Daily FX Market Commentary

Andy Harrison

Good morning,

LMAX Close

USDJPY 102.935 | EURUSD 1.35418 | EURJPY 139.395 | AUDUSD 0.91065 | NZDUSD 0.81829 | USDCAD 1.06426 | EURCHF 1.23049 | USDCHF 0.90867 | GBPUSD 1.63563 | EURGBP 0.82794 |

Interbank Ranges as of 6am London time

Highs    Lows

USD/JPY               103.38 | 102.83

EUR/USD             1.3547 | 1.35245

EUR/JPY               139.94 | 139.31

AUD/USD            0.9137 | 0.9057

NZD/USD             0.8206 | 0.8158

USD/CAD             1.0649 | 1.0635

EUR/CHF              1.2312 | 1.2304

USD/CHF             0.9101 | 0.90855

GBP/USD             1.6372 | 1.6347

EUR/GBP             0.82795 | 0.8269

For today

USDJPY
Topside: 103.30-103.60 medium mix  103.60-103.90 light offers
Downside: 102.60-102.90 light sell stop 102.30-102.60 light sell stop 102.00-102.30 light mix

EURUSD
Topside: 1.3550-1.3580 light offers 1.3580-1.3610 light offers
Downside: 1.3500-1.3530 light bids 1.3470-1.3500 light sell stops

EURJPY
Topside: 139.90-140.10 light buy stops 140.20-140.50 light buy stops
Downside: 138.70-139.00 light stop bias

AUDUSD
Topside: 0.9130-0.9160 light buy stops 0.9170-0.9200 light offers
Downside: 0.9040-0.9060 light bids

• EUR: The market in general opened quietly with the major number due from the RBA on rates. The market opened around the 1.3540 area and held steady into Tokyo rising to above the 1.3546 level before dropping quickly to the 1.3525 levels as USD buying appeared in the market just after the Tokyo opening, we then held in the mid 1.3530’s for a good portion of the session with light volume going through the market. Before we reached the grey hours we started to see some strong buying in EURJPY as the USDJPY drifted lower through the 103.30 area and with EURJPY being close to the 140.00 levels, the attempts have failed so far and although the market is seeing stops through the 139.90 level there seems to be plenty of interest to sell into the area so for the moment Euro’s is heading into the grey hours just above the opening levels.
• GBP: Cable has been contained in a reasonably tight range with only light volumes going through over the course of the day. Opening around the 1.6355 areas and with very little showing in the market and most targets blown away by yesterday’s moves we moved slowly higher from the opening to above the 1.6360 areas before the round of USD buying in early Tokyo pushed the market to lows below 1.6348, the market spent a good portion of the day trapped below the 1.6360 level and only late into the session did we see a rally above the level, even so the RBA announcement saw some light GBPAUD selling go through to chase the GBP back to the low 1.6350’s before rally back to its previous high levels and posting a 1.6368 high as we move towards the grey hours.
• JPY: The close in NYK had left the USDJPY just short of the 103.00 area and although Sydney did nothing with the pair early Japanese retail sold the level and the market moved to the mid 102.80’s before some real money buying moved in as importers hedged expectations into the fix, the market moved to above the 103.10 levels and again stalled for a few hours however, the RBA announcement was enough for the retail market to kick in buying AUDJPY in a declining Oz market. USDJPY moved to above the 103.38 levels before settling down quietly with average volumes on the day and currently holds around the 103.30 area as we head to the grey hours.
• AUD: Today was highlighted as a non-event, with expectations for the RBA to do nothing as the Oz has come off from the levels it was trading at no more than two weeks ago, so negating any need to cut, the early number for retail sales was a better than expected number and the market moved quickly to above the 0.9135 levels which seemed to trigger some selling and the market ended quickly lower than where we started. Light selling appeared in the market in general and although the market got what it expected. So the market was sold lower, while nothing changed from the last brief comments however, with different affects, the missing link is the much read “open mind” comment from Stevens which started the slide, translated into front page news that was RBA considering intervention. So here we are, a lot lower and pressured RBA breathing a sigh of relief. Although there may be something in what Steven’s said I doubt the media quiet understood what they printed and as we’ve seen in the past the RBA are not a strong believer in outright intervention. My belief is that as long as they say it the carry trade players are thinking twice about the poultry 2.5% balanced against the 12% swing lower we’ve seen this year obviously the numbers for holding the trade at the moment are drifting away. AUD dropped on the announcement to below the 0.9060 levels before finding support from real money and light profit taking from the speculative shorts on the day above 0.9120. We hold just off the lows as we move towards the London market.

