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US FX Market Open – Thursday, March 23, 2017: USD marginally better bid ahead of Trump vote

Posted by Marge Maresca on Mar 23, 2017 7:31:02 AM

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Overnight Events

• EUR/USD -0.2%, USD/JPY -0.1%, GBP/USD +0.2%, DXY +0.1%
• DAX +0.1%, CAC, -0.2%, FTSE -0.1%, Brent +0.8%, Gold -0.3%, Copper +0.3%
• GBP/USD 4 wk 1.2528 high. EUR/GBP to 3 wk 0.8605 low
• UK Feb Retail sales +1.4% m/m, +3.7% y/y vs prev -0.5%/+1.0%. +0.4%/+2.6% f/c
• BOE Broadbent: quite possible interest rates could go up in UK
• Broadbent: UK exporters in "sweet spot" before Brexit, may not last - Rtrs
• ECB says survey data point to robust Q1 euro zone growth - Rtrs
• ECB raises emergency funding cap for Greek banks to 46.6 bln euros - Rtrs
• DE Apr GfK Consumer sentiment 9.8 vs prev 10.0. 10.0 f/c
• FR Mar Business climate 104 vs prev 107. 107 f/c
• SNB spent CHF 67.1bln in 2016 FX interventions. Down fm 86.1bln in 2015
• Aussie sinks on China worries, iron ore price fall
• European shares slip as investors stay cautious over Trump plans - Rtrs
• Oil up from 4mth lows, inventories curb recovery - Rtrs

Currency Summaries

EUR/USD
• EUR/USD a little lower in Europe 1.0769-1.0805 after 1.0782-05 Asia
• Finds buyers @ hourly Ichimoku cloud base: http://reut.rs/2n9UZq0
• French business confidence & German consumer confidence weaker
• ECB says survey data points to robust eurozone growth in Q1
• UST/bund spreads widen a little weighing EUR/USD: http://reut.rs/2mXiG3V
• Spain/Italy weak spots of zone as French risk ebbs: http://reut.rs/2mWYvmF

USD/JPY
• USD/JPY grapples with the weekly 111.39 cloud top
• Range today has been 110.94-111.58 so far
• Hopes about passage of Trump healthcare bill helps lower risk aversion
• Recovery moves in USD/JPY should be viewed as corrective
• Said to be decent bids around 110.50. Offers span 111.70-112.00 region
• Two large expiries for Fri: 110.00 (1.5B), 112.00 (1.4B)
• 110.00 barriers are likely to be tested

EUR/CHF
• EUR/CHF 1.0722-1.0703 in Europe, SNB interest likley circa 1.0700
• Safe haven flows into CHF. CB working to defend soft 1.07 floor
• USD/CHF recocery extends to 0.9942 fm early Europe 0.9914 low
• SNB spent CHF 67.1bln in 2016 FX interventions. Down fm 86.1bln in 2015
• Says interventions occurred at times of heightened uncertainty
 
GBP/USD
• GBP/USD rose to 1.2528 after UK Feb retail sales data beat at 5.30am ET
• Up 1.4% vs +0.4% f/c. 1.2528 = 4wk high. 1.2461 was pre-data release low
• 1.2492 = pullback low from 1.2528 before Broadbent view on UK rates
• Broadbent says ‘quite possible that interest rates could go up in UK’
• EUR/GBP fell to 3wk low of 0.8605 on the back of the UK retail sales data beat

USD/CAD
• USD/CAD topped out at 1.3355 after rallying off 1.3317 (Asia low)
• Bids are tipped are 1.3300 (1.3298 = 100DMA)

AUD/USD
• AUD/USD slid to an 8-day low of 0.7625 during the European am
• Drop influenced by fresh iron ore losses: Dalian closed down 1.9%
• 0.7652 was Asia low. Offers tipped ahead of 0.77

NZD/USD
• NZD/USD topped out at 0.7054 after rallying off 0.7025 (Asia low)
• AUD/NZD plumbed a 17-day low of 1.0825 during the European am
• Cross scaled an 11mth peak of 1.1020 last week, longs liquidated since then
• 1.0850 option expiry for NY cut, AUD 360mn strike

Comment

BoE – Post-referendum but pre-Brexit
BoE’s Broadbent describes the UK economy as currently being in a phase of post-referendum and pre-Brexit. The referendum related risks have been digested but the BoE continues to worry about the post-Brexit landscape that has yet to take shape. Even after Article 50 is triggered the fog might take some time to lift with the EU holding back on a response until the end-April. That will be one month of the 24-months the UK/EU have in Brexit negotiations effectively wasted.
Broadbent describes the current situation as a sweet spot for exporters having enjoyed the benefits of a weaker GBP as well as still enjoying the benefits of EU membership. This sweet spot is unlikely to last indefinitely according to Broadbent referring to the signal from currency markets (weaker GBP) as reflecting the impact of when Brexit actually takes place – ie higher costs for companies that trade internationally once the UK has left the EU.
The impact of a squeeze in household real incomes since the fall in GBP may, according to Broadbent, be appearing in the form of weaker retail sales. This part is not new and was mentioned by the BoE following the March meeting last week but they also said that overall activity has been resilient as slowing consumption may be offset by “other components of demand”.
While the market persists in looking for the BoE to hike rates over the next 18-months we think it more likely that interest rates are left on hold over at least the next 2-3 years. The BoE will look to stay out of the limelight during the Brexit negotiations as they will not want to be accused of interference.

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: 1.0700 (892M), 1.0735 (446M), 1.0765-70 (730M), 1.0800 (452M)
• 1.0850 (356M), 1.0860 (265M) 1.0900 (675M)
• EUR/GBP: 0.8600 (215M), 0.8660 (380M)
• AUD/USD: 0.7500 (1.4BLN), 0.7525 (1.5BLN). AUD/NZD: 1.0850 (360M)
• USD/JPY: 112.75 (1.3BLN) , 113.00-05 (1.2BLN)

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30  Initial Jobless Claims (Mar 18 week) (mkt 240k, prev 241k)
• 12:30  Continued Claims (Mar 11 week) (mkt 2.035 mn, prev 2.030 mn)
• 14:00  New Home Sales (Feb) (mkt 565k SAAR, prev 555k SAAR)
• 15:00  KC Fed Manufacturing Index (Mar) (mkt 11, prev 11)

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

• N/A    Trump healthcare vote
• 12:45  Fed Chair Yellen keynote address at Fed's Community Development Research Conf; Washington
• 15:45  FedTrade 30-year Ginnie Mae (max $825 mn)
• 16:00  FRB Minneapolis's Kashkari spks at Fed's Community Development Research Conf; Washington
• 23:00  FRB Dallas’ Kaplan participates in discussion on economic outlook & monetary policy; Chicago, IL

 

Topics: US FX Market Open

 

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