Daily FX Market Commentary

Andy Harrison

Good morning,

LMAX Close

USDJPY 100.13 | EURUSD 1.35381 | EURJPY 135.565 | AUDUSD 0.94325 | NZDUSD 0.83523 | USDCAD 1.04698 | EURCHF 1.23331 | USDCHF 0.91106 | GBPUSD 1.6120 | EURGBP 0.83984 |

Interbank Ranges as of 6am London time

Highs    Lows

USD/JPY               100.23 | 99.935

EUR/USD             1.3584 | 1.3533

EUR/JPY               135.95 | 135.455

AUD/USD            0.9448 | 0.9393

NZD/USD             0.8397 | 0.8332

USD/CAD             1.0473 | 1.0453

EUR/CHF              1.2342 | 1.2324

USD/CHF             0.91135 | 0.90775

GBP/USD             1.6143 | 1.6106

EUR/GBP             0.8415 | 0.8398

For today

• EUR: Early trading was dominated by Bernanke’s comments as he hands over the reins/reign to Yellen. The market opened just below the 1.3540 areas and quickly moved to trade just below the 1.3580 before dropping back to the 1.3560/70 into the Tokyo session, Tokyo sold EURJPY off its highs and the market in Euro’s slipped steadily back to the mid 1.3540’s to hold and trade sideways between the 1.3550-65 area for the session. The market saw leveraged and technical buyers jump in however; the market struggled after the move higher and significant flow went through and one suspect’s weak stops to the downside close too.
• GBP: A USD day overall with early gains in Cable wilting away as the Tokyo session opened and cross selling against the JPY kicked in. Opening around the 1.6120 area the market was drifting as the Bernanke comments were made and Cable quickly moved above the 1.6140 before dropping as Tokyo opened, the market saw GBPJPY selling coming to market and we tumbled to the 1.6110 area and have held the level pretty much for the rest of the session with good volumes flowing through from the start. Some Light EURGBP buying appeared however; it was light and is only 10 pips higher.
• JPY: USDJPY struggled throughout the session, with a very narrow range for the pair with the market contained just above the 100.20 level in the early part of the session only to be sold lower as EURJPY and GBPJPY selling appeared in the market. USDJPY however, drifted only to the 100.00 level and has held around this level with minor dips to the 99.95 areas. We hold the 100.00 levels as we move to the grey hours and see nothing that is likely to change the market dramatically and while we may see minor dips the major banks still seem to be focused on a higher level.
• AUD: Having seen the AUDJPY move through to above the technical levels again the market was caught long and the carry trade was sold fairly aggressively throughout the session, some margin calls hit the markets for retail clients trading the break and the carry fell to below the 94.00 levels from the 94.60 top. Oz had a particularly torrid time of it as USDJPY remained bid forcing the USDJPY dropped to 0.9410 and then through the figure area to trigger some minor stops and bouncing off the 0.9395 levels were we hold as we move into the grey hours.

USDJPY:
Topside: 100.30-100.70 medium mix 100.70-101.00 medium buy stops
Downside: 99.50-99.90 large sell stops 99.20-99.50 light bids

EURUSD:
Topside: 1.3570-1.3590 light mix 1.3600-1.3630 light mix
Downside: 1.3460-1.3500 light sell stops

EURJPY:
Topside: 135.70-136.00 light mixed bag 136.00-136.40 light buy stops
Downside: nothing of note.

AUDUSD:
Topside: 0.9445-0.9460 medium offers 0.9460-0.9500 light mix
Downside: 0.9360-0.9390 light sell stops 0.9340-0.9360 light bids

Overnight News

USD:

Bernanke: says fed remains committed to maintaining highly accommodative policies for as long as they are needed.

US economy still far from where we would like it to be, maybe some time before FED policy returns to normal

Agrees with Yellen that surest path to more normal monetary policy is to do all we can to promote robust recovery

FED still expects labour market to continue to improve, inflation to move toward the 2% goal over medium term

If these view supported by incoming data, FED will likely begin to moderate pace of bond buying

Repeats that asset purchases not on a pre-set course, pace of buying contingent on FED’s economic outlook

In judging labour market outlook, will weigh cumulative progress since the Sep 2012, prospect for continued gains

Repeats that FED will take efficacy and costs of bond buying program into account

Even after unemployment drops under 6.5%, can be patient on rate hike, so long as inflation is well behaved

Since Sep meeting, Financial markets now more consistent with FED’s forward guidance on rate hikes

AUD:

Treasury Sec Martin Parkinson told Senate committee it was prudent to raise debt ceiling to A$500Bio

CNY:

China to lift controls on deposit rates when time ripe CB official

JPY:

