CBA FX Strategy - New York Open
EUR/USD has held around 1.3450 through the European morning. CPI inflation was unchanged from the flash estimate at 0.7% YoY and was ignored by markets. A breakdown of the numbers reveals that price inflation of non-energy goods slipped to just 0.3% YoY, that of services was 1.2% YoY. Goods price deflation is a possible concern, but at the headline CPI level there should not be any outright deflation. Elsewhere in the currency markets there has been little of note to report. GBP/USD has traded in a 1.6050-90 range, USD/JPY has traded up to 100.40 so far this morning.
The USD index tracked sideways in today’s Asian session but has inched a little higher through the European morning. This follows the modest amount of volatility in and around Yellen’s Senate confirmation hearing yesterday. AUD/USD has edged slightly higher today, in line with the rise in Asian equity markets. Yellen’s comments largely stuck to the existing FOMC script and emphasised the need to support the US economic recovery and “not to remove support, especially when the recovery is fragile”. Yellen’s comments suggest a December start to Fed tapering of asset purchases is very unlikely. We are sticking with our March 2014 call for the start of tapering. It should be a quiet end to week with US November Empire index and October industrial production the only data releases on the horizon (8.30am EST/1:30pm GMT and 9.15am EST/2:15pm GMT).
GBP/USD has remained firm today; holding above its 30-day moving average (1.6058). Market participants remain focused on the broader improving trend in the UK economy and growing view the Bank of England could begin to normalise monetary policy earlier than previously expected. Today, the BoE’s Weale speaks (9.30am EST/2:30pm GMT). On balance, if discussed, Weale is likely to reiterate the BoE’s increased confidence in the positive momentum in the UK economy, but could note that rate hikes remain some way off. Positive comments from Weale about the state of the UK economy would be GBP supportive. In addition to our lower EUR/GBP view (see below), we think GBP/AUD is also likely to edge higher over coming quarters and would look to employ a “buy on dips” strategy down towards 1.6915 (see attachment). The UK labour market and investment cycles are in the process of converging with Australia’s. This should help guide GBP/AUD higher over the medium-term. Over the coming week, there are 2 key AUD-centric events. The minutes of the November RBA meeting are released on Tuesday, while RBA Governor Stevens is set to give a speech entitled “the Australian Dollar: Thirty Years of Floating” on Thursday. In line with the recent trend, jawboning by the RBA in an attempt to talk down the AUD appears likely in both forums.
USD/JPY has remained above 100.00 in today’s trade. USD/JPY looks set to have its highest weekly close since mid-July. We are sticking with our earlier published strategy that USD/JPY will grind higher and touch 104 before the end of the year. A structural decline in Japan’s current account surplus, and firming medium-term trend in the USD are the key drivers behind this view.
Upcoming Economic Calendar Highlights Important for Exchange Rates
USD – Industrial Production (today); FOMC minutes and retail trade (Wednesday). Fed Chair Bernanke speaks (Tuesday)
AUD – RBA minutes (Tuesday), RBA Stevens speech (Thursday), CAPEX (28 November).
EUR –Eurozone PMIs (Thursday), German IFO survey (Friday).
GBP – BoE minutes (Wednesday).
JPY – BoJ meeting (Thursday)
Support 1.3420, 1.3380
Very quiet (again) post Yellens Q&A. Final reading of Oct EZ CPI was unchanged. Two ECB members speak today. (Liikanen 11am GMT and Mersch 12:15pm GMT). I expect continued dovish rhetoric and maintain a bearish strategy whilst below 1.3510. A break below 1.3420 and I look for 1.3325-50. Good Luck and Great Weekend
A very quiet day in the AUD, with us been in a tight 0.9310 / 30 range. We have seen two way interest but the options at 0.9300 and 0.9350. are running the show with gamma holding the pair in very tight ranges, I expect this to continue into the weekend.
Option strikes have been the main focus of the London session however as yet they have failed to really exert their influence with Usd/Jpy gradually grinding skywards and away from the 100 strikes. 100.60 is the September high and major resistance which is coming into focus sharply. A break of this level would open up an initial move to 101.50 and potentially onto the years highs of 105.
Has been very range bound in London and with no data out its hard for the cross to garner any momentum. We saw the headline pair sold down from 1.6090 to 1.6050 on the back of Eur/Gbp buying from exporters seen away in the market. But as New York walk in we have recovered to mid-range and are once again happily sitting at 1.6075. Stops are noted through 1.6120 to the topside.
NZD bid all morning, ignoring what should have been the pull of the .8250 Strike which is said to expire today (800 mio NZD)… the cross subsequently remains heavy as it has all week, but also up against bids inside 1.1220/40 which will absorb any initial lhs flows… Expect NZD to be a sell around .8310/20 first off, with bids most definitely lined up on any approach to .8250 ahead of 10am NY.
ZAR, USDZAR traded within a whisper of the 38.2% support level at 10.1760 , this
from the move up from October 23rd into November. Leveraged names crushed the pair at 5pm yesterday evening taking USDZAR from 10.2950 to 10.1775 over the course of 30 minutes. Our initial support at 10.2561 stood no chance. There are clearly bids around at the 10.1750 level and this will provide important support into next week. A break should quickly see a test of 10.1000.
TRY, USD/TRY carried along somewhat by the ZAR move late in the day, but failed to make new lows beyond those seen on Monday. 2.0225 is the place to buy USDTRY.
MXN, USDMXN sitting right on support at 12.9725. We’ve punctured it a couple of times in the last 24 hours but the bids keep coming back. Buy USD/MXN on dips toward 12.9175, I’d expect to see a return to 13.0400 early next week.
RUB, USDRUB not taking too much comfort from Yellen’s testimony, despite the domestic bond market having a decent move. There is possibly some catch-up due in USD/RUB , support is at 32.6390 , a break of which see a test of 32.4475. Sell USDRUB on rallies to 32.7100, stops above 7525.
Aud & Nzd:
AUD and NZD a little higher this morning having found some support from Macro Accounts overnight taking back some of their recent shorts … this morning in AUD we still continue to expect solid buying from Exporters on any move into the 0.9280/0.9320 region with some stops also building up below the 0.93c mark now …. As been the case all week look for Option related accounts to supply plenty of AUD above 0.9360 …. Large strikes roll off this morning at 0.9350 and 0.9400. NZD also not too far from large option strikes at 0.8250 this morning, we expect strong selling to continue on the day into 0.8300/20 ensuring any stops above 0.8340 remain out of harm’s way while Option account bids will support into 0.8230/40 should we dip that far on the day ….. AUDNZD has traded heavy all week but we expect the 1.1220/50 region to hold for now as it has all year on the numerous attempts it has tried to break thru this level since July. RBA November minutes the pick of Australian domestic data next week.