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US FX Market Open – Thursday July 13, 2017: High yielders party after Yellen

Posted by Marge Maresca on Jul 13, 2017 9:35:57 AM


Overnight Events

• EUR/USD -0.11%, USD/JPY -0.17%, GBP/USD +0.26%, EUR/GBP -0.37%
• DXY -0.01%, DAX +0.21%, FTSE +0.12%, Brent -0.52%, Gold +0.24%
• DE Jun CPI final y/y, 1.6% vs f'cast 1.6%, prev 1.6%
• DE Jun HICP final y/y, 1.5% vs f'cast 1.5%, prev 1.5%
• BoE: banks plan to cut back lending to consumers on worries about economy
• Trump says he does not fault son for meeting Russian lawyer
• China June trade beats expectations on robust demand, but headwinds eyed
• China economy to grow 6.6 pct in 2017, topping gov't target despite policy curbs
• IEA says OPEC compliance with oil cuts at lowest in 6 months
• Oil prices dip as IEA sees waning compliance with OPEC cuts
• Gold rises after Yellen hints at only gradual tightening

Currency Summaries

• EUR/USD opens strongly with early buyers leading to a 1.1456 high
• EUR/crosses then sold hard as cash flows towards higher yields
• Falling U.S. rates boosting interest in carry trades:
• EUR, undermined by negative rates, is sucked into the fray
• Supports at 200-HMA 1.1394 & Jul 12 low 1.1392 give way (1.1385 low)
• Jul 11 low 1.1383 holds. US/Bunds spreads underpin

• Decent support comes in @112.73 pivot point. 112.86 session low props too
• Remains direction in the balance as it trades circa 113.15 Fibo
• 113.15 - 23.6% retrace of the 108.81 to 114.49 rise
• There are 1.3bn strikes set to expire at the NY cut between 113.20-30
• While long liquidation is mostly over, USD/JPY remains quite heavy
• 5 & 10yr UST/JGB 30/60-day log correlations hold up. Narrowing spread weighs
• MoF flow data wk-ended Jul 8: Japanese moving back into foreign bonds, stocks
• MoF: Net Y324.9 bln stocks, Y839.5 bln bonds bought, June Y1.137 trln, 1.434 tn
• Foreign investors ambivalent on Japan assets, net Y898.6 bln bills bought
• Stocks see net Y35.0 bln sales, volume heavy, JGBs Y408.5 bln net sales

• EUR/CHF lower in line with euro/crosses. Plays 1.1023-1.0984
• Pullback in the cross offers up better buying opportunities
• Techs are working off an overbought bias
• 1.0974 is 38.2% of the June-July 1.0833-1.1060 rise. Bids likely
• USD/CHF chop continues, mostly bid through Europe. 0.9616-0.9657
• Swiss producer/import prices down 0.1% y/y in June

• More short-covering helped inflate cable to 1.2951 during European am
• 1.2951 = intra-week peak. 1.2879-1.2905 was Asia range
• Prior short-covering boosted cable from 1.2812 Wednesday (2wk low)
• EUR/GBP dropped to test 0.8815 (Tuesday's low) during the European am
• GBP gains influenced by McCafferty urging early QE unwind (Times)
• BoE survey says banks plan to cut back lending to consumers

• USD/CAD has traded a 41 pip range thus far Thursday, 1.2725-1.2766
• Mooted offers around 1.2780 are an appreciation obstacle beyond 1.2766
• 1.2780 = 38.2% of Wednesday's fall from 1.2941 to 1.2681 (13mth low)
• Wednesday drop courtesy of BoC's hawkish hike
• 35% probability of another 25bp BoC hike Sept 6-BOCWATCH/Eikon

• AUD/USD vaulted 0.7700 in early European trade, en route to 0.7730
• 0.7730 = 4mth high. AUD gains influenced by sold China trade data
• Offers expected into 0.7750 (Mar top). 0.7750 expiry Friday, AUD 253mn strike

