 1.3124 after firming from 1.3091 (Asia low)
  • 1.3124 was also rally high from Monday’s 1.3076 low
  • Canada Nov GDP data due 8.30am ET, +0.3% f/c vs -0.3% in Oct
  • 1.3100/05 option expiries for NY cut, $587mn strikes
  • Poloz speaks in Edmonton at 5.20pm ET, press conference 6.40pm+ ET

AUD/USD

  • AUD/USD is relatively calm as month-end looms: 0.7543-0.7572 = Tuesday range-to-date
  • Buyers are tipped ahead of 0.7500, with offers touted pre-0.76
  • AUD/NZD revisited 1.0365 (Monday’s low) in Asia. 1.0382 = interim high
  • Quarter-yard 1.0400 option expiry for NY cut

NZD/USD

  • NZD/USD eased to a European am low of 0.7272 after threatening 0.73 in Asia
  • Above-figure resistance 0.7314 (last week’s 2mth high)
  • NZ Q4 jobs data due 4.45pm ET. RBNZ seen on hold next week

FX OPTIONS

  • Event risk keeps a bid under gamma along with mild risk aversion
  • EUR/USD vols ease from Mon’s highs as spot recovers 1.0700
  • Several large EUR flows noted. French election risk up again this week
  • USD/JPY risk reversals better bid JPY calls – 1mth .65 vs .25 last week
  • 112.50 barriers intact, but some have expired, remainder likely covered
  • GBP gamma performs after latest GBP slide.  AUD vols languish with spot

COMMENT
Maybe a 2% print on headline EZ inflation next month

Headline inflation for the Eurozone came in at a higher than expected 1.8% for January. It is likely that February will see a print of 2.0% as energy prices are higher and not falling to the same extent as last year. The energy price component was +8.1% in the Jan 2017 release today compared to energy prices that were -5.4% in Jan 2016. With February 2016 seeing energy prices -8.1% we should see a print close 2% next month. Unprocessed food prices were 3.3% higher compared to 1.4% in Jan 2016. In terms of the impact of the data to ECB policy outlook with the core rate staying stuck at 0.9% you should expect the ECB to maintain that current policy accommodation is still appropriate.

Futuro del peso mexicano 31-1

  • USD/MXN opens NY 20.6845 rises a tad to 20.73, o/n range 20.6610-20.8465
  • Expansive Trump noise drowns out fiscal agenda, USD/equities lower
  • Recent MXN rise lowers Mex inflation f/c, OIS mkt prices 25bp hike Feb 9
  • USD/MXN supt 20.7017 lwr 21-h Bolli, 20.6610/6545 Tues/Mon low area
  • Cloud top 20.5390; Res 20.7812 21HMA, 20.8799 55DMA, 20.9215 50DMA
  • MXN ST volatility dips a tad, remains elevated

 

FX Market Update 30-1

Vice President Pence meets with King Abdullah II of Jordan;
9:00AM: President Trump Holds breakfast and listening session with small business leaders; and at
4:00PM: Meets with staff from the National Economic Council.
With travelers stranded and protests mounting over Donald Trump’s ban
on visitors from seven Muslim countries, the White House pulled back on part of it, saying it wouldn’t
apply to people holding green cards;
– A slew of corporate earnings this week along with signals
about the health of the broader economy will help determine whether U.S. stock markets can sustain
recent gains that pushed them into record territory”; FT: Trump announced the chairman of the joint
chiefs of staff and the director of national intelligence won’t automatically attend meetings of senior
national security officials, but that chief strategist Steve Bannon would;
-Barron’s: Cover story says the
Dow hitting 20,000 was no fluke—today’s stock prices are well supported by solid prospects for corporate
earnings and economic growth, and there’s no reason the DJIA can’t reach 30,000 if President
Trump avoids a trade war; Tech Trader says because of MSFT’s cash horde and earnings power, it’s a
better pick for investors than INTC; Features are positive on ANTM, MGA, SYNT; Indonesia should
remain largely sheltered from turmoil stemming from Trump administration protectionism.

