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US FX Market Open – Tuesday, February 28, 2017: Steady FX ahead of Trump TV/Congress talk

Posted by Marge Maresca on Feb 28, 2017 7:27:56 AM

Trump2.png

Overnight Events

• EUR/USD +0.1%, USD/JPY -0.4%, GBP/USD -0.02%, DXY -0.1%         
• DAX -0.1%, CAC -0%, Brent -0.2%, Gold -0.03%
• Yen inches higher ahead of Trump speech - Rtrs  
• GB Feb GfK Consumer confidence -6 vs prev -5. -5 f/c
• BOE Hogg: Tolerance for temporary abv tgt infl. will depend on events - Rtrs
• Hogg - Fwd guidance needs to cover things like BoE statements on how to exit
• Sturgeon says UK PM May nudging Scotland towards second referendum - Rtrs  
• One out of four investors expects euro zone to lose a member - survey - Rtrs
• Swiss KOF indicator rises to 107.2 in Feb, highest since late 2013
• Nearly half of Swiss industry may move operations abroad - poll - Rtrs
• Swedish Q4 GDP up 2.3% yr/yr vs 2.4% f/c
• Swedish retail sales rise 1.3% in Jan vs 1.2% prev. 1.2% f/c

EUR/USD
• EUR/USD 1.0576-1.0604 in Europe after 1.0565-1.0601 in Asia
• Calm ahead key Trump speech before Congress & TV appearance
• Month-end forecasts for moderate to strong dollar selling
• CB bids eyed 1.0550. Decent supply reported 1.0600-10
• Daily Ichimoku cloud 1.0607-17 and 21-DMA 10649 weigh
• History of key lows in low 1.05's has blunted bearish speculation
• As with Spain yesterday French inflation data undershoots forecasts

USD/JPY
• USD/JPY trades circa 112.58 cloud base ahead of Trump speech
• Solid selling of USD/JPY in Asia saw losses to 112.44 in Asia, edged to 112.26 in London
• Subsequent recovery attempts stalled below 112.82/84 (Mon/today) highs
• USD/JPY trades in line with risk, 48/72H correlation with Nikkei futures +0.67
• NY Expires: 112.00-05 (710M), 112.50 (518M), 113.00 (600M)
• Fundamentals and techs weigh on GBP/JPY
• Uncertainty surrounding Brexit should continue to weigh on the pound
• Global risk aversion, including an unpredictable Trump, fuels yen demand
• GBP/JPY recent failures above cloud top keeps bias on the downside

Currency Summaries

USD/CHF
• USD/CHF slipped lower in Europe, holds below twisting cloud @ 1.0101/1.0115
• Tenkan at 1.0054 pierced. 1.0102-1.0040 today's range. 1.0025 Fri low
• EUR/CHF Monday rally eroded today, unsuprisingly bounce did not last
• Almost back to Monday's 1.0640 low. Cross plays 1.0683 to 1.0645
• KOF indicator highest since the end of 2013, CHF rise largely overcome

GBP/USD
• GBP/USD traded a 37 pip range during the European am, 1.2413-1.2450
• Parameters well within Monday’s range: Trump address to Congress awaited
• 1.2384 was Monday low on Scots indyref2 risk, before GBP caught bid into Ldn fix
• Scottish FM Sturgeon says PM May nudging Scotland towards indyref2
• EUR/GBP rallied to 0.8535 after eliciting fresh support pre-0.8500 early Europe
• 0.8535 was Monday’s Ldn am high (bettered by 5 pips pre-NY option cut)

USD/CAD
• USD/CAD threatened 1.32 in Asia before retreating to 1.3168
• Offers are mooted at 1.3200-10 (1.3210 was last week’s high)
• Feb highs approximate to 38.2% of 1.3598 (Dec high) to 1.2969 (Jan low)

AUD/USD
• AUD/USD respected its 0.7668-0.7690 Asia range thru the European am
• Offers are touted at 0.7700+, with bids tipped at 0.7650-60
• 0.7650 was last week’s low. 0.7645-60 option expires for NY cut, A$750mn strikes
• Australian Q4 GDP will be revealed 7.30pm ET, growth of 0.7% f/c