Overnight News

JPY:

Japan plans to double inflation-linked bond issue in 2014/15 -govt sources

FinMin Aso: Nothing Decided on Amount of Inflation-Linked Bond Issuance

Japan LDP Tax Reform Plan to Forgo Tax Breaks for Capex: Nikkei

Japan’s Aso: Not at Stage Yet to Tell Size of Economic Package

AUD:

Australia Central Bank Keeps Rates Steady

Foreigners Buy A$15.3B Aussie Govt Debt 3Q; Ratio Shrinks to 68%

Australian Retail Sales Rose 0.5% in October

Australia 3Q Current Account Deficit Widens

Australia government spending up 7.4% in Q3

USD:

Biden: U.S. ‘deeply concerned’ about China air defence zone-media

Potter Says New Repo Tool Should Increase Fed’s Control of Rates

CNY:

China’s 2014 Growth Target Should Be 7% – Think Thank

China Nov official services PMI eases to 56 vs. 56.3 in October

Shanghai Zone to Allow Foreign Investment in Local Securities

Hong Kong’s Yuan Deposits May Reach 2.6t Yuan by 2015: HKET

KRW/JPY:

South Korea Monitoring Won Movements Against Yen, Hyun Says

NZD:

NZ commodity prices ease in November – ANZ survey

Today’s data

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

JPY         Monetary Base Y/Y Nov A 52.50% | P 45.80%

GBP       BRC Sales Like-For-Like Y/Y Nov A 0.60% | C 1.10% | P 0.80%

AUD       Retail Sales M/M Oct A 0.50% | C 0.40% | P 0.80% | R 0.90%

CNY        Non-manufacturing PMI Nov A 56 | P 56.3

JPY         Labour Cash Earnings Y/Y Oct A 0.10% | C 0.10 % | P 0.10% | R -0.20%

AUD       RBA Rate Decision A 2.50% | C 2.50% | P 2.50%

09:30     GBP       PMI Construction Nov C 59 | P 59.4

10:00     EUR        Eurozone PPI M/M Oct C -0.20% | P 0.10%

10:00     EUR        Eurozone PPI Y/Y Oct C -1.00% | P -0.90%

Harry Hindsight

• EUR: The Asian market saw buyers of the Euro for the most part and the market tested above the 1.3610 area a couple of times before holding in the 1.3600-1.3610 area for a good portion of the day. The main drive higher was the Cable which moving through the 1.6400 triggered stops and dragged the Euro with it in the move. Once the main action was out of the way in early Tokyo the market struggled to do anything major with little interest. The grey hours saw early buying from Europeans however, for once this East European led buying was wrong and as the market opened the market started to fall off quickly initially with commentary from a couple of US banks on when tapering was likely to happen (they suggest this month) however, for me it’s more likely to happen in the New Year now. This fall back was attributed to a rise in Yield in the USTreasury’s however, the mixed PMI data released for several countries today probably did more damage especially as Spain again was the worst affected area and given their stance on how they’ve managed successfully!. In the first couple of hours of London the market had moved from its highs above the 1.3615 level to the 1.3550. The market paused briefly before extending the lows to just below the 1.3530 levels which were matched in early NYK. While volumes were nothing to write home about, new short positions both against the USD and GBP was spread across all spectrums and may be this pull back is needed for a further move higher. Leveraged were the early London sellers after the East Europeans bought pre London. Weak stops triggered through 1.3590 and the bottom side saw the same sellers taking profit and still managing to dominate affairs. The late NYK session was a drab affair with the market finishing around the 1.3540 area in quiet trading.
• GBP: GBP was the focus in the markets today especially in early Tokyo, having opened around the 1.6370 area the market rose slowly into the Tokyo session and shortly after the opening moved quickly through 1.6400 and triggered technical and longer term stops as the market moved quickly to 2yr highs above the 1.6440 levels. While the market spent a good time above the 1.6400 handle it could not expand on its gains and started to drift lower as mixed European data and an broad USD buying day if somewhat moderate in gains. As we moved through the London session the market drifted back from the 1.6420 areas slowly trading back through the 1.6400 figure area and triggering light stops and the market traded through the 1.6350 areas in early NYK before flattening out and finishing the day just above that area on the day.  