Japan’s trade deficit doubles on year in October: Govt

Reforms to shift Japan’s huge pension fund towards riskier investments

Today’s data

Actual = A | Consensus = C | Previous = P | Revised = R All timings GMT

NZD       PPI Inputs Q/Q Q3 A 2.20% | P 0.60%

NZD       PPI Outputs Q/Q Q3 A 2.40% | P 1.00%

AUD       Westpac Leading Index M/M Sep A 0.10% | P -0.10%

JPY         Trade Balance (JPY) Oct A -1.07T | C -0.88T | P -1.09T | R -1.13T

CNY        Conference Board Leading Index A 0.60%| P 0.90% | R 1.10%

JPY         All Industry Activity Index M/M Sep A 0.40% | C 0.40% | P 0.30%

07:00     EUR        German PPI M/M Oct C 0.00% | P 0.30%

07:00     EUR        German PPI Y/Y Oct C -0.60% | P -0.50%

09:30     GBP       BoE Minutes

10:00     CHF        ZEW (Expectations) Nov P 24.9

13:30     CAD       Wholesale Sales M/M Sep C 0.30% | P 0.50%

13:30     USD       Advance Retail Sales Oct C 0.10% | P -0.10%

13:30     USD       Retail Sales Less Autos Oct C 0.10% | P 0.40%

13:30     USD       CPI M/M Oct C 0.00% | P 0.20%

13:30     USD       CPI Y/Y Oct C 1.00% | P 1.20%

13:30     USD       CPI Core M/M Oct C 0.10% | P 0.10%

13:30     USD       CPI Core Y/Y Oct C 1.70% | P 1.70%

15:00     USD       Existing Home Sales Oct C 5.16M | P 5.29M

15:00     USD       Business Inventories Sep C 0.30% | P 0.30%

15:30     USD       Crude Oil Inventories P 2.6M

Harry Hindsight

• EUR: A tight and choppy range overall, with the initial rises in Asia driven by a USDJPY decline allowing the Euro to rebalance against an order book of EURJPY bids. Having pushed to its highs it started to drop lower again as the USDJPY began to reverse the losses. We reached London more or less flat for the day with early Europeans buying to take the market to the 1.3515 areas before the ZEW numbers, ECB’s Constancio was on the wire discussing easing measures including QE (as if that hasn’t already been done in different guises). The market reacted a little unpredictably first jumping to just short of the 1.3545 areas and then dropping back to the opening areas before again settling into the 1.3515 as the knee jerk reaction dissipated. The figures when released showed current sentiment below expectations but economic sentiment improving, the market dipped to push through the 1.3490 levels to make the lows of the day and we held the opening areas into the NYK session. Talk of option expiries then took over the market and the market saw gyrations from gamma and delta related dealing around the NYK cut confirming this, moving firstly towards the lows and then quickly higher to the highs, the market held towards the top with EURJPY breaking 4yr highs and the rebound on USDJPY confirmed a Yen related expiry. We then traded in a tight pattern around the 1.3530 areas until moving to a finish just short of the highs for the day, not exactly what the ECB officials were aiming for with two days of talk of further easing.
• GBP: Asia were light buyers of Cable during the early part of the session taking the market from the opening 1.6110 levels to 1.6125 areas, this before the strong USDJPY selling that appeared in the market and reversal, Cable moved lower as the USDJJPY rose in a general JPY move. The move into London bought out some strong buying in Cable as the Euro spiked higher and with no data or news items to particularly draw on GBP was at the mercy of Euro movement for the day. While the range was better than one would expect, the movement lower seemed a little suspicious moving to the 1.6060 while all I hear is real money buying going through the market. One can only suspect weak stops created from the early buyers doing the damage in a quiet session for GBP, before bouncing and moving to trade around the 1.6105 area into the NYK session and the NYK cut in particular.
• JPY: Early market rumours of decent sized stops triggered some selling as we moved from the opening around 100.00, moving into the Tokyo session around the 99.85 level there was a quick move lower triggering some stops to fall to below the 99.60 before a steady move of the lows to recapture much of the losses, as we moved into the grey hours the market had already made its way above the 99.90 level. Early London did nothing and was really none committal and the pair again drifted. Euro buying started to form the basis for a weaker Yen as the EURJPY started moving higher and breaking ground not seen in 4yrs, this bought out technical trading moving the USDJPY in a steady channel to the topside. There was talk in the NYK session of 100 strike option expiries however, given the movement in Euro’s I’m more inclined to believe it was more likely EURJPY or even Euro options. The USDJPY having moved through the 100 level then held around the 100.15 area moving about 10 pips either side before ending the day around the central level.
• AUD: Early market was dominated by the RBA minutes and the JPY movements, as each leg added its own weight to the other as AUDJPY dropped quickly to below the 93.35 from the 93.80 again rejecting the topside. The basic comment from the RBA was it saw it prudent to hold rates, and leave that option open still, however, they warned that the AUD was still uncomfortably high and a fall is required to balance the economy, seems to me that if they’d caught the market by surprise at the time we’d probably be at least 5 big figures lower, but that’s just my opinion. Having seen that the RBA was non-committal we saw the AUD move from the opening levels of 0.9380 areas to touch in the low 0.9350’s before immediately bouncing to above the 0.9380 level again and then trading surprisingly lightly through the rest of the session into the grey hours. The run into London was bid with leveraged types taking the view point that any cut or rise is a ways off for the moment on the London opening we saw the market run quickly to just below the 0.9450 areas before settling back 0.9420 areas and trading around the area for the rest of the session to finish around the 0.9430 levels.

Yesterday’s premiership results

Actual = A | Consensus = C | Previous = P | Revised = R All timings GMT

AUD       Conference Board Leading Index Sep A 0.30% | P -0.20%

EUR        German ZEW (Economic Sentiment) Nov A 54.6 | C 54 | P 52.8

EUR        German ZEW (Current Situation) Nov A 28.7 | C 30.9 | P 29.7

EUR        Eurozone ZEW (Economic Sentiment) Nov A 60.2 | C 63.1 | P 59.1

USD       Employment Cost Index Q3 A 0.40% | C 0.50% | P 0.50%
Good Luck

Andy