Mexican peso chart update 30-1

The long term ascending channel is still alive for the USD but, as our call last Monday warned, corrections do exist. Remember last one in November was almost a joke (thanks Donald).

 

The expected brake of 21.20 area took the peso to 2/3 correction area of former December/January rally (that is 20.80-20.90).

 

Peso momentum is still strong but watch chart support around here for the USD. It is extremely oversold and Mr Trump is still around. 

Not sure if the USD is a buy here, but in any case risk reward looks tempting.

 

WEEKLY CHART: Displaying image001.png

 

 

Futuro del peso mexicano 30-1

EM FX was mixed last week and that continues into this week, though some markets remain closed today for the Lunar New Year holiday.  MXN, BRL, and ZAR were the best performers last week, while TRY, HUF, and RON were the worst.  MXN continues to gain despite signs that Trump will maintain a bellicose stance towards Mexico, but we think the peso remains vulnerable to further selling.
  Three major central banks meet in the week ahead

  • There are several important reports that will give investors more insight into how the economies have begun the New Year
  • Although the Lunar New Year holiday runs through the week, China will report the manufacturing and the non-manufacturing PMI, and Caixin will report its manufacturing PMI
  • EM FX was mixed last week and that continues into this week, though some markets remain closed today

Euro / USD 27-1

EURUSD

Against the backdrop of the secular bear market in the Euro, we have been approaching this month’s recovery attempt as a corrective selling opportunity.  As recently discussed however, the intermediate-term trend remains clearly up with a failure below our short-term risk parameter defined by 19-Jan’s 1.0589 corrective low required to break this uptrend and reinforce our longer-term bearish count.

From a very short-term perspective however, yesterday’s micro failure below Wed’s 1.0711 corrective low defines Tue’s 1.0775 high as one of developing importance and a very tight but objective risk parameter from which any non-bullish decisions like long-covers and cautious bearish punts can now be based and managed.  This micro failure stems from the mid-1.07-handle that, for longer-term reasons we’ll discuss below, is expected to cap this month’s intermediate-term corrective recovery and re-expose the secular bear trend.  While admittedly early and without more concrete evidence of a turn lower, we believe this development presents a pure risk/reward selling opportunity where the risk to 1.0775 is negligible relative to an expected outcome that could produce losses to new secular lows below 03-Jan’s 1.034 low.

While this month’s recovery is not unimpressive, the weekly log scale chart below shows the market still below and absolute ton of price action from the past two years that is expected to weigh on it as new resistance.  From this longer-term perspective there is no question that this month’s recovery should first be approached as a correction ahead of the secular bear’s resumption to new lows below 1.0340.

In terms of trying to objectively speculate on where this suspected (4th-Wave) correction should peter out then, the daily close-only chart above shows 05-Dec’s 1.0764 corrective high and the neighboring (1.0756) 38.2% retrace of Aug-Dec’s (suspected 3rd-Wave) decline from 1.1354 to 1.0386 as an “area of interest” to cap/resist the recovery attempt.  Thus far and as a result of yesterday’s admitted micro mo failure, Mon’s 1.0765 high stands as the top to this recovery, exactly in the area of our suspected resistance.  If there’s an acute time and place for this corrective recovery to end, we believe it is here and now.

These issues considered, a bearish policy and exposure remain advised for long-term players with a close above 1.0765 required to defer or threaten this call enough to warrant a move to the sidelines.  Indeed, market sentiment is historically bearish enough to warn of a MAJOR base/reversal environment under the right longer-term momentum-failure circumstances.  We believe a major low and reversal in the Euro will take place sometime in 2017, but the market has yet to provide even the short-term proof of such.  Shorter-term traders with tighter risk profile who have been advised to step aside from bearish exposure due to the intermediate-term corrective recovery are advised to re-establish bearish exposure at-the-market (1.0680) with a recovery above 1.0775 required to negate this call and warrant its cover.  Subsequent weakness below 1.0589 will confirm this call and expose further and possibly steep losses thereafter.

