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US FX Market Open – Wednesday June 7, 2017: EUR hit on talk ECB will cut inflation forecast

Posted by Marge Maresca on Jun 7, 2017 7:31:21 AM

eurhits.png 

Overnight Events

• EUR/USD -0.52%, USD/JPY -0.08%, GBP/USD flat, EUR/GBP -0.27%
• DXY +0.15%, DAX +0.18%, FTSE +0.25%, Brent -0.5%, Gold -0.19%
• Euro hits 4-day low of $1.1220, BBG says ECB will cut inflation forecast
• UAE turns screws on Qatar, threatens sympathisers with jail
• German industrial orders fall;-2.1% vs prev 1.0% revsd 1.1%
• UK yy house price growth hits 4-year low in May; +3.3% vs prev 3.8%
• Britain's tumultuous election campaign enters final day
• Attackers raid Iran parliament and mausoleum, up to seven dead
• China May FX reserves rise more than expected on weaker dollar
• Japan's April coincident index hits 9-year high on robust output
• Japan to promote direct JPY-Asian currency exchanges – Nikkei
• Japan end-May foreign reserves Y1.2518 tln, end-April Y1.2423 tln

Currency Summaries

EUR/USD
• ECB to cut inflation forecast through 2019 on weaker energy-BBG
• ECB to cut to around 1.5-BBG
• EUR/USD 1.1271 to 1.1217 in reaction
• Lows circa the 200-DMA @ 1.1220
• Next support around Jun 1/2 lows 1.1202-05

USD/JPY
• Overall USD/JPY outlook bearish for 108.00 where barriers reside
• Recall 109.23 was Tue's low, USD/JPY falls from 109.63 to 109.12
• Lots of bids said to be circa 109.00, maybe tough to break initially
• 30/60-day log correlations with UST/JGB spreads significant across curve
• Fading recovery attempts, best strategy as heavy above 110.00
• Decent sized 110.00-05 NY cut expiries totalling 1.3B

EUR/CHF
• EUR/CHF tight trade continues through Europe, plays 1.0860-1.0844
• Swiss forex reserves down in May. Fell to 693.727bln vs 696.647 in Apr
• April revised from an originally reported 695.943
• Data suggest SNB activity to tame CHF likely eased, in the last mth at least
• EUR/CHF rose fm 1.0793 to 1.0987 in May, close to post Brexit 1.10 tops
• Rally likely allowed c.bank to back off although cross trades softer into Jun
• Wouldn't be surprised to see official support circa 1.08. 1.0844 low Tues/Wed
• USD/CHF offered 0.9646-21 range, above Tuesday's 0.9614 low
• Stops below 0.96. Post-Brexit up TL 0.9592 & US Nov election low 0.9550

GBP/USD
• Cable based at 1.2888 after retreating from an early Ldn high of 1.2921
• 1.2921 = 61.8% of Tuesday's fall from 1.2951 (12-day high) to 1.2873
• Around half-a-dozen UK general election polls are expected Wednesday
• Ashcroft model estimates Tories could win 64-seat majority vs 12 in 2015
• GBP could elicit knee-jerk boost if Tories win 80/100+ seat majority
• Hung parliament shock would hit GBP hard. Election results due Friday

USD/CAD
• USD/CAD fell from 1.3461 to a 9-day low of 1.3427 during the European am
• Greenback on back-foot in general: AUD/USD up to 6wk peak of 0.7568
• CAD short positions have been squeezed of late

AUD/USD
• AUD/USD extended north to test 0.7559 (100DMA) during the European am
• Ascent fulled by Australia's 0.3% Q1 GDP growth number
• There were fears Q1 GDP might come in negative. 0.7544 = Asia high
• Short-covering aided AUD/NZD rise from 1.0444 to 1.0517 high in Asia

NZD/USD
• NZD/USD rose to threaten 0.7206 during the European am
• 0.7206 was Tuesday's 14-week peak. 0.7169-0.7191 = Asia range
• Optimism about NZ economy has encouraged NZD buying
• Global dairy prices rose for sixth time in a row Tuesday
• RBNZ is expected to keep OCR at 1.75% in a fortnight

Comment

Holding a mirror up to EUR/USD
EUR/USD is likely to see a reverse of moves seen in the first few months of this year. Between January and May sentiment was bearish and traders were short. Moves lower were slow, rebounds surprisingly fast. Positioning was key. Throughout this period speculators held big short positions that jumped in size in February and April providing more fuel for subsequent squeezes. That cannot happen now as the EUR short position is negligible while EUR longs are near all-time highs. Whatever happens to fuel coming EUR/USD moves this big positioning imbalance is key. It means EUR gains will be increasingly hard fought and will result in an even bigger net long position. This is already evident in the near two weeks it has taken to grind down resistance ahead of 1.1300. Sharp rises in bullish momentum are unlikely while a grind through the supply of option and cash markets betting on higher levels is almost assured. The surprise and big move when it comes will be down. Charts EUR positions: http://reut.rs/2s2XSOF http://reut.rs/2rzJj3w

Chart - (Source:ThompsonReuters)

Bearish EUR/JPY head & shoulders pattern
A lopsided head and shoulders pattern has formed on the EUR/JPY daily chart, meaning the bull run from 114.86 (April low) is likely at an end and a reversal will ensue. This could depress the cross to a head and shoulders measured objective at 120.75. The objective has been derived by taking the height of the head and projecting it down from Tuesday's decisive neckline break. A Wednesday close below 123.23, 23.6% of 114.86-125.81 (April low to May high), could initially unmask 121.63 (38.2% of same move). On three separate occasions the market has broken the Fibonacci 123.23 level but each time failed to close under it. A fourth failure to close below 123.23 will neutralise the bearish outlook somewhat, but only sustained trading back above the rising head and shoulders neckline now at 123.62 (and rising 8 points a day) is needed to shift the overall bias back to the upside. Chart: http://reut.rs/2sCBsR0

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.  

• JPY related vols higher but still well below mid May cycle highs
• EUR/USD event risk the only vol prop, O/n break even 82 pips over ECB
• 1mth EUR/USD risk rev neutral. Bulls needs Draghi to mention QE taper
• GBP vols peak but underpinned, GBP put tail risk hedges well bid
• AUD and CAD vols finding support at 2.5 year lows

Economic Data (GMT) - (Source:ThompsonReuters)

• 11:00 MBA Weekly Mortgage Application Indices
• 14:30 EIA Weekly Petroleum Status Report
• 19:00 Consumer Credit (Apr) (prev $16.43 bn)

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

• 15:45 FedTrade operation 30-year Ginnie Mae (max $1.2 bn)

 

Topics: US FX Market Open

 

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