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.

 

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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%

FX market Update 25-1

Market Briefs 

  • USD/JPY -0.2%, GBP/USD +0.4%, EUR/USD +0.2%
  • DXY -0.3%, DAX +1.0%, Brent -0.7%, Gold -0.5%
  • Germany BDI: sees $ surging by 5-10% against manjor world currencies this year – Rtrs
  • Buba Dombtret: Given current infl data, prob have to live with low int rate until further notice – Rtrs
  • BoE Salmon: Expects further flash crashes in core global markets – Rtrs
  • ECB Lautenschlaeger: Should soon start discussing exit from stimulus – Rtrs
  • DE Jan IFO Business Climate Index 109.8 vs prev 111.0. 111.3 exp
  • DE Jan IFO Current Conditions Index 116.9 vs prev 116.7 rvsd. 116.9 exp
  • CH Dec UBS Consumption Indicator 1.50 vs prev 1.45 rvsd
  • CH Jan ZEW Investor Sentiment 18.5 vs prev 12.9
  • GB Jan CBI Manuf Orders +15 vs prev 0. +2 exp. Highest since Apr 2015

Looking Ahead – Economic Data (GMT)

  • 12:00  MBA Weekly Mortgage Application Indices
  • 14:00  FHFA Home Price Index (Nov) prev +6.2% y/y
  • 15:30  EIA Weekly Petroleum Status Report

Looking Ahead – Events, Other Releases (GMT)

  • 19:30  FedTrade operation 30-yr Fannie Mae/Freddie Mac (max $1.725 bn)


Currency Summaries

EUR/USD

  • EUR/USD slightly higher in Europe alongside higher bund yields
  • Europe range 1.0711-55 vs Asia’s 1.0711-38. both under NA peak 1.0775
  • 10 year bund yield matched Dec 2016 high of 0.45%
  • German IFO ignored.  Fell to 109.8 in Jan from 111.0 and vs 111.3 f/c
  • Few expiries today EUR 750mln 1.0700-50
  • Daily cloud & 100-DMA key above:

USD/JPY

  • Standing 114.00 offers should offers supply. Daily tenkan comes in @114.07
  • Thickening cloud spans 109.93-114.97, hurting nr-term bulls
  • 1.8 yards worth of 114.00 strikes set to expire at the NY cut on Thu
  • Tokyo saw a push very early to 113.99 on Gotobi fix demand
  • Market subsequently fell to 113.37 on continuing concerns over Trump

USD/CHF

  • USD/CHF pivots 1.00, cannot sustain gains above. 1.0026 high
  • EUR/CHF bid, the cross has pulled away fm the 1.07 SNB perceived base
  • CB likely bids there and below. Buying also seen in 1.0725/35 region
  • Sucession of higher daily lows on the charts. 1.0750 Tues, 1.0745 today
  • Tech resistance at 1.0754 (30-DMA Bolli top)

GBP/USD

  • GBP/USD scaled a 6wk peak 2 pips shy of 1.26 after tripping stops above 1.2550
  • Offers pre-1.2550 kept lid on cable Tuesday (1.2541 = Asia high). 1.2491  early Ldn low
  • EUR/GBP fell to 0.8530 during the European am as more GBP shorts were jettisoned
  • 0.8530 = 20-day low. 0.8579 was early Europe high. 0.8650 was Tuesday high

USD/CAD

  • USD/CAD elicited support at 1.3118 after sliding from 1.3160 (European am high)
  • 1.3118 = 200DMA. 1.3106 = Tuesday low/76.4% of 1.3019-1.3388
  • Large 1.3185 option expiry for NY cut, $1.4bln strike

AUD/USD

  • AUD/USD extended south to 0.7515 early Europe as sub-f/c Oz CPI digested
  • 0.7515 = six-day low. 0.7597 was Asia high, pre-Australian CPI data
  • 0.7552 = rally high from 0.7515. 0.7550 option expiry for NY cut, A$337mn strike
  • AUD/NZD extended south to a 3wk low of 1.0383 during the European am
  • 1.0471 was Asia high, before Australian CPI data. 1.0408 = Asia low

NZD/USD

  • NZD/USD revisited 0.7261 (Asia high) after rising from 0.7225 (European am low)
  • 0.7276 = 11wk high Tuesday. NZ Q4 CPI data due 4.45pm ET, f/c +1.2% y/y

FX OPTIONS

  • Implied and realised vols heavy/lower as spot markets consolidate
  • Impending China NY holidays don’t help, Minimal data risk until BoJ/FOMC
  • EUR/USD 1mth vol lowest since Nov at 8.1 and 0.9 below daily realised vol
  • Cable vols hit hard since UK PM Brexit speech and Article 50 – suggest value now
  • Even USD/JPY vols falling as recent intraday spot volatility slows

