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US FX Market Open – Wednesday June 14, 2017: Consolidation in to FOMC

Posted by Marge Maresca on Jun 14, 2017 7:22:07 AM

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Overnight Events

• EUR/USD -0.09%, USD/JPY +0.23%, GBP/USD -0.11%, EUR/GBP +0.08%
• DXY +0.06%, DAX +0.74%, FTSE +0.43%, Brent -1.05%, Gold +0.13%
• Fed is scheduled to release its decision at 1800 GMT on Wednesday
• Some dead, at least 50 taken to hospital, as fire engulfs London tower block
• China's economy holds up in May but slowing investment points to cooling
• Talks between UK PM May's Conservatives and N.Ireland's DUP restart -source
• Oil supply seen outpacing consumption in 2018, demand to top 100 mln bpd
• ECB may face political pressure to keep policy loose: Weidmann
• GB Apr ILO unemployment rate 4.6% VS PREV 4.6%
• DE May CPI final yy 1.5% vs prev 1.5%
• DE May HICP final yy 1.4% vs prev 1.4%
• EZ Q1 Employment yy 1.5% vs prev 1.1%
• EZ Apr Industrial production mm 0.5% vs prev -0.1%
• EZ Apr Industrial production yy 1.4% vs prev 2.2%

Currency Summaries

EUR/USD
• EUR/USD quiet trade ahead today's Fed statement
• 25bp hike priced. Recent i/rate moves ignored: http://reut.rs/2t0x0Mo
• Europe today just 1.1201-26, continuing closes over 21-DMA, now 1.1209
• Nov 9 2016 high at 1.1300 seen key above
• May 30 1.1110 low looking pivotal below
• Traders running a big EUR/USD long into the event: http://reut.rs/2sSX63O

USD/JPY
• USD/JPY range has been 109.96-110.26
• Heavy supply in 110.40/50 region. Bears maintain upper hand
• Recall 110.44 was the peak Mon. Tenkan line comes in @110.42
• 637M worth of 110.00-10 NY cut expiries Wed
• Spot remains anchored to 110.00, 3.2B strikes will expire @110.00 Fri
• Significant 30/60-day correlations with 5, 10 & 30y UST/JGB spreads underpin
• Watch for some movement after FOMC later Wednesday

EUR/CHF
• USD/CHF sideways, plays 0.9674-0.9689 in Europe
• Dojis represent indecision, 10-day is a prop at 0.9668
• Focus is on US Retail Sales, CPI and FOMC event risks into NY
• EUR/CHF found support from the Daily Ichi cloud top at 1.0852
• Cross holds above recent 1.0838-40 lows, a little higher today 1.0856-65
• 1.0876 was the high fm recent lows, exp to hold ahead of SNB Thurs
• Reuters poll - All 39 analyst polled f/c SNB to leave policy unchanged

GBP/USD
• Cable extended south from 1.2797 to 1.2726 after UK earnings data miss
• Headline & ex-bonus numbers both came in 0.3% below f/c, 2.1% & 1.7%
• 1.2797 = early Ldn high after GBP shorts squeezed (1.2741 = late Asia low)
• EUR/GBP has risen to 0.8808 on the back of the UK earnings miss
• 0.8767 was early Europe low vs 0.8802 late Asia high. 0.8750 = June 9 low
• Two Times MPC members calling for BoE hike Thursday to support GBP

USD/CAD
• USD/CAD eased to a fresh 14wk low of 1.3206 during the European am
• 1.3212 was Tuesday's low. 1.3213-1.3245 was Asia range
• CAD shorts squeezed hard since Monday's hawkish steer from BoC's Wilkins
• IMM net CAD short position near record high in week to June 6
• "Dovish hike" expected from Fed 1800GMT, US CPI/retail sales data ahead

