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US FX Market Open – Wednesday, April 6, 2016: Brexit concerns continue to weigh on GBP

Posted by Marge Maresca on Apr 6, 2016 7:25:47 AM



Overnight Events

• Ted Cruz wins Wisconsin Republican primary, Saunders Democratic primary
• BoC Wilkins: China slowing to more sustainable pace inevitable & desirable, problems possible – RTRS
• Glencore sells agri unit stake for $2.5bn to Canadian pension fund-RTRS
• The need to look beyond BoJ FX intervention - IFR
• Japan Feb Coincident indicator -3.2 vs 2.9 prev
• Japan Leading indicator -2.0 vs -0.4 prev
• Japan PM Abe: Must definitely avoid competitive FX devaluation - RTRS
• Abe: Refrain from arbitrary intervention, FX stability important – WSJ, RTRS
• Japan LDP Yamamoto: Consumer spending similar to post-Lehman crisis period – RTRS
• Japan LDP Tachibana also says 'better to wait and assess the situation before intervening – BBG
• Chief Cabinet Secretary Suga: Watching FX, will respond as appropriate - RTRS
• Yamamoto: Japan should lower and not up sales tax, Suga disagrees – RTRS
• German Feb Industrial output -0.5%m/m vs 3.3% prev, -1.8% exp
• ECB excludes Catalonia from its support, re: bond buying – El Mundo
• 44% of Brits want to remain in EU, 43% want to leave, 13% don’t know-ICM poll
• Kenyan CB Gov: A potential Brexit will be a horrendous blow to everyone, poses big risk - RTRS
• UK PM Cameron & family not set to benefit from offshore funds-spokesman - RTRS

Currency Summaries

• Weighed by broader risk aversion and mild USD recovery
• EUR/JPY 127.33-125.10 setback stalls however, props EUR/USD
• Cross retesting 125.64 cloud base (127.43 now the peak/resistance)
• 1.1336 Tues’  EUR/USD low, 1.1340 today.  1.1335 is 1 Apr low
• Buyers lurk ahead of 31 Mar 1.3011 low, 200HMA 1.1308 and 10DMA 1.1306.
• 1.1388 today’s Asia recovery high/initial resistance before Tues 1.1406 hi
• Mon’s high 1.1412 before Fri’s 1.1438 post NFP and cycle high  
• Expiries today 1.1300 (897M), 1.1400-15 (850M), bigger here tomorrow

• USD/JPY has seen a range of 110.23-110.64
• Tuesday's break below 110.00 was short-lived, 109.92 was reached
• Bids noted to 109.90, stops are said to be below (not sure if large)
• Japanese importers on bid pre and post-Tokyo fix
• Bears need a more convincing and sustained break of 110.00

• Another day, same EUR/CHF levels (1.0881-1.0909)
• Key event risk near, jobs and CPI data April 8
• Inflation eyed lower. Jobless close to 6 year high
• CHF may come under pressure ahead of the event
• Break hourly cloud to stir EUR/CHF bulls:  

• GBP/USD elicited support circa 1.4100 during the European am
• Brexit concerns continue to weigh on GBP: latest ICM poll shows tight race
• More bids expected near 1.4050 (1.4053/56 = Mar 16 & Mar 24 lows)
• EUR/GBP is consolidating gains just below 0.8053 (yesterday’s 19mth high)
• 0.8065-69 resistance window includes 1.24 GBP/EUR & Sept 2014 high

• USD/CAD rose to a high of 1.3182 during the European am
• 1.3124 was Asia low. Canada Ivey PMI due 10am ET

• AUD/USD is trading within strike of a large 0.7550 expiry, A$539mn strike
• 0.7535-0.7569 = European am range. 0.7533-0.7568 = Asia range
• Interest rate futures suggest 34% chance of 25bp RBA cash rate cut May 3

• NZD/USD fell from 0.6817 to a low of 0.6783 during the European am
• Short-covering aided rise to 0.6817 after unexpectedly positive Fonterra GDT auction
• 0.6759 was Tueday’s low, pre-Fonterra auction

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/JPY vols giving back gains as spot consolidates brief 110 breach
• Similar story in Cross/JPY vols now as spot markets stage mild recovery
• EUR/USD vols just off lows this week amid broader risk aversion/vol gains
• Cable gamma performs well – 1wk 10.0/160 pips and did this in a day yesterday
• Post Brexit vol and GBP puts hold multi year highs – 3mth vol 15.7 and RR 4.5
• AUD/USD vols propped by weaker spot but CAD curve the bigger gainer

Chart - GBP/USD daily cloud repels bulls  (Source:ThompsonReuters)

Cable bulls have been repelled by the Ichi cloud which currently spans 1.4189-1.4391. Tuesday's daily close below the kijun line, which now comes in at 1.4215, weakens the outlook further for 1.3996 – 76.4% retrace of the 1.3836-1.4514 (Feb/March) rise. A break and daily close below the 1.3996 level will see a potential retest of 2016's 1.3836 low. The failure to hold above 1.4475 – 76.4% retrace 1.4672-1.3836 Feb fall – in March was a bull trap which we forecasted would lead to a sustained drop below the kijun line. Only a break above the Ichi cloud will shift the overall bias back to the upside. Chart:

Economic Data(Source:Bloomberg)


Topics: US FX Market Open


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