EURGBP continued to move lower having dipped just below 0.8300 on late Friday the market opened and continued the move during the Sydney session however, the Cable jump high sent the cross to below 0.8280 for the first time since the beginning of the year. The market again pushed lower as the European numbers were not user friendly and EURGBP fell to below the 0.8255 levels, we then held steady for several hours before a steady rise to the 0.8280 area for the close.
• JPY: USDJPY saw some early selling as the Cable rose quickly, having opened around the 102.40 area and posting a high just short of 102.60 in pre Tokyo the market dropped quickly and moved to the mid 102.20’s as the JPY strengthened as GBP rose in the face of cross selling. Once the lows were made though the market started a steady climb higher, slowly in Asia and picking up speed as we moved into London to reach the previous highs, the market continued to rally as USDJPY buyers continued all through the day with good two way volumes coming to market with the overall tone of a broad based USD push. As we moved into the NYK session we had already reached the 102.90 levels. The break through 103.00 was a little drab as offers continued every 5 pips and slowed the movement down however, this does allow some of the medium term players to exit there longs with good gains having now hit highs not seen since may. The market then played around the 103.10 area until the last couple of hours in NYK where again profit taking was seen in the market and a steady decline for a close just above the 102.90 levels. Strong fund buying in the later stages of the rally appeared, all eye’s now watch the 103.74 areas which are the highs for the year.
• AUD: The Oz seemed for a time to be connected by the hip to Cable, the opening was above Friday’s close around the 0.9130 areas and quickly dropped back in pre Tokyo to fill the gap on the charts once that was out of the way it moved into Tokyo just off the 0.9110 levels and moved to the 0.9130 as Cable started to rally strongly. Although it decoupled from the GBP move it continued higher to push through the 0.9160 levels as strong buying appeared one can assume either position cutting or an expected no change for the RBA announcement some 24hrs later. The market held the 0.9150-60 levels into London and it again pushed through the previous highs in the grey hours to hit around the 0.9167 levels before catching the fall in Euro’s. The steady rise in the USDJPY then played its part and the Oz was really on the back foot from that point on trading back the opening levels and then the move into NYK saw Oz push ever lower to touch 0.9090 finding some light support and rose to only just above the 91 cent level into the close. For the most part it was all about cross trading with early GBPAUD buying dragging the pair higher as Cable rallied quickly then into early London we saw EURAUD selling before AUDJPY offers holding the market and chasing the AUD leg lower. Volumes were reasonable considering it’s the day before a rate announcement.

Yesterday’s premiership results

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

NZD       Terms of Trade Index Q/Q Q3 A 7.50% | C 2.90% | P 4.90% | R 4.70%

AUD       TD Securities Inflation M/M Nov  A 0.20% | P 0.10%

JPY         Capital Spending Q3 A 1.50% | C 2.80% | P 0.00%

AUD       Building Approvals M/M Oct A -1.80% | C -5.00% | P 14.40% | R 16.90%

AUD       Building Approvals Y/Y Oct A 23.10% | C 17.00% | P 18.60% | R 22.20%

CNY        HSBC/Markit Manufacturing PMI Nov A 50.8 | C 50.5 | P 50.9

CHF        SVME PMI Nov A 56.5 | C 54 | P 54.2

EUR        Italian PMI Manufacturing Nov A 51.4 | P 50.7

EUR        Eurozone PMI Manufacturing Nov (F) A 51.6 | C 51.5 | P 51.5

GBP       PMI Manufacturing Nov A 58.4 | C 56.2 | P 56 | R 56.5

USD       ISM Manufacturing Nov A 57.3 | C 55 | P 56.4

USD       ISM Prices Paid Nov A 52.5 | C 55 | P 55.5

USD       Construction Spending M/M Oct A 0.80% | P 0.40%
Good Luck

Andy