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US FX Market Open – Wednesday May 24, 2017: FX adjustments through early Europe

Posted by Marge Maresca on May 24, 2017 7:25:16 AM

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Overnight Events

• EUR/USD flat, USD/JPY flat, GBP/USD +0.08%, AUD/USD flat
• DXY flat, DAX -0.13%, FTSE +0.25%, Gold +0.08%
• Moody's downgrades China, warns of fading financial strength
• OPEC, non-OPEC hold informal talks to nail new oil cuts; Brent +0.33%
• Euro zone stability risk contained but rising -ECB
• DE cnsmr morale reaches highest since Oct. 2001 -GfK; 10.4 vs prev 10.2
• Pope asks Trump to be peacemaker, gives him environmental letter

Currency Summaries

EUR/USD
• EUR/USD quiet trading 1.1170-97 in Europe and 1.1170-92 Asia
• The very short-term picture bearish after surprise reversal May 22
• Short-term picture bullish after rough 4% rise in 8 days
• The prudent option is definitely to book profit on longs & wait Jun 8 ECB
• Option vols are low suggesting a higher range and not a major trend
• A bullish view would be 1.10-15. Bearish 1.08-13. maybe buy a 1.07-1.16 DNT

USD/JPY
• USD/JPY 111.75-112.05 range in Europe, (111.74-05 Asia)
• Higher initially but easing to the low just ahead the NA open
• Seen anchored by USD 2.5 bln vanilla option expiries at 112.00
• 5-10bp widening US/JGB spreads supporting USD/JPY since May 17
• Closes above daily cloud top @ 111.82 needed to invigorate bulls
• Large USD long position (6.6bln) remains a brake on upside progress

EUR/CHF
• EUR/CHF likely kept off recent highs by broader euro easing
• Dollar is better bid and EUR/USD has backed off it's 6-1/2 month high
• CHF benefited recently fm safe haven flows but SNB still in the background
• Downside limited by last week's 1.0867 low and 61.8% Fibo support
• This week 1.0948 peak, ahead of key post Brexit 1.10 hurdles
• USD/CHF holds close to 0.9767 recovery peak from early Europe
• Tues action generated a higher daily low and confirmed Mon Doji
• 38.2% retrace of the May USD/CHF 1.0100-0.9694 drop is 0.9849

GBP/USD
• Offers pre-1.30 capped cable gains during the European am
• More offers expected ahead of 1.3050 (option barrier level)
• 1.3040-48 8mth highs May 18-19 & Monday, 1.3035 = Tuesday high
• EUR/GBP extended south to threaten 0.8600 during the European am
• 0.8601 was Monday's low. 0.8597 = 200DMA. 0.8675 = 8wk high Tuesday
• UK Q2 business investment data due Thursday, +0.2% f/c

USD/CAD
• USD/CAD threatened 1.3500 during European am after fading from 1.3540
• 1.3540 was late Asia high after some profit-taking on short positions
• 1.3457 = Tuesday's 1mth low (1.3793 = 15mth high earlier this month)
• BoC event risk 1400GMT: CAD could weaken if BoC relatively downbeat
• 1.3600 (high after soft Canada data May 19) resistance beyond 1.3540
• Shell to sell CAD 4.1bln stake in Canadian Natural-sources (Reuters)

AUD/USD
• AUD threatened 0.7480 after pushing recovery envelope from 0.7443
• 0.7443 was Asia low after AUD hurt by Moody's China downgrade
• 0.7480 into downgrade news. 0.7500 (option expiry) resistance beyond

NZD/USD
• NZD extended north from 0.6990 to 0.7027 during the European am
• 0.6990 was late Asia low after Moody's China downgrade hurt NZD
• NZ govt set to up its budget surplus forecast Thursday
• Stops tipped above 0.7050/55 (0.7055 = 100DMA). 0.7047 = Tuesday high

Comment

EUR/USD bulls may have over-reached
EUR/USD bulls may have over-reached as the pair looks very stretched versus interest rates. The dollar was following a pattern of gains ahead of Fed hikes and declines after. That trend has been broken with the bearish reaction to the hike in March this year seeing the dollar index fall 4% from its March peak and 6% under the highs made when the Fed hiked in Dec 2016. Where prior Fed meetings were followed by profit- taking of those long dollars, the opposite may occur in June. USD longs versus G10 currencies have halved since December. EUR/USD has seen a swing of 23 billion dollars with specs net long EUR 5bln by May 16. With EUR/USD up 3% since specs are probably much longer. Even at the currently low ebb U.S. rates are seen up another 43bps in the next 12 months with the ECB unchanged. US/EZ rates may snap back to sting those long EUR/USD.

Chart - (Source:ThompsonReuters)

EUR/GBP dip looks limited despite reversal
A shooting star reversal pattern is playing out on EUR/GBP candles. It's part way confirmed by Wednesday's lower low but would need a lower close to complete the pattern. Until then today's pullback could just indicate a pause in the current bull run. Those who favor the cross lower should be cautious as the 10-DMA has crossed positively over the 100-day and generated a buy signal. This suggests that pullbacks could be limited allowing the price to work off the overbought bias ahead of another rally. Look to use dips to get long EUR/GBP at better levels. The 200-DMA is near term support at 0.8587 while the aforementioned averages are at 0.8567 and 0.8561, respectively. Would be a buyer back to that region with the thickening daily cloud proving further support below at 0.8550-0.8492. Chart: http://reut.rs/2qiT16B

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/USD: 1.1200 (372M), 1.1140-50 (1.5BLN)
• USD/JPY: 112.00 (2.5BLN), 111.00 (490M)
• AUD/USD: 0.7430 (397M), 0.7500 (349M), 0.7525 (215M)
• NZD/USD: 0.6970 (215M), 0.7090 (282M)
• USD/CAD: 1.3390 (240M), 1.3460-65 (549M), 1.3550 (260M)

Economic Data (GMT) - (Source:ThompsonReuters)

• 11:00 MBA Weekly Mortgage Application Indices
• 12:30 Revised Building Permits (Apr) (prev 1.229 mn SAAR, -2.5% m/m)
• 13:00 FHFA Home Price Index (Mar) (prev +6.4% y/y)
• 14:00 Existing Home Sales (Apr) (mkt 5.65 mn SAAR, prev 5.71 mn SAAR)
• 14:30 EIA Weekly Petroleum Status Report

Economic Data, Events & Other Releases (GMT) - (Source:ThompsonReuters)

• 15:45 FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.625 bn)
• 18:00 FOMC minutes (from May 2/3 meeting)
• 19:00 New York Fed releases tentative MBS operation schedule
• 22:30 FRB Minneapolis's Kashkari (voter, dove) town hall forum; Ashland, WI

 

Topics: US FX Market Open

 

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