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US FX Market Open – Thursday, March 2, 2017: USD/JPY marches on and eyes Feb high

Posted by Marge Maresca on Mar 2, 2017 7:19:45 AM


Overnight Events

• EUR/USD -0.2%, USD/JPY +0.4%, GBP/USD -0.1%, DXY +0.2%         
• FTSE +0.1%, CAC +0.1%, Brent -0.8%, Gold -0.4%, Copper +0.3%
• USD/JPY hits 2 week high at 114.33, eyes Feb high at 114.95
• DXY higher to fresh 7 week high at 102
• FTSE steadies after hitting new life-time high at 7,394.61
• EZ Feb flash Inflation 2.0% y/y vs prev 1.8%. 2.0% f/c
• EZ Jan Producer prices 0.7% m/m, 3.5% y/y vs prev 0.8% rvsd/1.6%. 0.6%/3.2% f/c
• EZ Jan unemployment rate 9.6% vs prev 9.6%. 9.6% f/c
• GB Feb Markit/CIPS Cons PMI 52.5 vs prev 52.2. 52.2 f/c
• DE Jan Import prices 0.9% m/m, 6.0% y/y vs prev 1.9%/3.5%. 0.4%/5.5% f/c
• CH Q4 GDP 0.1% q/q, 0.6% y/y vs prev 0.1%/1.4% rvsd. 0.5% q/q f/c
• Ch Jan Retail sales -1.4% vs prev -4.1% rvsd
• G20 finance leaders seen keeping FX language intact- ex-MOF Watanabe - Rtrs

Currency Summaries

• EUR/USD 1.0522-1.0546 in Europe after 1.0522-52 Asia
• EUR/JPY buying notable (likely short-covering) in early Europe
• US ISM-NY and initial claims today, unlikely to stir much action
• March Fed hike priced at 74% after Brainard. Next Yellen/Fischer Friday
• EUR 1.5bln options 1.0540-75 likely to anchor in the very short-term
• 1.0500-20 bids, stops 1.0480. Sellers 1.0580-00, stops 1.0640-50

• USD/JPY has risen from 113.69 to 114.33
• Bulls need an hourly close above 114.28 pivot to fuel further gains
• USD/JPY continues to trade in line with risk assets
• Direction of EUR/JPY now linked closely to USD/JPY,  not EUR/USD
• EUR/JPY failed above 120.35 pivot, cloud weighs between 120.17-121.98
• EUR/JPY range has been 119.96-120.49 so far
• EUR/JPY 120.00 strike worth 347M set to roll off at the NY cut

• USD/CHF hovers near recent highs. 1.0118-1.0098 in Europe
• Tech resistance fm 30-DMA upper Bolli limits the bulls
• EUR/CHF unchanged near Feb & Brexit 1.0632/23 lows. Plays 1.0650-40
• Swiss GDP up 0.1% in Q4 but below forecasts
• Disappointing data after recent positive news (PMI, KOF, trade surplus)
• Swiss January retail sales down 1.4 pct yr/yr

• GBP/USD elicited support at 1.2259 after dropping from 1.2297 early Ldn high
• 1.2259 = 61.8% of 1.1983-1.2706. Asia range was 1.2261-1.2300
• EUR/GBP tested 0.8590 (Feb 17 high) in Asia after probing above 0.8587
• 0.8587 was Wednesday’s high after peers voted for Brexit bill amendment

• USD/CAD extended north to a new 6wk peak of 1.3375 during the European am
• 1.3360 was Asia high. 1.3357 was Wednesday’s high after dovish BoC
• Hawkish steer from Brainard has further increased Mar 15 Fed rate hike probability

• AUD/USD has fallen to 0.7612 on great expectations of Mar 15 Fed hike
• 0.7612 = 3wk low (0.7605-12 = Feb 7-9 lows). Asia range was 0.7644-0.7682
• Stops expected sub-0.7600. AUD/USD has not traded below 0.76 since Feb 2

• NZD/USD dropped to test 0.7097 (Jan 17 low) during the European am
• Greenback benefitting from increased probability of Mar 15 Fed hike
• 0.7100 was Wednesday’s low (0.7169 = subsequent high)


ECB – Core inflation key, policy ship steady
It’s been a long time since we saw a 2% print on Eurozone inflation but that is exactly the outcome of the February flash data released today. Crucially the core rate of inflation is more policy relevant and has come in at 0.9% unchanged from January and will be highlighted by the ECB in their commentary.

ECB President Draghi has pre-empted this debate when at the January meeting he laid out a definition of what is needed on inflation to justify the start of tapering highlighted the need to watch inflation over the medium term, that any rise should be durable, self-sustainable, and for the whole of Eurozone. On the basis of this broader definition of the ECB’s mandate it is clear that the ECB will look to maintain a steady course on existing policy.

There will be an attempt to relegate discussions over tapering and change in forward guidance language until after the German election with the October ECB meeting likely to be important for signalling a policy shift.

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.  

• USD stays firm after more hawkish FED speak. Short dated vols bid on events
• 1wk ECB, 2wk now captures  BoJ, UK MPC, Dutch elections and the key FOMC
• 2wk EUR/USD vol 9.25 or 150 pips, USD/JPY 2wk 13.0/230 pips break even
• EUR/USD struggles in low 1.05’s -1mth vol back at 7.9 (7.7 is recent/4mth low)
• USD/JPY 1mth back to 10.6 vs 11.1 high y/day (10.2 post US election low Tues)
• Antipodean and USD/CAD vols off recent lows now as USD gains  

Economic Data (GMT) - (Source:ThompsonReuters)

• 13:30  Initial Jobless Claims (Feb 25 week) mkt 243k, prev 244k
• 13:30  -- Continued Claims (Feb 18 week) mkt 2.065 mn, prev 2.060 mn
• 14:45  ISM-New York Business Conditions Index (Feb) prev 57.7
• n/a    Monthly Chain Store Sales (Feb) mkt +3.7% y/y, prev +0.2% y/y

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

• 14:45  FedTrade operation 30-year Fannie Mae/Freddie Mac (max $1.25 bn)
• 00:00  FRB Cleveland's Mester participates in Power Talk event at Barnard College; NY


Topics: US FX Market Open


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