NZD/USD
• NZD/USD respected its 0.7177-0.7199 Asia range thru the European am
• Trump address to Congress may end the calm: Trump speaks 9pm ET

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)

• Trump Interview and address today but O/n (next day) vol break evens tight
• Market apathetic, current levels could offer decent risk/reward if Trump excites
• O/n EUR/USD vol is 11.5/51 pips break even. USD/JPY 14.5/86 pips
• Cable is 12.0 or 62 pips. AUD/USD cheapest at 14.0 or 45 pips break even
• Range bound spot/low realised maintain pressure on implied vols
• 3 month vols and certainly EUR puts remain underpinned by French election

Comment

Buy-on-dips mentality will persist despite Trump
You have to go all the way back to early Oct 2016 to find the last time the S&P500 registered a down day greater than 1%. The index managed to register another record closing high yesterday, leaving it some 13.5% higher since the Nov US election. Despite all the concern over Trump, whether its foreign policy or implementation of domestic policy, the fact is that market psychology switched toward focusing on equities as a source of return. It’s a switch that has had many false starts since the start of the financial crisis, but one that has a greater fundamental backing which goes beyond monetary policy stimulus. The price action on the S&P500 since the US election is a strong indication of how investors and portfolio managers were caught offside following one last binge on yield/safety/duration play of bonds in H1 2016. Excess cash and cash-like bond holdings are being put to work. Some are waiting for a big correction to buy, while others are trickling their investments on dips. We have also not seen the positive correlation between equities and bonds yields, which existed in the weeks following the US election, maintained. The US 10y Treasury yield is at the lower end of its range over the last 3-months (ie since beginning of December), while the Russell2000 has been hitting fresh highs – for a chart http://tmsnrt.rs/2k40R1x. As President Trump addresses a joint session of Congress (02.00GMT) later today, and markets look for clues on tax, spending, regulation, trade and foreign policy, the above shift in market psychology will be difficult to reverse. The buy-on-dips mentality suggests that US equity markets are likely to remain biased toward more record highs as long as the risk of protectionism/trade war does not crystallise.

Economic Data (GMT) - (Source:ThompsonReuters)

• 13:30  Real GDP (Q4 second estimate) mkt +2.1% q/q AR, prev +1.9% q/q AR
• 13:30  Real Final Sales (Q4 second estimate) prev +0.9% q/q AR
• 13:30  Core PCE Deflator (Q4 second estimate) prev +1.3% q/q AR
• 13:30  Advance Goods Trade Deficit (Jan) prev -$64.4 bn
• 13:30  Advance Wholesale Inventories (Jan) prev +1.0% m/m
• 13:30  Advance Retail Inventories ex-Autos (Jan) prev +0.4% m/m
• 13:55  Redbook Same-Store Sales Index (weekly) prev +1.1% y/y
• 14:00  S&P / Case-Shiller 20-City Home Price Index (Dec) prev +5.3% y/y
• 14:45  Chicago PMI (Feb) mkt 52.3, prev 50.3
• 15:00  Consumer Confidence (Feb) mkt 110.9, prev 111.8
• 15:00  Richmond Fed Composite Index (Feb) prev 12
• 15:00  Richmond Fed Services Index (Feb) prev 15
• 15:30  Dallas Fed Texas Service Sector Outlook Survey (Feb) prev 21.2
• 15:30  Dallas Fed Services Revenues Index (Feb) prev 16.2

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

• 11:00  Trump interview on 'Fox & Friends' to be broadcast
• 17:45  FRB Kansas City's George on U.S. economy & monetary policy; Midwest City, OK
• 20:30  FRB San Francisco's Williams gives outlook speech; Santa Cruz, CA
• 23:40  FRB St. Louis's Bullard on U.S. economy & monetary policy; Washington, DC
• n/a    FRB Atlanta's Lockhart steps down
• 02:00  US Pres Trump addresses Congress

 

Topics: US FX Market Open

 

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