USD INDEX

The technical construct and expectations for the USD Index are identical, only inverted, to those detailed above in the Euro with yesterday’s bullish divergence in micro momentum above 100.43 defining yesterday’s 99.79 low as one of developing importance and a more reliable low and risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.

Subsequent strength above 19-Jan’s 101.73 corrective high and short-term risk parameter remains required to break this month’s intermediate-term slide and reinforce our long-term bullish suspicions that the decline from 03-Jan’s 103.82 high is a (4th-Wave) correction within the secular bull to at least one more round of highs above 103.82.  The weekly chart below shows this month’s pullback to a HUGE area of former resistance around the 100.00-area that is advised to first be approached as a key new support candidate expected to hold ahead of a resumption of the secular uptrend.  A break below 08-Dec’s 99.43 larger-degree corrective low and key risk parameter remains minimally required to threaten our bullish count and expose a peak/reversal environment that could be absolutely major in scope, including the END of the secular bull from Mar 20008’s 70.70 low.  We will expound on what we believe will be a major top too the secular bull in the USD Index sometime this year in future blogs.

 

FX Market Update 26-1

Market Briefs 

  • USD/JPY +0.9%, GBP/USD -0.3%, EUR/USD -0.3%
  • GBP/USD hits 6-week high at 1.2674 before GDP beat
  • DXY +0.3%, DAX +0.5%, Brent +0.5%, Gold -0.6%
  • GB CBI Retail Sales balanace -8 in Jan vs +35 in dec. +22 exp. Lowest since Sept
  • GB Q4 GDP prelim +0.6% q/q, +2.2% y/y vs prev 0.6%/2.2%. 0.5%/2.1% exp
  • GB Dec BBA Mortgage Approvals 43.228k vs prev 41.003k rvsd
  • CH Dec Trade 2716mln vs prev 3500mln rvsd
  • China FX regulator issues guidelines on improving checks for FX management
  • U.S J&J to acquire Swiss biotech company Actelion in $30 bln all-cash deal
  • Japanese inflation gives BoJ buyer’s remorse – Rtrs

Looking Ahead – Economic Data (GMT)

  • 13:30  Initial Jobless Claims (Jan 20 week) mkt 247k, prev 234k
  • 13:30  — Continued Claims (Jan 13 week) mkt 2.040 mn, prev 2.046 mn
  • 13:30  Advance Goods Trade Balance (Nov) prev -$65.3 bn
  • 13:30  Advance Wholesale Inventories (Nov) prev +1.0% m/m
  • 13:30  Advance Retail Inventories (Nov) prev +0.5% m/m
  • 13:30  Chicago Fed National Activity Index (Dec) prev -0.27
  • 14:45  Markit Services PMI (Jan) mkt 54.4, prev 53.9
  • 14:45  Markit Composite PMI (Jan) prev 54.1
  • 15:00  New Home Sales (Dec) mkt 588k SAAR, -0.7% m/m; prev 592k SAAR, +5.2% m/m
  • 15:00  Leading Indicators (Dec) mkt +0.5% m/m, prev 0.0% m/m
  • 16:00  KC Fed Manufacturing Index prev 24
  • 16:00  — KC Fed Composite Index prev 11

Looking Ahead – Events, Other Releases (GMT)

  • 14:00  EZ FinMin meeting in Brussels, ECB Coeure to attend
  • 16:45  FedTrade operation 30-year Ginnie Mae (max $1.425 bn)

Currency Summaries

EUR/USD

  • EUR/USD trades slightly softer in lacklustre European session
  • Europe 1.0713-57 after 1.0730-66 in Asia
  • Bonds see a great deal more action as yields rise strongly
  • UST 10 year now 2.54%. 10 yr bund yield hits 0.50% high
  • Support @ 200-HMA 1.0694. Resistance @ 1.0800 & 100-DMA 1.0818

