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US FX Market Open –Monday August 14, 2017: USD/JPY sharply higher: bull signal noted

Posted by Marge Maresca on Aug 14, 2017 9:33:23 AM


Overnight Events

• EUR/USD -0.19%, USD/JPY 0.48%, GBP/USD -0.28%, EUR/GBP 0.07%
• DXY +0.25%, DAX +1.06%, FTSE +0.56%, Brent -0.58%, Gold -0.61%
• EZ Jun Industrial production mm -0.6% vs f'cast -0.5%, prev 1.3%
• EZ Jun Industrial production yy 2.6% vs f'cast 2.8%, prev 4%
• Britain says Brexit talks should move to next phase, as ministers show unity
• Korea tensions ease slightly as U.S. officials play down war risks
• Gold slips as dollar steadies; N. Korea headlines in focus
• Oil prices slip on Chinese demand concerns, rising U.S. activity

Currency Summaries

• EUR/USD tad lower in Europe 1.1838-1.1793 range after 1.1816 open
• Pair close to session lows ahead NA entry
• Likely the main influence for the small slide is profit-taking
• Traders are longer EUR/USD & winning:
• Moves in bond markets suggest EUR/USD is toppy:
• June EZ IP soft. 2.6% yy vs 2.8% f/c
• EUR 1.3bln 1.1750 expiries. EUR 800mln 1.1800-30

• Europe add small gains to the USD/JPY rally seen in Asia
• Japanese quick to buy into cheaper levels after Friday's holiday
• 108.94-109.45 in Asia then up to 109.80 in Europe
• USD 1.2bln 110.00 expiries today may help cap the rally
• Soft US rates should weigh:
• Many losing USD longs remain:

• EUR/CHF easier in Europe, plays 1.1413-1.1390. Below flat Tenkan at 1.1399
• 1.1415 capped the rise in Asia but cross retains bid tone at start of new week
• Pullback to 1.1261 receded as Korea tensions ease slightly
• 1.1261 is also the 50% Fibo of the Jul 13-Aug 4 1.0984-1.1537 rise
• Fall in sight deposits. SNB absent despite last week's drop
• USD/CHF better bid after Friday's Doji reversal signal
• Spot plays 0.9634-0.9674 in Europe. 0.9618 was the Asia low

• Cable unable to maintain its footing above 1.30 during European am
• 1.2973 = European am low. 1.3000-1.3022 was Asia range
• Bids mooted near 1.2950, additional support 1.2932-39
• 1.2939 was 3wk low Friday (before rise to 1.3032). 1.2932 = 55DMA
• EUR/GBP held above 0.9077 during European am, 38.2% of 0.9009-0.9119
• 0.9077 = pre-weekend low after 0.9119 (10mth high). UK CPI data Tuesday

• USD/CAD rose from 1.2678 to 1.2709 during the European am
• Ascent courtesy of across-the-board demand for USD
• IMM net CAD long position upped by 20k contracts to 62,821 week to Aug 8
• Biggest net CAD long since Jan 2013 (record net CAD short 3mths ago)
• 1.2715 was USD/CAD high week to Aug 8. 1.2753 = 4wk high Friday
• NAFTA renegotiations scheduled for this week

• AUD/USD fell to 0.7869 European am low after Dalian iron ore closed -4.4%
• 0.7919 = 6-day high in Asia. Monday's iron ore drop followed 4.7% fall Friday
• 0.7909 = Friday high. Large 0.7900 option expiry Tuesday, AUD 606mn strike

• NZD/USD fell from 0.7320 to a low of 0.7291 during the European am
• 0.7300 option expiry for NY cut, NZD 209mn strike
• GlobalDairyTrade auction Tuesday, often impacts 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.  

• EUR/USD 1.16 (1.32BLN) 1.1650 (787M), 1.1750 (1.23BLN), 1.1800-30 (797M) 
• USD/JPY 109.00 (415M), 110.00 (1.19BLN) 
• GBP/USD 1.2950 (322M), 1.2930 (497M) 
• USD/CAD (1.26 (420M) NZD/USD 0.7300 (209M)

Chart - (Source:ThompsonReuters)

EUR/GBP bulls hope for full retracement to Oct peak
Overbought technicals, including the slow stochastic, suggest the rally in EUR/GBP could soon take a breather with pullbacks seen offering better buying levels for the cross. The cross has been retracing the October to December 2016 0.9403 to 0.8305 drop and last week's rise stalled just shy of the 76.4% Fibo of that fall at 0.9144. EUR/GBP bulls are hoping for a break of that level and a full retracement to the Oct 7 0.9403 peak. If the signals are correct, EUR/GBP could see a revision back to the 10-DMA, at 0.9036. The average has tracked the market closely the last few weeks providing decent support and the cross has not traded significantly below the line since mid-July. Friday's 0.9119 high is a near term resistance level. Chart 1) 2)


Benign US rates bode well for high yield FX
Higher yielding EM currencies are likely to do well on the back of the lower for longer U.S. rate view. Futures markets price less U.S. tightening today than they did before the Fed hiked in June. With global stocks well supported, this should enhance the allure of EM currencies which may be risky but offer very high returns. The more fundamentally sound currencies will most certainly draw favour. So Mexico's peso, which is also an oil-linked currency and was favoured by a near 20% gain for WTI in the last two months, may well have seen a low versus the greenback around 18.00. If there is value, it's even worth considering fundamentally flawed currencies such as South Africa's rand. USD/ZAR is near the upper-end of recent extremes 12.50-13.50. Tightly controlled, so with little FX risk, but relatively high yield currencies such as China's yuan are also an obvious buy -- more so given CNY's recently gains on a TWI basis.

Topics: US FX Market Open


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