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US FX Market Open – Tuesday, February 21, 2017: Broad dollar gains on U.S. yield lift

Posted by Marge Maresca on Feb 21, 2017 11:28:53 AM


Overnight Events

• EUR/USD -0.7%, USD/JPY +0.5%, GBP/USD -0.4%, DXY +0.5%,       
• DAX +0.5%, CAC +0.1%, Brent +1.6%, Gold -0.7%, Copper -0.2%
• Euro's fall on the day vs dollar largest in % terms since Jan 18 - Rtrs
• U.S. 2-year yield climbs to 1.2230 from 1.1820 Mon low
• OPEC Sec Gen: We are still far away frm the equilibrium oil price, stocks are very high
• Philly Fed Harker: Strong case for March rate hike if PCE supports – Market News
• BOE Haldane: Risks to interest rates are two-sied and symmetric - Rtrs
• EU Juncker: Britain faces "very hefty" Brexit bill from Brussels - Rtrs
• EZ Feb Markit Mfg flash PMI 55.5 vs prev 55.2. 55.0 f/c
• EZ Feb Serv flash PMI 55.6 vs prev 53.7. 53.7 f/c
• DE Feb Markit Mfg flash PMI 57.0 vs prev 56.4. 56.0 f/c
• GB Jan PSNB -9.824bln vs prev 4.237bln rvsd. -14.0bln f/c
• GB Jan PSNCR -26.466bln vs prev 36.344bln rvsd
• Swiss Jan Trade 4733mln vs prev 2694mln rvsd
• Sweden Cbank chief Ingves says crown must not strengthen too fast - Rtrs
• Prospect for more BoJ stimulus fading - Rtrs

Currency Summaries

• EUR/USD softer in Asia and then in Europe despite solid EZ data
• French services PMI surges to 56.7 in Feb from 54.1
• German services PMI 54.4 in Feb from 53.4 in Jan
• US/German yields diverge in favour lower EUR/USD:
• Techs bearish. Risk close below daily Ichi cloud:
• Critically specs no longer that short:

• USD/JPY trading within thick daily cloud (109.93-115.35) persists
• Gains corrective unless we get a daily close above 113.61 kijun
• USD/JPY has made an intra-day climb from 113.11 to 113.77
• Dollar has been bid, this corresponds with a widening 10yr UST/JGB spread
• 30/60-day correlation between USD/JPY & 10yr spread is +0.71/+0.67
• EUR/JPY, weighed down by a weak euro, is heavy below 120.00
• Cross has fallen from 120.30 to 119.77 so far

• USD/CHF firmer in Europe, taking its lead frm broadly stronger USD
• Broken above key tech resistance fm upper 21-day bolli at 1.0092
• One way since Ldn got going, plays 1.0051-1.01. 1.0030 = Asia low
• EUR/CHF initially offered, 1.0645-32 but bounce retraces to 1.0643
• Matched 1.0632 Feb 8 low, close to 1.0623 Brexit low

• GBP/USD extended south during the European am to threaten 1.2407 (100DMA)
• Cable fell from 1.2480 to 1.2434 in Asia, with losses influenced by Harker
• Harker talked up risk of a Fed rate hike March 15 via MNI interview
• EUR/GBP fell to 0.8475 during European am with French election risk helping weigh
• French govt bond yields/CDS up amid fears of Le Pen victory. 0.8475 = 6-day low

• USD/CAD extended north to threaten 1.3167 (Feb 9 high) during the European am
• Ascent influenced by Harker talking up risk of a Fed rate hike next month
• 1.3149 was Asia high. 1.3076-1.3119 was Monday’s US Presidents Day range

• AUD/USD elicited support at 0.7650 during the European am
• Offers are touted ahead of 0.77. Asia range was 0.7665-0.7691

• NZD/USD extended south to a 1mth low of 0.7130 during the European am
• 0.7130 approximates to 200DMA & 100DMA.  0.7151 was Asia low
• Losses influenced by Harker talking up risk of a Fed rate hike next month
• AUD/NZD extended north during the European am, to 1.0739 (fresh 4mth high)
• Fonterra milk auction result expected circa 9am ET, futures pricing 3% fall


UK public finances on track to meet that revised OBR target
Despite a new methodology in accounting for corporation tax revenues (now smoothing over the financial year) the UK managed to register a surplus of GBP9.4bn in its public sector net borrowing (PSNB EX). This is the biggest surplus since 2000 with the financial year to date at GBP49.3bn, down some GBP13.6bn on the 2015/16 financial year.

Borrowing tends to rise over the next two months so PSNB is likely to meet the OBR target. This target was a revised target released by the OBR following the Autumn statement in November 2016 of just under GBP70bn. This revised statement revealed a cumulative swing toward higher deficits that saw the UK adding an extra GBP122bn to planned borrowing over the next five years.

The fact that the deficit is on track for the current financial year is welcome news, but it remains uncertain as to how Brexit negotiations will impact things going forward in the new financial year. The chancellor has built in some wiggle room to increase spending should this be required but is likely to focus on small giveaways (social care being at the top of the agenda) when he delivers the budget in March.

We continue to believe that BoE QE will be utilised should gilts start to waver and markets start to worry about UK debt/deficits

Today’s events

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.  

Option Expirations(Source:ThompsonReuters)

• USD firmer across the board. Event risk remains the main vol prop
• 1mth gets FED, BoJ, MPC and Dutch elections to favour related vols
• 3mth gets 2nd round of French election and well sought expiry
• EUR/USD vols creep higher on spot setback. USD/JPY vols remain heavy
• Realised vols suffer in many pairs, limits near dated/pre event vol demand

Economic Data (GMT) - (Source:ThompsonReuters)

• 13:30  Philly Fed Nonmanufacturing Business Outlook Survey (Feb) prev 33.3
• 14:45  Markit Manufacturing PMI (flash Feb) mkt 55.2, prev 55.1
• 14:45  Markit Services PMI (flash Feb) mkt 55.7, prev 55.6

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

• 13:35  FRB Minneapolis’s Kashkari chat on the economy & role of Federal Reserve; Golden Valley, MN
• 16:45  FedTrade operation 30-yr Fannie Mae/Freddie Mac (max $2.425 bn)
• 17:00  FRB Philadelphia's Harker on the economic outlook (with audience and media Q&A)
• 20:30  FRB San Francisco's Williams on "Getting to Know the Fed"; Boise, ID


Topics: US FX Market Open


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