• More NZD/USD shorts were squeezed during European am rise to 0.7338
• 0.7297 was Asia high. Offers expected near 0.7350 if ascent extends
• NZD/USD scaled treble-day peak just shy of 0.7350 late June/early July
• 0.7202 was 19-day low Tuesday after NZD tanked on soft NZ retail sales data


CPI data will inflate the SEK
Today's Swedish CPI data will squeeze those short SEK even harder. Like many other bets that have been influenced by central bank policy, those short Sweden's kroner have been pressured by the global rise of yields. However, the continuing dovish stance and further easing by the Riksbank has led many to hold their bearish SEK bets and hope that the central bank's policies will lead them to more profits. It has not. EUR/SEK has dropped 2.487% in 11 days with today's  above forecast results for inflation leading to a break of support at 9.6000 with the pair down around 0.4%. Judged by EUR/USD's near 8% rise since April, much of which has occurred with traders long and expecting change, SEK, where traders are short and thinking no change, surely has big potential to gain. The 2017 low at 9.4100 may be revisited in the short-term. A break there may see 2016's 9.1150 low tested.

Chart - (Source:ThompsonReuters)

EUR/SEK bears tighten grip as weekly cloud buckles   
Technicals paint a bearish outlook for EUR/SEK after the weekly cloud finally buckled. Daily charts have been calling for a sizeable downside shift following the breach of the 100 and 200-DMAs on July 5. Difficulty in tackling the weekly cloud base at 9.60 had been holding the daily bears at bay. The cross now has potential to attack the 100-WMA, currently 9.4855. A 76.4% Fibo retrace level off the 9.4100-9.8050 move up seen between Feb and Jun is just ahead of the 100-WMA at 9.5032. Those looking to join the move could fade the weekly cloud base at 9.60 for an eventual test of the 9.41 Feb 2 low. A daily cloud twist out to Aug 14 at 9.7040 could spoil the bear trend but look for the daily cloud base at 9.6590 to reject any corrective action. Chart 1) 2) forex

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: 1.1200-05 (1BLN), 1.1290-1.1300 (800M), 1.1390-1.1400 (8900M), 1.1445 (1.17B)  
• AUD/USD: 0.7540 (476M), 0.7580 (314M), 0.7620 (498M), 0.7660 (358M), 0.7680 (299M)  
• USD/CAD: 1.2950 (1.252B), 1.2975 (200M), 1.3000 (393M) 1.3075 (600M),  
• 1.3150 (351M), 1.3200 (1.36BLN), 1.3220-25 (733M)   
• EUR/GBP: 0.8790 (239M). EUR/JPY: 128.00 (579M), 128.50 (708M), 129.50 (226M)  
• USD/JPY: 113.20-30 (1.2BLN), 113.50-70 (1.1BLN), 113.90 (282M)

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30 US Initial Jobless Claims (Jul 8 wk) (mkt 245k, prev 248k)
• 12:30 US Continued Claims (Jul 1 wk) (mkt 1.950 mln, prev 1.956 mln)
• 12:30 US PPI for Final Demand (Jun) (mkt 1.9%, prev 2.4%)
• 12:30 US PPI for Final Demand ex-Food and Energy (Jun) (mkt +2.0%, prev +2.1%)
• 18:00 US Federal Budget (Jun) (mkt -$35.0 bln, prev +$6.3 bln)

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

• 13:45 FedTrade Operation 30-Year Fannie Mae / Freddie Mac (max $1.625 bn)
• 14:00 Yellen delivers semi-annual monetary policy testimony before Senate Banking Cmte
• 14:00 House Ways and Means Tax Policy Subcommittee holds hearing
• 15:30 (canceled due to weather) Fed's Evans speaks on the economy and monetary policy
• 15:45 FedTrade Operation 15-Year Fannie Mae / Freddie Mac (max $625 mn)
• 16:00 Fed Governor Brainard speaks on monetary policy at NBER event
• 19:00 NY Fed publishes tentative schedule of FedTrade Agency MBS operations


Topics: US FX Market Open


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