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US FX Market Open – Wednesday June 28, 2017: Rate environment underpinning EUR/USD

Posted by Marge Maresca on Jun 28, 2017 7:34:13 AM

 

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Overnight Events

• EUR/USD +0.24%, USD/JPY -0.15%, GBP/USD flat, EUR/GBP +0.24%
• DXY -0.12%, DAX -0.47%, FTSE -0.01%, Brent -0.17%, Gold +0.40%
• Cyber attack sweeps globe, researchers see 'WannaCry' link
• Japan, EU press ahead on free trade pact to counter U.S. protectionism
• BoE's Cunliffe: Now is not the time to raise interest rates
• UK orders sweeping changes to boost transparency of funds industry
• UK house price growth bounces back in June - Nationwide
• GB Jun Nationwide House Price, +1.1% m/m, +3.1% y/y; prev -0.2%, +2.1%
• Euro zone household lending at fresh post-crisis high: ECB
• EZ May Money-M3 Annual Growth, +5.0% vs f'cast +5.0%, prev +4.9%
• EZ May Loans to Households, +2.6%, last +2.4%
• EZ May Loans to Non-Fin, +2.4% vs f'cast +2/4%, last +2.4%
• DE May Import Prices, -1.0% m/m, +4.1% y/y vs f'cast -0.6%, +4.6%, last -0.15, +6.1%
• Facing revolt on healthcare bill, U.S. Senate Republicans delay vote
• Bank bailouts not the end of Italy's bad loans saga
• Oil slips further below $47 as U.S. inventory report revives glut worries
• Gold rises as U.S. healthcare vote delay weighs on stocks, dollar
• China to further relax curbs on foreign investment

Currency Summaries

EUR/USD
• EUR/USD higher to 1.1388 in early Europe trading
• Drifts lower to 1.1354 after as some profits are booked
• Resistance stronger @ round numbers as many positioned long via options
• Expect round numbers to define resistance (1.1400, 1.1450, 1.1500)
• Rising bund yields evident,, 10 year now 0.397% (2017 high 0.51%)
• Rates to underpin EUR/USD. Expect spec buyers to crowd ahead 1.1300

USD/JPY
• USD/JPY rise has given Japanese exporters an opportunity to sell
• Exporters are said to have more to offload @112.50
• Recall gains on Tues were capped @112.46
• Range today has been 111.83-42
• Bears beware as the daily close above 112.25 Fibo bullish
• 2bn 111.60 strikes set to expire at NY cut, sub thin 111.66-74 cloud
• 5 & 10yr 30/60-day log correlations with USD/JPY remain significant

EUR/CHF
• Dollar broadly on the defensive but off its worse vs the franc
• USD/CHF slips to 0.9585 early Europe but recovery slightly to 0.9609
• U.S election day Nov 9 low is next key support at 0.9550
• Then last June's 0.9522 base. Trendline from there breached at 0.9608
• EUR/CHF rose to highest since May 25 on back of EUR/USD. 1.0890-1.0925
• 1.0928 next resistance, this the 61.8% of May-Jun 1.0987-1.0833 drop
• 76.4% is at 1.0950. Wholly above cloud 1.0878 top & 1.0886 kijun
• Close above targets post-Brexit hurdles by 1.10 (1.1010 Brexit wk high)
• Swiss consumption indicator 1.39 pts in May vs rvsd 1.34
• Swiss investor sentiment indicator 20.7 pts in Jun vs 30.8

GBP/USD
• Rising EUR/USD tide on upbeat Draghi has helped to lift GBP/USD boat
• 1.2794-1.2833 = Wednesday range-to-date vs 1.2718 pre-Draghi low
• EUR/GBP extended north to new 7mth high of 0.8880 in early European trade
• 0.8862 was Tuesday's high (cross was sub-0.88 before Draghi spoke)
• BoE's Cunliffe: Now is not the time to raise interest rates (BBC)

