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US FX Market Open – Friday, January 27,2017: Market position adjusting ahead of U.S data

Posted by Marge Maresca on Jan 27, 2017 7:34:40 AM


Overnight Events

• USD/JPY +0.5%, GBP/USD -0.5%, EUR/USD -0.1%
• DXY +0.3%, DAX -0.3%, Brent -1.0%, Gold -0.4%
• Gold wading through thick cloud to a new 1180.73 reversal low
• Commodity markets taking a hit: Copper the exception
• 10yr Bund- Yield holding near one-year highs
• European stocks fall: UBS pulling bank shares lower
• French Jan Consumer confidence highest since Oct 2007 - Rtrs
• Turkish Pres. declares opposition to CBT's rate corridor - Rtrs
• EU Commission will not comment on press talk of European safe bonds - Rtrs
• EZ Lending picks up, driven by cheap ECB cash - Rtrs
• Swedish Dec Retail Sales +0.6% y/y. -2.9% m/m vs -0.3% exp  
• Swedish household lending +7.2% y/y in Dec
• French presidential candidate Fillon's popularity tumbles - poll - Rtrs
• Japan preparing for all possible US trade contingencies – Rtrs
• Japan to monitor impact on its firms from US-Mexico relationship – Rtrs
• Trump seeks quick progress with Japan’s Abe on replacement trade deal – Rtrs

Currency Summaries

• EUR/USD slightly higher from 1.0659 to 1.0698 in Europe
• Capped by prior support @ 200-HMA 1.0702:
• Rise eyed as modest profit-taking ahead today's US data and w/e
• China NY holiday Jan 27-Feb may curb activity or create illiquid volatility
• Yields off highs US and Bunds. No change in US/Bud spreads
• Month-end focus after today with NFP data in focus after China hols on Feb 3

• USD/JPY focused on multiple important upside levels
• Pushed higher from 114.40 to hit 115.30, light stops above 115.00 tripped
• Japanese corporates said to have sold around 115.00 & more to go @115.50
• BoJ added more liquidity than expected, upward pressure on rates eases
• Intra-day most correlated with 10yr UST/JGB, 48H/72H readings + 0.57/0.60
• Decent correlation with 5yr and 10yr UST/JGBs on daily basis also
• EUR/JPY has risen from 122.24 to 123.13, ahead of the latest stalling
• GBP/JPY managed to register a daily close above cloud top on Thu

• USD/CHF plays 1.0028 to 0.9992 in Europe
• 10-DMA at 1.0026 continues to cap recovery attempts
• EUR/CHF sliughtly lower from 1.0696 - 1.0976
• Offering interest noted ahead of 1.0700 but d/side limited too
• Risk remains to 1.0670 Thurs low while below 30-DMA at 1.0719

• GBP/USD fell from 1.2574 to threaten 1.2510 during the European am
• 1.2510 = 23.6% of 1.1983-1.1674. 1.2574 = rally high from 1.2532 late Asia low
• EUR/GBP rose to test 0.8533 (Thursday’s high) during the European am
• 0.8478 was Asia low (0.8475 = 1.18 GBP/EUR). 0.8471 = Thursday’s 3wk low
• USD/CAD met fresh headwind just shy of 1.3132 after late Asia/early Europe rise
• 1.3132 = 23.6% of 1.3388-1.3054. Thursday’s high was 1.3130
• Quarter-yard 1.3115 option expiry for NY cut (closest-to-market strike)
• Poloz to speak in Edmonton next week, before Feb 1 FOMC statement

• AUD/USD elicited support circa 0.7515 in late Asian/early European trade
• 0.7515 was Wednesday’s low after softer than expected Australian inflation data
• More bids expected around 0.7500: 0.7497 = 100DMA, 0.7492 = 200DMA

• NZD/USD rose from an intra-day low of 0.7232 to 0.7267 during the European am
• 0.7267 = intra-day high. AUD/NZD eased to a low of 1.0370 during the European am


European markets in the context of ‘America first’
President Trumps focus on ‘America first’ has been beneficial for US equity markets that continue to hit record highs. However, the reflation trade has also benefited the DAX which might not be at a record high but has actually outperformed the S&P500 since the US election. While the S&P500 has recorded a return of just under 7.5% since the November election the DAX has gained just over 10% over that same period.

The performance of the DAX would also help to explain why the 10y German bund is currently at its highest level since the US election even if 10y Treasury yields are still some way off its Dec highs. The reflation/Trump trade is not confined to the US and the price action continues to point toward a more general rotation as sentiment remains biased toward shifting funds from overweight bonds into underweight equities.

For the remainder of the quarter the theme of higher equities and weaker bonds is likely to be maintained more generally as portfolio managers put to one side their concerns over Trump and worry instead of missing out on equity gains. The fear of lagging equity benchmarks is likely to continue to help propel equities higher with S&P500 at 2,450 and DAX at 12,650 are now likely before end-Q2. This should in turn weigh on bond markets and 10yr JGB, gilt, and bund yields will follow 10yr Treasury yields higher where the risk is for a move to the 2013 taper tantrum highs just above 3.00%.

Today’s events

An expiring FX option heading into the New York Cut, if close enough to the strike price, can act as a magnet for selling/buying.  If the option is large, it can generate enough trading to move the market.  

Option Expirations (Source:ThompsonReuters)

• China LNY holiday impacts liquidity and limits trade flow
• Mild USD recovery helps lift vols from low levels overnight
• 1 week vols see biggest gains after Capturing FOMC y/day and now NFP
• EUR/USD 1mth to 8.3 from 7.9 (3mth low). USD/JPY 1mth  12.2 from 11.6
• AUD/USD demand ahead of the 9.1/2yr low. CNH vol slide stalls 1mth 5.8 vs 5.4
• Cable spot volatility helps 1mth back to 10.4 from 9.6. 1wk 12.0 vs 9.5 Wed

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30  Revised Building Permits (Dec) as-reported 1.210 mn SAAR
• 13:30  Durable Goods Orders (Dec) mkt +2.6% m/m, prev -4.5% m/m
• 13:30  Durable Goods Ex-Transportation (Dec) mkt +0.5% m/m, prev +0.6% m/m
• 13:30  Durable Goods Ex-Defense (Dec) prev -6.5% m/m
• 13:30  Core Capital Goods Orders (Dec) mkt +0.5% m/m, prev +0.9% m/m
• 13:30  Real GDP (advance Q4) mkt +2.2% q/q AR, prev +3.5% q/q AR
• 13:30  Real Final Sales (advance Q4) mkt +2.3% q/q AR, prev +3.0% q/q AR
• 13:30  Core PCE Deflator (advance Q4) mkt +1.4% q/q AR, prev +1.7% q/q AR
• 15:00  U of Michigan Consumer Sentiment Index (final Jan) mkt 98.1, prev 98.1
• 15:00  U of Mich Current Conditions Index (final Jan) mkt 112.5, prev 112.5
• 15:00  U of Mich Expectations Index (final Jan) mkt 88.9, prev 88.9
• 18:00  Baker-Hughes Rig Count (weekly)prev 551, +29 w/w, +41 y/y

Events, Other Releases (GMT) - (Source:ThompsonReuters)

• 16:45  FedTrade operation 30-year Fannie Mae / Freddie Mac (max $2.125 bn)
• 20:00  New York Fed releases tentative Agency MBS operation schedule

Topics: US FX Market Open


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