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US FX Market Open – Tuesday June 20, 2017: Central bank divergence sends cable lower

Posted by Marge Maresca on Jun 20, 2017 9:16:47 AM


Overnight Events

• EUR/USD +0.12%, USD/JPY flat, GBP/USD -0.47%, EUR/GBP +0.63%
• DXY -0.02%, DAX +0.22%, FTSE +0.08%, Brent -1.6%, Gold +0.31%
• Bank of England's Carney says now not the time to raise rates
• Fed's Fischer says more to be done to prevent future crises
• Euro zone current account surplus dips in April
• EZ Apr Current account SA 22.0b vs prev 34.1b
• Consumption, euro zone recovery lift German growth -Ifo
• DE May Producer prices mm -0.2% vs prev 0.4%
• DE May Producer prices yy 2.8% vs prev 3.4%
• Britain's CBI bumps up economic growth forecast for 2017
• Oil prices near seven-month lows on global oversupply
• Gold hovers near 5-week low; political tensions support
• JP Rtrs June Tankan mfg index +26, non-mfg +33, May +24/+30, Sep +29/+28 eyed
• JP automakers reach for 40% of American market share – Nikkei
• BPCE marketing 5/7/10/15-year social samurais via Daiwa, MUFG et al – IFR

Currency Summaries

• Very slow day for EUR/USD traders Asia 1.1141-65. Europe 1.1143-65
• IFO sees domestic consumption and exports boosting growth in Germany
• EUR 2.2bln expiries 1.1135-65, ample size to anchor spot
• No US data today to influence. ECB's Coeure speaks @ 15GMT
• Break May 30 low @ 1.1110 or 21-DMA @ 1.1207 needed to excite

• USD/JPY has slack to rise, but daily cloud weighs
• Market has risen Tues modestly from 111.52 to 111.79
• Said to be good offers between 111.85 & 112.00
• Daily cloud, which spans 111.82-112.25, may also limit further gains
• 30/60-day correlation with UST/JGB significant across curve

• EUR/CHF sharply lower from European open 1.0880-58. Lift since to 1.0874
• Cross spiked into rising daily cloud which has supported for the last week
• Breakout could target 1.0838 early June lows & 1.0824 cloud base
• Swiss govt cut its 2017 growth outlook to 1.4% fm prev 1.6% f/c
• Exps inflation to remain subdued and notes risk remains for stronger CHF
• Jordan again talks loose monetary policy/FX intervention
• USD/CHF Asia retreat extends in Europe. 0.9757-0.9736 as falling 30-DMA caps

• Cable fell three-quarters-of-a-cent to 1.2669 on dovish Carney steer
• BoE Governor said now not the time to raise UK rates (at 0730GMT)
• 1.2669 = 1wk low. 1.2758 was early Ldn high (before Carney spoke)
• Recovery rally from 1.2669 topped out two pips shy of 1.2700
• 1.2700 option expiry for NY cut, GBP 335mn strike. 1.2724 = Asia low
• EUR/GBP up half-a-penny to 0.8804 on dovish Carney. 0.8807 = June 15 top

• USD/CAD firmed to 1.3228 after eliciting early Europe support pre-1.3200
• WTI oil holding under 45 bucks/barrel is lending support to USD/CAD
• WTI broke below 45 June 14, two days after hawkish Wilkins boosted CAD
• 1.3165 = 14wk low June 14. CAD positioning limits scope for USD/CAD gains
• IMM CAD shorts only reduced by 5,617 contracts to 115,376 week to June 13
• Net CAD short only 10,514 contracts below last month's 99,109 record high

• AUD/USD rose to threaten 0.7630 during the European am amid "risk on"
• Dax up to fresh record high after Nikkei notched 22mth peak in Asia
• Offers tipped at 0.7630 (pre-weekend peak). 0.7629 was Monday's high
• Decent size 0.7630 option expiry Wednesday, AUD 379mn strike
• 0.7632 = June 15 high on strong Aussie jobs data. 0.7636 = 9wk top June 14

• NZD/USD rose to an intra-day high of 0.7268 during the European am
• Ascent influenced by healthy risk appetite: Nikkei closed up 0.8% Tuesday
• 0.7220 was Asia low. 0.7300/20 resistance levels beyond 0.7268
• GlobalDairyTrade auction result expected circa 1430GMT, may impact NZD
• RBNZ OCR announcement Wednesday 2100GMT (9am local time Thursday)


Long positions will hang heavy on EUR/USD
Positioning is everything for EUR/USD traders. The large number of bets on a EUR/USD rise is evident in the price action since May 22. EUR/USD bulls have been unable to push the price as far as the popular 1.1300 target even with price within touching distance of the target several times. Ironically, after several weeks where interest rates opposed a higher EUR/USD, the pair softened when rates turned in favour of the rally following the U.S. rate hike. Dudley has since boosted the US rate outlook and EUR/USD immediately softened. Small moves maybe but a clear indication of entrenched longs frustrated at the loss of bullish momentum. Specs are rarely in the game for the long run and usually seek quick profits. At these levels many long EUR/USD are making a profit. They are now likely to use rallies to book them. A move below May 30 low at 1.1110 will trigger a rush for the exit.

Chart - (Source:ThompsonReuters)

Risk grows for EUR/CHF downside breakout
While EUR/CHF ranges have been relatively tight of late, there is growing risk of a downside breakout on the charts. Trend indicators, including the RSI and the slow stochastic, tick south and favor a run lower but more important is the break inside the daily Ichi cloud. The cross has been holding above the rising cloud for the last week but today's pullback has spiked just inside. The cloud top stands at 1.0863 while the cross has dropped to threaten 1.0857 intraday and EUR/CHF bears hope for a close inside the pattern. Any such close could bring early June 1.0838 lows and the cloud base at 1.0824 into play. The 200-DMA at 1.0780 is a downside objective beyond 1.08. Chart

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: 1.1100 (581M), 1.1135 (555M), 1.1150/55 (777M), 1.1165 (546M),
• GBP/USD: 1.2700 (335M), 12.2775-85 (369M), 1.2800 (181M)
• USD/JPY: 111.00 (460M), 111.25-35 (360M). EUR/JPY: 123.65 (308M)
• AUD/USD: 0.7545/50 (530M). NZD/USD: 0.7150 (517M)
• USD/CAD: 1.3300 (555M), 1.3400 (370M)

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30 Current Account (Q1) (mkt -$123.8 bn, prev -$112.4 bn)
• 12:30 Philly Fed Nonmanufacturing Business Outlook Survey (Jun) (prev 25.8)
• 12:55 Redbook Same-Store Sales Index (prev +2.1% y/y)

Events, Other Releases (GMT) -

• 12:15 FRB Boston's Rosengren on "Bad zero: Financial Stability in a Low Interest Rate Environment"
• 15:45 FedTrade operation 30-year Ginnie Mae securities (max $950 mn)
• 19:00 FRB Dallas's Kaplan on the economy and monetary policy; San Francisco, CA


Topics: US FX Market Open


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