Futuro del peso mexicano 25-1

  • USD/MXN opens NorAm 21.51, dips to 21.4450; o/n range 21.5925-21.4250
  • MXN traders shrug off Trump wall rhetoric & lwr oil, follow broad USD selloff
  • Mex retail sales- 9AM, May see boost as rising inflation may front-load sales
  • USD/MXN res 21.5105 21-HMA, 21.5925 Wed high, 21.6320 10-DMA
  • Supt 21.4383/4255 dly pvt/ 55-HMA, 21.4068 21-DMA, 21.2345 daily Kijun
  • MPH 460.00= 100 HMA

Market News 24-1

(JPM on market focus) The market is watching three unfolding processes – 1) Trump/Ryan’s progress on the “Big 3” of tax reform, deregulation, and infrastructure spending (nothing incremental occurred on this front in the last 12-18 hours), 2) whether nominal economic growth can continue improving (the flash PMIs from Europe and Japan were mostly healthy this morning), and 3) the CQ4 earnings season (so far no major controversies in either direction).
(Reuters) Britian’s Supreme Court has ruled that triggering Article 50 will require a parliamentary vote. However importantly, no additional requirements on the content of the bill were stipulated, which indicates that the trigger of Article 50 will likely proceed as planned by end of Q1. Bottom line–May’s Brexit plans unlikely to be slowed by Article 50 defeat.
(Reuters) “Some prominent US fund managers” don’t think the ACA will be changed all that much despite pledges to do so by Trump and Congressional Republicans. “As a result, these fund managers say they are buying shares of hospitals, health insurance companies and biotech firms they see as unfairly hit by political uncertainty.
(Reuters) Fed’s Lacker says he worries about falling behind the curve and wants to tighten at a faster pace to avoid an inflation.
(Bloomberg) — It’s time to talk about the balance sheet. Eight years after the Federal Reserve launched the first of three controversial bond-buying campaigns to help save the U.S. economy, its holdings are stuck at $4.5 trillion, and the question of when to let them shrink is beginning to simmer. Several policy makers have pushed publicly to get the debate started. How the discussion plays out could have big implications for the pace of future interest-rate hikes and for the dollar. “They should start framing this for the market,” said Michael Gapen, chief U.S. economist at Barclays Plc. Investors need to hear what the “balance of policy” will be between the balance sheet and the central bank’s main tool, the federal funds rate, he said.
(Bloomberg) — Commodities will be supported in the months ahead by a global rebound spanning the U.S., Europe and China that’s buttressing worldwide demand for raw materials, according to Goldman Sachs Group Inc. “We’re seeing a cyclical uptick in global economic activity and that’s driving demand, not only for oil but all commodities,” Jeffrey Currie, head of commodities research, said in Hong Kong on Tuesday. “That’s the core reason why we upgraded our outlook on commodities to overweight.” :The impact of China’s stimulus will probably last well into the first half of 2017 while policies from new U.S. President Donald Trump may reinforce inflationary pressures, aiding raw materials.” “U.S. and China are focal points where we’re seeing the uptick, but even the outlook for Europe is much more positive than what people would have thought six months to a year ago,” he said. “It’s not what’s happening on the supply side but rather what’s happening on the demand side.”.

FX Market Update 24-1

Market Briefs  

  • UK Gov loses Brexit Article 50 case as supreme court dismisses its appeal – Rtrs
  • UK Supreme Court: PM May must get parliament approval to trigger Brexit – Rtrs
  • Spksman for May: Supreme court ruling does not change plan to trigger Article 50 by end of Mar
  • USD/JPY +0.6%, GBP/USD -0.6%, EUR/USD -0.3%
  • DXY +0.2%, DAX -0.3%, Brent +0.6%, Gold -0.4%
  • DE Jan Flash Mfg PMI 56.5 vs 55.6 prev, 55.4 exp
  • DE Jan Flash Service PMI 53.9 vs 54.3 prev, 54.5 exp
  • EZ Jan Mfg Flash Mfg PMI 55.1 vs 54.9 prev, 54.8 exp
  • EZ Jan Flash Service PMI 53.6 vs 53.7 prev, 53.9 exp
  • UK Dec PSNB GBP 6.421bln vs 10.830 bln rvsd prev,  7.0 bln exp
  • UK Dec PSNCR GBP 36.294bln vs 20.013 bln rvsd
  • Australia & NZ pledge to salvage TPP after US exit – Rtrs
  • JP FinMin Aso: Seeking understanding with US on trade – Rtrs
  • China outbound property investment to drop as capital curbs bite – Rtrs
  • UK PM Theresa May plans China visit to bolster trade – FT