USD/CAD
• CAD on front-foot as North American open looms
• 1.3117 = fresh 4mth low for USD/CAD. 1.3128 was Asia low
• Asia low plumbed after Poloz said rate cuts have done their job (CNBC)
• Recovery rally from 1.3128 topped out 7 pips shy of 1.3165
• 1.3165 = June 14 low. 1.3205 was rally high from 1.3148
• 1.3148 was Tuesday's low. Bear targets include 1.30

AUD/USD
• Mooted offers at 0.7620-25 are helping to keep a lid on AUD/USD
• 0.7616 was Asia high, revisited in early European trade
• Large option expiries aplenty Thursday, including 0.7635 strike

NZD/USD
• NZD/USD fell from 0.7300 to threaten 0.7250 during the European am
• 0.7250 was June 23 low. 0.7260-0.7284 = Asia range
• Profit-taking on NZD longs since Tuesday's 20wk high of 0.7344
• AUD/NZD up to six-day high of 1.0468 during the European am
• 1.0376 was Tuesday's low (1.0371 = recent 20wk low)

Comment

EUR/USD should rise but pace of gains may slow
EUR/USD should head up but the pace of gains could slow. Yesterday the ECB Governor's thoughts on inflation risks caught EUR/USD traders, who had been in the process of reducing longs, by surprise. The rush to re-establish longs is apparent in EUR/USD's 1.1183-1.1384 rise. Unlike US bond markets which saw huge adjustment after the US election, euro zone bond markets likely have a lot of entrenched longs and that will see bigger adjustments. While that should underpin the euro, currency traders are now better positioned for a rise and will take profits on strength. The upside is also well covered via options with previously low vols indicating traders had bet big on ranges, largely within 1.08-1.15. Strong resistance is likely at 1.1400, 1.1450 and 1.1500, as it was around 1.1300 and 1.1350 yesterday. FX traders should look to bonds for inspiration (10 year bund yield at 0.51% key) but a patient approach to buy on dips will likely be more profitable. 

Chart - (Source:ThompsonReuters)

USD/CAD bears encouraged by Fibo break
USD/CAD downside pressures have resumed on the charts and short players are targeting the January 1.2969 base. Bears are encouraged by the push below the June 14 1.3165 low and the last retracement level of the January to May 1.2969 to 1.3793 rise. The break under the 76.4% Fibo at 1.3163 should now bring that January 1.2969 base into play. USD/CAD has traded as low as 1.3128 today and continues to track the falling 30-DMA Bollinger band south. The lower Bolli is at 1.3091 and is the next support level eyed. Last week's rejection from around the 200-DMA was a sell and only a break back above there would deter the bears. The average stands at 1.3342 today. Chart http://reut.rs/2tWJCV8

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 vol/topside short covering in related pairs as EUR extends gains
• EUR/USD 1mth vol up 1.4 and EUR/JPY 1mth up 1.5 from 2.5yr lows
• New long term high for the EUR call bias on related risk reversals
• AUD and GBP vols find support. USD/CAD 1mth matches recent high
• USD/JPY 1mth 7.8 vs 18mth lows 7.2 Tues, but lacks meaningful demand

Economic Data (GMT) - (Source:ThompsonReuters)

• 12:30 US Advance Goods Trade Balance (May) (prev -$67 bn)
• 12:30 US Advance Wholesale Inventories (May) (prev advance -0.3% m/m)
• 12:30 US Advance Retail Inventories (May) (prev advance -0.3% m/m)
• 14:00 Us Pending Home Sls Idx (May) (mkt 110.7, +0.8% m/m; prev 109.8, -1.3% m/m)
• 14:30 US EIA Weekly Petroleum Status Report

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

• 14:30 BoE's Carney, ECB's Draghi, BoJ's Kuroda, BoC's Poloz participate in a panel discussion in    Portugal
• 15:45 FedTrade Operation 30-Year Fannie Mae / Freddie Mac (max $1.625 bn)
• 19:15 Bank of Canada Deputy Governor Lynn Patterson Speaks
• 20:30 Fed Big-Bank Test Results (Verdicts on Individual Bank Capital Plans)

 

Topics: US FX Market Open

 

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