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US FX Market Open – Thursday, February 9, 2017: Tight ranges but EUR/USD better bid

Posted by Marge Maresca on Feb 9, 2017 11:03:48 AM


Overnight Events

• USD/JPY +0.3%, GBP/USD +-0.2%, AUD/USD +0.1%, NZD/USD -0.7%         
• DXY -0.1%, DAX +0.2%, Brent +.0%, Gold +0.1%, Copper -0.5%  
• Euro headed for worst week since mid-December - Rtrs  
• NZD slides after CB kept rates on hold and adopts dovish stance
• NZ cbank says may keep rates steady for years, protectionism key risk - Rtrs
• Australia's central bank paints optimistic growth picture - Rtrs
• Hard to say Australian dollar is too high - RBA chief - Rtrs  
• CH Jan Unemloy rate unadj 3.7% vs prev 3.5%. 3.6% f/c. Adj 3.3% vs prev 3.3%. 3.3% f/c
• DE Dec Trade balance 18.4bln vs prev 21.8bln rvsd. 21.4bln f/c
• World ccy levels will "definitely be discussed" at G20 FinMin meeting in Mar - G20 source  
• BOJ doesn't use monetary policy to manipulate FX -Nakaso - Rtrs
• FDP leader Lindner: Greece should quit euro zone, get debt relief- Rtrs
• Polls show FR far-right Le Pen winning election first round, but losing knockout - Rtrs
• FR Marine Le Pen leads with 24% in round one, Macron 21% and Fillon 20%-Opinionway Poll
• CBT Gov-Will use all tools available in pursuit of price stability Rtrs

Currency Summaries

• Correction in stressed EZ bond markets eases pressure on EUR
• 10 yr bund spreads vs France, Spain 10bp tighter, Italy 13bp from yesterday
• Lower US yields also in focus but US/bund spreads static & wider on the week
• Dominant influence US rates pares the positive effect of moves in EZ markets
• EUR/USD bid within tight 1.0670-1.0710 range
• Many expiries today to help anchor spot. EUR 3 bln 1.0625-1.0725  

• USD/JPY Asia rise when Dep Gov Nakaso quashed BoJ policy shift talk
• Continued to rise in London, but was capped by 112.44 pivot point
• Range has been 111.70-112.42 so far
• Long gamma in to Trump/Abe, meeting attracts directional risk
• Support above 111.50 barriers Feb 10/11, more every 50 ticks
• Large barriers @110.00, short gamma below this level
• EUR/JPY range has been 119.61-120.22. Recovery on EUR/JPY seen as corrective
• Political uncertainty should continue to see flows from euro to yen

• EUR/CHF recovery from Wed's low limited. Plays 1.0637-50 on the day
• Lower daily highs/lows. Holds close to 1.0623 Brexit 24 low
• EZ political concerns and lack of any apparent SNB defense weigh
• USD/CHF unable to sustain key dn TL break
• 1.00+ reject Tues/Wed adds weight. Below TL sees risk to 200-DMA

• GBP/USD threatened 1.2500 early Ldn before GBP/JPY demand kicked in
• Cross buying helped generate upward momentum for ascent thru 1.2550
• Stops tripped above 1.2550 (Wednesday high), en route to 1.2582 (1wk high)
• EUR/GBP fell from 0.8537 to an 8-day low of 0.8500 during the European am
• 0.8500 option expiry for NY cut (closest-to-market), E305mn strike

• USD/CAD dropped to threaten 1.3111 during the European am
• 1.3111 = 50% of 1.3008 (Monday’s low) to 1.3213 (Tuesday’s 1wk high)
• BoC deputy governor Schembri slated to speak in Ontario at 11.20am ET

• AUD/USD rose to threaten 0.7666 during European am on Lowe’s AUD steer
• Lowe said hard to argue AUD was “too high”. 0.7666 was Wednesday high
• 0.7615 = early Europe low, pre-Lowe speech/Q&A session at Sydney dinner
• AUD/NZD extended north to test 1.0610 (Oct 25 high) on Lowe’s AUD steer
• 1.0597 = Asia high after NZD longs jettisoned following RBNZ statement

• NZD/USD revisited 0.7191 (Asia low) early Europe as continent digested RBNZ
• 0.7225 was European am high as AUD/USD rose on Lowe (AUD/NZD up too)

Option Expirations (Source:ThompsonReuters)

• Quiet session, spot tight and vols broadly offered with overall flow limited
• 1mth rolls over ECB to prop related. 3mth jumped yesterday on French election capture
• USD/JPY short dated vols underpinned in to risk from Trump/Abe meeting Friday
• AUD/USD 1mth sub 9.0 for first time in over 2 years. AUD/NZD vols fare better
• Cable gamma finally starting to wane as intraday spot moves calm   


The broader G20 focus beyond a record German trade surplus
There is nothing like a record German trade surplus to maintain concerns over FX/trade between the EU and US. Following the release of December German trade data today we now have a full picture of 2016 and the trade surplus at EUR252.9bn beating the previous record set in 2015 of EUR244.3bn. The focus on Germany’s trade surplus is not new as previously it has been used to argue that it is bad for the wider Eurozone as well as global growth and also used to support the need for more expansive German fiscal policy. What role the German trade surplus and the broader c/a surplus may feature highly at the G20 this year, the presidency of which is in the hands of Germany. The motto adopted by Germany for the G20 is “Shaping an Interconnected World”.

The record trade surplus follows comments from Peter Navarro last week, head of Mr Trump’s new National Trade Council, who accused Germany of using a grossly undervalued euro to exploit the US and EU partners. ECB President Draghi, Chancellor Merkel, Buba President Weidmann and German FinMin Schauble have all provided various defences. However, outcomes are difficult to gauge as we live in an era now shaped by a narrow focus on ‘alternative facts’ where real facts/analysis are easily dismissed as ‘FAKE NEWS’.

The extent to which G20 coordination and cooperation survives, given the protectionist stance of the Trump administration, will be important for gauging how the rest of the world copes with an ‘America First’ strategy. FX markets have stabilised after some profit taking (position trimming) of USD longs since the start of the year, but where we go from here is uncertain and much depends upon implementation of the Trump administration’s policies.

This watching and waiting theme is also evident on equity and bond markets where the Russell200 and US 10yr yield have traded sideways since mid-December essentially.


Topics: US FX Market Open


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