AUD/USD
• AUD/USD vaulted 0.7565 during European am, en route to 0.7591
• 0.7591 = 7wk peak. 0.7565 was Tuesday's high. 0.7533 = Asia low
• AUD benefitting from "risk on" ahead of expected "dovish hike" from Fed
• Australian May jobs data due Thursday 0130GMT, employment f/c +10k

NZD/USD
• NZD/USD rose to 4 month high of 0.7261 during the European am
• Ascent influenced by rise in risk appetite ahead of FOMC rate verdict
• "Dovish hike" expected from the Fed. 0.7199 was NZD/USD low in Asia
• NZ Q1 GDP data due 2245GMT, +0.7% f/c vs +0.4% in Q1
• RBNZ meets next week, expected to keep OCR at 1.75%

Comment

GBP rallies an opportunity to sell
GBP upticks increasingly look to be great opportunities to sell. GBP eventually got a boost on the back of Tuesday's inflation data but that set up a chance to sell the rally ahead of today's earnings report. With inflation-adjusted pay declining at its fastest pace since 2014, GBP has unsurprisingly fallen today. The news so far has been largely negative: higher inflation and lower pay, plunging business confidence and Visa's report of the first fall in spending in four years. Soft or hard, with Article 50 already triggered, Brexit is in any form for many, bad news, Add to that a government that cannot now effectively govern and faced with increasing terror attacks. Once, everyone was short pounds now few are. GBP/USD today peaked around its 55-DMA at 1.2791 and daily Ichimoku cloud top at 1.2794. The influential 200-HMA is 1.2827. If GBP/USD closes over the 21-DMA at 1.2886 it'll be a minor miracle. Sell rallies.

Chart - (Source:ThompsonReuters)

AUD/USD uptrend reinforced by cloud break
The break of the cloud top in Aussie dollar reinforces the uptrend and negates the bearish signals that were beginning to emerge. Technicals now suggest that AUD/USD could entirely retrace the March to May 0.7750 to 0.7329 fall: 0.7588 and 0.7649 are the respective 61.8% and 76.4% Fibos of that move. A break of 0.7649 would open the door to the March 21 0.7750 peak. When AUD/USD last broke to the topside of the Ichi cloud in January circa 0.7545, spot went on to gain roughly 200 points. Such action this time would take spot back to the aforementioned March peak. As with most technical signals, AUD/USD bulls will be looking for confirmation with a close above the cloud today. The 100-DMA is also support close by at 0.7557. Chart http://reut.rs/2t0TaxO 

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.  

• Market quiet in to FOMC tonight, large expiries hold EUR and JPY
• O/n vols and gamma generally propped in to FOMC, but premiums tame
• Vols in most other pairings sit by long term lows, EUR and AUD 2.5yr lows
• Deeper vol declines maybe limited post FED due to already low levels
• GBP O/n gets UK MPC and retail sales. Back end vol propped by Brexit

Economic Data (GMT) - (Source:ThompsonReuters)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:30 Retail Sales (May) (mkt +0.2% m/m, prev +0.4% m/m)
• 12:30 Retail Sales ex-Autos (May) (mkt +0.2% m/m, prev +0.2% m/m)
• 12:30 Retail Sales Control (May) (mkt +0.3% m/m, prev +0.3% m/m)
• 12:30 CPI (May) (mkt 0.0% m/m, +2.1% y/y; prev +0.2% m/m, +2.2% y/y)
• 12:30 Real Average Weekly Earnings (May) (prev +0.4% m/m)
• 14:00 Business Inventories (Apr) (mkt -0.2% m/m, prev +0.2% m/m)
• 14:30 EIA Weekly Petroleum Status Report
• 15:00 Cleveland Fed CPI (May) (prev +0.1% m/m)
• 15:00 TR / Ipsos PCSI (Jun) (prev 61.52)

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

• 13:00 Two-Day FOMC Meeting Resumes 
• 18:30 Fed Chair Press Conference

 

Topics: US FX Market Open

 

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