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US FX Market Open –Wednesday August 2, 2017: Commodity drop helps stabilize USD

Posted by Marge Maresca on Aug 2, 2017 9:53:20 AM


Overnight Events

• EUR/USD +0.27%, USD/JPY +0.35%, GBP/USD +0.22%, EUR/GBP +0.13%
• DXY -0.07%, DAX -0.18%, FTSE -0.31%, Brent -0.04%, Gold -0.17%
• EZ Jun Producer prices y/y, 2.5% vs f'cast 2.4%, prev 3.3% rvsd 3.4%
• GB Jul Markit/CIPS cons PMI, 51.9 vs f'cast 54.5, prev 54.8
• Trump close to decision on addressing Chinese trade practices
• China, BRICS trade ministers vow to fight protectionism
• BoJ Funo: Must maintain powerful monetary easing to hit price target
• Easy money allowing govt to maintain growth policy, allow structural reforms
• Big Japanese banks bulging at seams with pent-up cash – Nikkei
• Three of five top Japanese department stores see sales up in July - Nikkei
• Japan July monetary base up to record Y468.3444 trln, average +15.6% y/y
• Bearish cocktail knocks oil prices off recent highs
• Gold edges away from 7-week high as dollar steadies

Currency Summaries

• USD off lows, helped by drop in commods, but EUR stays firm
• Solid EUR/USD support Tues 1.1786 setback low, 1.1794 Asia today
• Early London break Mon/Tues 1.1845-46 highs and 1.1850 barriers for 1.1869
• Broad based EUR strength drives, EUR/CHF, EUR/JPY new cycle highs
• Little resistance now until 1.1900 barriers, setback to 1.1830's
• Fresh wave of USD weakness probably needed for 1.1900 test/break

• USD/JPY range Wed has been 110.25-110.93 so far
• Limited downside reaction on Tues when 110 barriers were finally taken out
• 109.92 was lowest seen. Talk semi-official & real money bids in size sub 110
• On the hour USD/JPY broke 110 a doji candlestick line was left
• Doji was signalling near-term indecision (confusion)
• Decent buying, but capped by offers ahead of 111.00 & circa 110.97 pivot

• EUR/CHF up to 31mth high 5 pips shy of 1.15 during European am
• 1.1495 = over 4% higher than last week's 1.1008 low, pre-Jordan
• Jordan said CHF significantly overvalued vs EUR at 1.10
• 1.1455 (Monday's high) is now a support level
• Swiss July mfg PMI 60.9, highest for six years. 53.8 = long-term average

• UK July construction PMI miss is helping to keep cable sub-1.3250
• 51.9 vs 54.5 f/c, lowest for 11 months. 1.3250 = option barrier level
• Cable rose to test 1.3245 into 0830GMT UK construction PMI release
• 1.3245 was 11mth high Tuesday. 1.3190-1.3216 = Asia range
• Quarter-yard 1.3250 option expiry Thursday
• BoE event risk Thursday, rate vote will be initial focus: 6-2 expected

• USD/CAD retreated to 1.2552 from early Europe 12-day high of 1.2589
• 1.2586 = Asia high. 1.2452 was Tuesday's low, before oil price fall hurt CAD
• Large 1.2550 & 1.2500 option expiries Friday, half-yard & yard strikes

• AUD/USD held below 0.7975 (Asia high) through the European am
• 0.7953 was European am low. 0.7941 = Asia low (0.7936 = July 28 low)
• Mooted offers close to 0.80 (large option expiry) may cap if 0.7975 vaulted

• NZD threatened 0.7416 during European am as NZ jobs data digested
• 0.7416 was 1wk low in Asia after Q2 jobs growth fell 0.2% vs +0.7% f/c
• RBNZ is expected to keep OCR at 1.75% next week (Aug 10)

Chart - (Source:ThompsonReuters)

EUR/JPY bulls reaching for 134.32 Fibo
Euro bulls have persistently dominated the yen with the close at the end of July above the major 129.55 Fibonacci highlighting their current control. The bullish cycle from April's 114.86 setback low remains very much intact and 14-month momentum is increasingly positive, reinforcing the depth of the present bullish structure. The monthly close above 129.55, which is 50% retrace of the 149.79 to 109.30 (2014 to 2016) fall, means there is growing scope for a test of 134.32 (61.8% of the same 149.79 to 109.30 drop). Bulls should continue to keep an eye on 129.55 as a direction gauge, as a failure at the end of August to close above it will be detrimental to the bullish outlook. Monthly 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 firmer, USD recovers, EUR/USD breaks 1.1850 barrier, vols bid
• USD/JPY vols look high amid spot recovery and low realised
• EUR/JPY buyers of gamma and topside amid firmer spot
• CAD gamma performs, as does AUD to keep related vols at cycle highs
• Next Day GBP vols bid in to UK MPC and inflation report

Economic Data (GMT) - (Source:ThompsonReuters)

• 11:00 US MBA Weekly Mortgage Application Indices
• 12:15 US ADP National Employment Report (Jul) (mkt +185k, prev +158k)
• 13:45 ISM-New York Business Conditions Index (prev 55.5)
• 14:00 Conference Board Help-Wanted OnLine (Jul) (prev -45.8k)
• 14:30 US EIA Weekly Petroleum Status Report

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

• 13:45 FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.65 bn)
• 15:00 Fed's Mester speaks at community bankers association luncheon
• 19:30 Fed's Williams speaks on "Monetary Policy's Role in Fostering Sustainable Growth"


Topics: US FX Market Open


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