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US FX Market Open – Friday June 9, 2017: UK election shock stuns sterling

Posted by Marge Maresca on Jun 9, 2017 8:45:04 AM



Overnight Events

• EUR/USD -0.29%, USD/JPY +0.34%, GBP/USD -1.49%, EUR/GBP +1.25%
• DXY +0.49%, DAX +0.52%, FTSE +0.66%, Brent +0.46%, Gold -0.35%
• Britain in political chaos after election shock, uncertainty over Brexit talks
• Hung parliament shock: Tories 8 shy of 326 majority
• Commons majority level falls to 322 when you exclude 7 Sinn Fein MPs
• Reports of DUP agreement to back Tory government. DUP won 10 seats
• Arab powers adds Qatar-linked people, groups to blacklists
• China tightens grip on yuan to head off economic risks
• DE Apr trade balance 19.8B vs prev 19.6b revsd 19.9b
• German inflation to miss ECB target for another year, Bundesbank ests show
• UK industrial output limped into Q2, even before new political chaos
• GB Apr Industrial output yy -0.8% vs prev 1.4%
• GB Apr Mfg output yy 0.0% vs prev 2.3% revsd +2.2%
• GB Apr Goods trade balance -10.383b vs prev -13.44b rvsd -12.04b
• China May PPI +5.5 pct y/y (poll +5.7 pct), slows for 3rd month
• French central bank raises growth forecast, sees deficit cap missed
• Oil prices resume slide as supply glut prevails
• BoJ Gov Kuroda – Still far to go to reach 2% inflation target - Rtrs
• Japan May money supply M2 +3.9% y/y, M3 +3.4%, broadest liquidity +2.8%

Currency Summaries

• EUR/USD breaks below 21-DMA for first time Apr 21:
• ECB's Nowotny says expects some tapering after end 2017
• Techs weigh on the day but Nowotny comment cools sellers for the moment
• Recent interest rate moves weighing EUR/USD:
• May 30 low 1.1110 key for the many euro longs:
• 1.1300 still key above. Initial resistance @ 200-HMA & 100-HMA 1.1233/46

• Demand at Tokyo fix saw rise in USD/JPY
• Range has been 109.73-110.72
• 200-DMA @110.47 & 110.46 pivot point weighs in spot, limits further gains
• 2.1B worth of 110.00 strikes to expire at NY cut could attract
• GBP/JPY earlier plunged, which was a function GBP/USD hit

• GBP losses in early European trade helped GBP/CHF to a 3-week low
• GBP sharply lower on political uncertainty after UK hung parliament shock
• GBP/CHF -1.2% at 1.2375 after trading as low as 1.2245 early London trade
• 1.2245 its weakest since May 16. 1.2207 May 14 base next sig low on charts
• Then 2017 low at 1.2094 (Jan 16) GBP/CHF chart
• EUR/CHF lifts 1.0840-1.0870 but still close to this week's 1.0838 base
• USD/CHF better bid as well, 0.9678-0.9723 range . 21-DMA resist at 0.9748
• Attention now shifts towards the Fed policy meeting next week

• Cable fell to 7wk low of 1.2636 in early Ldn trade on UK political uncertainty
• Profit-taking on GBP shorts fuelled cable rise from 1.2636 to 1.2750
• Cable was trading at 1.2983 when accurate exit poll published Thursday

• Mooted offers at 1.3550 are helping to keep a lid on USD/CAD
• 1.3545 = late NY/early Asia high (after UK election exit poll shock)
• 1.3547 was last week's high (June 2). 1.3527 = early Europe high
• USD/CAD has elicited support pre-1.3500 after retreating from 1.3527
• More bids tipped at 1.3480 (1.3486 was Thursday's low)
• Canada May jobs data 1230GMT, employment f/c +11k. Jobless rate f/c 6.6%

• AUD/USD traded narrow 17 pip range of 0.7525-0.7542 during European am
• Focus on GBP after UK hung parliament shock: GBP/AUD down to 1.6775
• 1.6775 = early Ldn 7wk low vs 1.7170 when exit poll published Thursday

• NZD/USD traded narrow 19 pip range of 0.7197-0.7218 during European am
• Focus on GBP after UK hung parliament shock: GBP/NZD down to 1.7550
• 1.7550 = early Ldn 11wk low vs 1.7950 when exit poll published Thursday


UK mayhem will do the pound no favours
Traders should give the pound a wide berth until the political turmoil in the UK is resolved. Arguably the pound has done well with a faction seeing soft Brexit as a positive and buying into the dip that followed the election. But uncertainty has historically been bad news for any currency and GBP should prove no different. Where GBP had been seen a buy dip play ahead of the election, it should be a sell on rally after. GBP traded a 1.2770-1.3048 range before the election and the low end of that range may now become the upper limit of a new lower range which may initially be around 1.2500-1.2800. The 55-DMA at 1.2778 and the top of the daily Ichimoku cloud at 1.2788 should help to define the topside. The base of the same cloud at 1.2550 and 200-DMA 1.2578 will influence a base with the April 18 (the day May called the election) low at 1.2515 key on the downside. Chart GBP/USD:

Chart - (Source:ThompsonReuters)

USD/JPY bears need to breach cloud base
USD/JPY bears need to overcome the weekly 109.38 cloud base in order to maintain the downward trajectory. Once there is significant trading below the weekly cloud base, this will pave the way to 2017's 108.13 low. Recall the market failure above 113.39 - 50% retrace of the 118.66 to 108.13 (December-May) fall - continues to weigh heavily on the spot. Therefore, near-term recovery attempts are likely to be short-lived. A clean and sustained break back above the 111.25 tenkan line will weaken the bearish outlook. A rise above the 112.13 recent high will put further pressure on the upside. Chart:

Today’s events

Option Expirations (Source:ThompsonReuters)

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.  

• GBP fell, but losses under delivered on this hung parliament scenario
• Initial vol gains, but risk longs pared as the Pound settles, puts slower to ease
• EUR/USD long gamma, EUR 50bln expiries 1.11-1.13 over the next week
• EUR vols retest recent/2.5 year lows. JPY related vols test long term lows
• AUD and CAD vols marginally extend recent and 2.5 year lows - lack interest

Economic Data (GMT) - (Source:ThompsonReuters)

• 14:00 Wholsle Invntrs (Apr) (advnc estimate -0.1% m/m, mkt +0.2% m/m, prev -0.3% m/m)
• 14:00 Wholesale Sales (Apr) (prev 0.0% m/m)
• 17:00 Baker-Hughes Weekly Rig Count (prev 733, +11 w/w, +408 y/y)

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

• 15:45 FedTrade operation 15-year Fannie Mae / Freddie Mac (max $625 mn


Topics: US FX Market Open


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