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US FX Market Open – Friday, March 24, 2017: EUR/USD gains after PMI data

Posted by Marge Maresca on Mar 24, 2017 7:23:14 AM


Overnight Events

• EUR/USD +0.2%, USD/JPY +0.1%, GBP/USD -0.3%, DXY -0.1%
• DAX -0.1%, CAC, -0.4%, FTSE -0.1%, Brent +0.8%, Gold -0.1%
• Oil better bid ahead of w/e OPEC meet
• DE Mar Markit Comp flash PMI 57.0 vs prev 56.1. 56.0 f/c
• EZ Mar Markit Mfg flash PMI 56.2 vs prev 55.4. 55.3 f/c
• EZ Mar Markit Serv flash PMI 56.5 vs prev 55.5. 55.3 f/c
• EZ Mar Markit Comp flash PMI 56.7 vs prev 56.0. 55.8 f/c
• EZ businesses growing at fastest rate in nearly six years -PMI - Rtrs
• GB Feb BBA Mortgage Approvals 42.613k vs prev 44.142k rvsd. 3-mth low
• CH Q4 current account surplus widens to CHF22 bln
• CB's chief economist stands by pledge to keep policy easy - Il Sole - Rtrs
• Schaeuble criticises foreign min for saying Germany should pay more to EU - Rtrs
• BoE Vlieghe: inflation rise does not mean rate hike - The Times - Rtrs
• Poll: unprecedented uncertainty among FR voters before presidential election - Rtrs
• Swedish industrial activity stronger than exp - Riksbank survey - Rtrs

Currency Summaries

• EUR/USD lifted by much stronger than expected eurozone PMI data
• French services PMI 58.5 from 56.4 Feb. Manufacturing 53.4 from 52.2
• German services PMI 55.6 from 54.4 Feb. Manufacturing 58.3 from 56.8
• Euro zone composite @ 56.7 is highest since April 2011
• EUR/USD 1.0761-1.0811 rally in Europe thanks to data
• Feb 2 1.0829 high and Dec 8 1.0875 key above. 200-HMA 1.0742 below

• USD/JPY range has been 110.86-111.48
• Bears need close below 111.39 weekly cloud top today
• Short-covering in Asia took the market to 111.48 pivot point
• Capped by Japanese exporters with offers around 111.50
• More offers around 112.00. 1.5B vanilla NY cut expiries @110.00 & 112.00
• Stop & expected messy trading below 110.00

• EUR/CHF offered again, sellers are persistent close to 1.07
• Plays 1.0719-1.0705 Europe. SNB still seen propping up the cross
• No close under 1.07. 55-DMA support at 1.0695 (no sustained break)
• USD/CHF drops 50pts in Europe. 0.9957-0.9907, back under 200-DMA
• Eyeing Wednesday's 0.9882 low

• GBP/USD eased to 1.2474 early Europe as continent digested Vlieghe comments
• Cable was trading on 1.25 handle when dovish Vlighe interview in Times published
• Vlieghe is BoE MPC’s most dovish member: voted for July rate cut pre-Aug cut
• EUR/GBP has risen to 0.8654 on the back of French, German & EZ PMI beats
• 0.8614 was Asia low. 0.8605 was Thursday’s 3wk low

• USD/CAD elicited support just shy of 1.3350 after retreating from 1.3377 (Asia high)
• 1.3350 option expiry for NY cut, $411mn strike. 1.3348 was Asia low
• Canada Feb inflation data due 8.30am ET, +2.1% y/y f/c as per Jan

• AUD/USD rallied to 0.7629 after eliciting fresh support pre-0.7605 (55DMA)
• 0.7608 = early Europe low. 0.7610 was Asia low after China iron ore hit 10wk low
• Offers are touted at 0.7640 (Asia high/Wednesday low)
• Stops tipped below 0.7590, 61.8% of 0.7491 (Mar 9 low) to 0.7750 (Tuesday top)

• NZD/USD plumbed a 1wk low of 0.6994 early Europe, pre-Moody’s views
• Moody’s affirmed New Zealand’s AAA issuer rating & maintained stable outlook


PMIs fuel for carry trades, some likely EUR-funded
Today's euro zone PMI data should boost risk appetite further. The immediate reaction to data was to buy euros and speculate about an earlier end to super-easy ECB policy. While the data will chip away at the ECB's dovish outlook, it's not going to bring rapid change. Low rates are here for a long time yet and will limit EUR's upside. It's still a case of the Fed leading the ECB and the rate divergence weighing on EUR/USD may intensify. In an increasingly pro-risk environment, the EUR's appeal as funding currency may actually be enhanced. If the banks that rushed to borrow cash from the ECB Thursday and Japanese investors with new funds for fiscal 2017/18 want to put that cash to work, it's not going to be in negative-yielding currencies. More cash may follow this year's trend to buy higher yield FX. Inevitably some will play it safe and buy more liquid currencies like AUD and NZD.

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.  

• Quiet session – vols steady/gamma propped while awaiting US congress vote
• 1mth vols and EUR puts/JPY calls higher after 1st round French election capture Thur
• Cable bears throwing in the towel – 1mth risk rev losing more d/side bias
• AUD/JPY 1mth biggest gainer this week – 8.0 (2 year low) to 12.0
• USD/JPY downside bias firm while 110.50-110.00 barriers nearby  

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30  Revised Building Permits (Feb) as reported 1.213 mn SAAR
• 12:30  Durable Goods Orders (Feb) mkt +1.2% m/m, prev +2.0% m/m
• 12:30  Durable Goods Orders ex-Transportation (Feb) mkt +0.5% m/m, prev 0.0% m/m
• 12:30  Core Capital Goods Orders (Feb) mkt +0.6% m/m, prev -0.1% m/m
• 13:45  Markit Composite PMI (flash Mar) mkt 54.3, prev 54.1
• 13:45  Markit Services PMI (flash Mar) mkt 54.2, prev 53.8
• 13:45  Markit Manufacturing PMI (flash Mar) mkt 54.8, prev 54.2
• 17:00  Baker-Hughes Rig Count (weekly) prev 631, +14 w/w, +244 y/y

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

• 12:30  FRB Chicago Evans prerecorded remarks Community Development Research Conf; Washington
• 12:30  FRB San Francisco Williams discusses paper on natural rate of interest; Washington
• 13:05  FRB St. Louis Bullard addresses the Economic Club of Memphis; Memphis, TN
• 14:00  FRB New York Dudley chats with business & economics students; NY
• 15:45  FedTrade 30-year Fannie Mae / Freddie Mac (max $1.15 bn)


Topics: US FX Market Open


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