USD/JPY

  • USD/JPY jumped above 114.00, but so far curtailed by 114.40 pivot
  • Range in USD/JPY has been 113.05-114.39 so far
  • 55-DMA comes in at 114.45, 114.45 is also Mon’s high
  • Risk of a correction as 2.1bln worth of 114.00 strikes set to expire at NY cut
  • Nikkei futures & USD/JPY intra-day correlation remains high
  • 48H/72H log correlation between Nikkei futures & USD/JPY is +0.77/+0.80
  • EUR/JPY range has been 121.69-122.59 so far

USD/CHF

  • USD/CHF onsolidates through Europe below 1.00
  • 1.0003 is the 100-HMA and downticking avg weighs on action
  • The cross has been sold lower and 1.07 is in focus once again
  • Some stalling just below the fig. 1.0697 was the low
  • 1.07 is the SNB perceived base. CB likely bids there and below
  • M&A Swiss Actelion news could be impacting flows

GBP/USD

  • GBP/USD rose half-a-cent to 1.2674 before UK Q4 GDP data beat at 4.30am ET
  • 1.2674 = new 6wk high. 1.2593 = cable low after GBP selling of the data fact
  • EUR/GBP fell to 3wk lows circa 0.8475 around the UK GDP data release
  • 0.8475 = 1.18 GBP/EUR. 0.8506 = high since then. 0.8517 was Asia high

USD/CAD

  • USD/CAD rose to 1.3116 during the European am amid greenback demand
  • 1.3054 was 8-day low in Asia. 1.3063 was Wednesday’s low
  • M&A news: AltaGas to buy US-based WGL for CAD 8.4bln

AUD/USD

  • AUD/USD fell to a European am low of 0.7338 on USD demand
  • 0.7585 was Asia high. 0.7515-0.7597 was Wednesday’s range
  • AUD/NZD helped to 1.0405 by profit-taking on short positions
  • Cross threatened 1.0357 in Asia on higher than expected NZ Q4 CPI data
  • 1.0357 was Jan 3 low. 1.0383 = Wednesday low after sub-f/c Oz Q4 CPI

NZD/USD

  • NZD/USD retreated to a European am low of 0.7251 on USD demand
  • 0.7314 was 2.5mth high in Asia on higher than expected NZ Q4 CPI data

FX OPTIONS

  • 1 week expiry rolls over  FOMC and BoE MPC to prop related vols
  • Broader vol base remains heavy as ranges hold in to China NY holiday
  • EUR/USD 1mth vol lowest since 1 Nov and well below realised
  • Cable vols finally meet demand after recent heavy losses
  • AUD curve by 2yr lows. JPY vol losses more limited. 2.1bln 114 expiry

COMMENT

UK Q4 GDP…business as usual…for now

The UK will release Q4 GDP at 09.30GMT and some are still searching for the elusive Brexit impact. It’s hard to see an impact when we remain uncertain as to what sort of a divorce will be delivered and how the UK will transition toward this divorce. It was only last week that PM May delivered another important speech in terms of the ‘plans’ and now we have the prospect of a White Paper. Neither provide us with much in the way of clarity beyond highlighting the risk that red lines on immigration/ECJ could potentially prevent a smooth and orderly Brexit.

The Q4 GDP data today is likely to show a 0.5% print which is not too different to the growth seen in prior quarters during 2016. The real impact of Brexit will come once A50 is triggered and firms put into action their contingency plans that will likely involve lower investment. The BoE’s Agents survey that followed the referendum highlighted that firms will maintain a “business as usual” attitude, although this is an evolving stance and one that will involve considerable lags as “future trading relations became clearer

Futuro del peso mexicano 26-1

  • USD/MXN holds Wed losses opens NY 20.97 off Europe low 20.8645
  • Softer Trump rhetoric on Mexico has flows rotate back to MXN 
  • Trump firm on wall and higher US rate outlook may slow further peso gains
  • USD/MXN sup 55-DMA by Thurs low, then 20.68 Jan 3 low, 20.581 Dec 30 low
  • Res 21.0272 10-HMA, 21.12 Thursday high, 21.2008 daily pivot
  • Recent MXN options 20.5/22.50 range 1-3 mos
  • MPH 475.30= 38.2%
    MPH 470.30= .50%