Looking Ahead – Economic Data (GMT)

  • 13:55  Redbook Same-Store Sales Index (weekly) prev +0.3% y/y
  • 14:45  Markit Manuf PMI (flash Jan) mkt 54.5, prev 54.2 flash, 54.3 final
  • 15:00  Existing Home Sales (Dec) mkt 5.52 mn SAAR, prev 5.61 mn SAAR
  • 15:00  Richmond Fed Manufacturing Index (Jan) prev 8
  • 15:00  Richmond Fed Services Index (Jan) prev 4

Looking Ahead – Events, Other Releases (GMT)

  • 14:45  FedTrade operation 30-yr Ginnie Mae (max $1.425 bn)
  • 16:45  FedTrade operation 15-yr Fannie Mae/Freddie Mac (max $775 mn)

Currency Summaries

EUR/USD

  • EUR/USD 1.0734-1.0774 range, entirely over prior resistance 1.0710-20
  • Last 4 days have seen rising daily range:
  • UST/Bunds tighten in support of correction:
  • Move still a correction with rates favouring l-term downtrend
  • 38.2% 2016-2017 fall @ 1.0827 may be seen before lower
  • Next major focus is US GDP, PCE and Michigan sentiment data Jan 27

USD/JPY

  • USD/JPY fell to 112.52 in Asia on concerns over Trump protectionism
  • Buying partly by option players ahead of 112.50 barriers. Stops build below
  • Looser ties to Japan and more widely Asia also hurt USD/JPY
  • Rebound has reached 113.46, techs might limited further gains
  • Japan investors, importers and semi-official pension funds have been buying

USD/CHF

  • USD/CHF extends back above 1.00. 1.0015 high thus far
  • Spot hit fresh 2 month low at 0.9960 in Asia (0.9962 Mon low)
  • Asia base was hit after USD hurt by Mnuchin comments
  • Techs favor return to 0.9947 (cloud base/50% fibo of Nov/Jan rise)
  • Downticking tenkan-sen and 10-DMA weigh at 1.0054/1.0060
  • EUR/CHF continues sideways theme but firmer on day. 1.0745 top
  • 1.0700 SNB perceived base. CB likely bidder by and below fig

GBP/USD

  • GBP/USD fell nearly a cent to 1.2437 on selling of the A50 case ruling fact
  • The UK govt lost its appeal to Supreme Court, which was as expected
  • MPs and peers must vote before UK govt files for Brexit divorce
  • 1.2534 was knee-jerk high on govt defeat news. 1.2546 = 6wk high in Asia
  • EUR/GBP rose to 0.8633 from a knee-jerk low of 0.8562 after A50 case ruling
  • 0.8582-0.8616 was early Europe range, before Supremes 8-3 ruling

USD/CAD

  • USD/CAD rallied to a European am high of 1.3293, from 1.3213 (Asia low)
  • Ascent fuelled by across-the-board demand for USD

AUD/USD

  • AUD/USD retreated to threaten 0.7550 during the European am
  • Slide fuelled by across-the-board demand for USD. 0.7609 = Asia 2mth high

NZD/USD

  • NZD/USDhas retreated to 0.7210 after scaling a 2mth peak of 0.7265 in Asia
  • NZ Q4 inflation data due this week, f/c _0.3% q/q, +1.2% y/y

FX OPTIONS

  • Vols mostly heavy/offered, light event risk until BoJ/FOMC
  • Short dated Cable vols lose ground as Article 50 premium priced out
  • AUD/USD vols approaching late 2016 and 2yr lows
  • EUR/USD vols 2017 lows and suggested value vs realised vols
  • USD/JPY vols met demand after 112.50 barrier tested, lower since
  • EUR/CHF 1mth vol nearing its post floor removal lows at 3.8

COMMENT

Brexit – Process now a political matter, no longer legal

The vote of 8-3 was slightly higher than the 7-4 that had been rumoured recently, but the verdict that the UK parliament needs a vote before Brexit trigger should not be a big surprise. The impact of the was decision further diluted by PM May’s comment last week that a final Brexit deal will be put to a vote in front of both houses of Parliament. But what is also important is that devolved assemblies (Scotland, Northern Ireland and Wales) do not need to be consulted and do not need to vote before Article 50 is triggered. There is also no opinion regarding the 1972 Act. The process is, in the words of the Attorney General for the government speaking after the decision, now “a political matter and not a legal matter”. Following the ruling GBP has come off from around 1.2530 but only slightly and currently trades around 1.2485 recovering from a low of 1.2435. The price action suggests the market is once again searching for direction and a market cognisant that short GBP and long USD positions are still at risk of being unwound. We remain bearish on GBP but are cognisant that the unit has already priced in a lot of negatives leaving spec shorts