Daily FX Market Commentary

Andy Harrison

Good morning,

LMAX Close

USDJPY 103.011 | EURUSD 1.3672 | EURJPY 140.823 | AUDUSD 0.90546 | NZDUSD 0.83672 | USDCAD 1.08606 | EURCHF 1.2291 | USDCHF 0.89899 | GBPUSD 1.63868 | EURGBP 0.83434 |

Interbank Ranges as of 6am London time

Highs    Lows

USD/JPY               103.53 | 103.00

EUR/USD             1.3672 | 1.3656

EUR/JPY               141.46 | 140.78

AUD/USD            0.9058 | 0.9020

NZD/USD             0.8389 | 0.8358

USD/CAD             1.0899 | 1.0860

EUR/CHF              1.2305 | 1.2291

USD/CHF             0.9006 | 0.8992

GBP/USD             1.6399 | 1.6379

EUR/GBP             0.83435 | 0.83305

For today

• EUR: Limited movement dominated by the JPY, the market opened around the 1.3670 and moved steadily lower into the Tokyo session. A resurgent USDJPY after an unexpected fall in the current account total saw the JPY weaken. Euro moved off to the upper 1.3650’s but with limited interest in selling straight Euro’s there seemed to be a similar pattern to yesterday as the Euro held with some weak interest to buy EURJPY. Having based off the 1.3660 the market slowly made its way back to the starting line and we currently hang around those levels as we move to London. There remain some offers in front of the 1.3700 level and then a mix of offers and stops above the level, with the 1.3800 level still likely to be the larger sticking point. Downside has limited bids to 1.3600 however; a clean break below the 1.3580 opens up more vulnerability.
• GBP: After yesterday’s falls the question remains to why, I drew the conclusion that liquidity was the key factor added to the possibility of a technical move in the offing, one supposes given the busy macroeconomic day ahead it could be interesting, which is not what the Asian session was in anything GBP with the market trading around the 1.6390 level in a tight band and only once exceeding a 10 pip range with a dip late on to below 1.6380 only to move back again. Topside sees light offers to the 1.6400 level which remains key to a deeper move lower, with stops above the 1.6420 likely. Downside still looks open to a deeper move if yesterday’s reversal on the daily’s is followed through. Of course the data today is the thing.
• JPY: An increasing current account deficit was key to the move high in USDJPY, apart from retail Japan thinking early levels were worth going long again. The USDJPY had already started to rise off lows in NYK moving to the opening levels just above 103.00, with the release of the CA number some Y3Tn below expectations the market started to move strongly from the Tokyo opening pushing to above 103.50 in the first half of the session before the impetus ran out. As could be expected 103.50 was a decent level yesterday and it remains so approaching it from the other side with decent offers resting from there and thinning to the 103.80 level before seeing some weak stops. The downside see’s and accumulation below the 102.60 levels with mostly bids however, there are likely to be weak stops from yesterday’s bottom pickers with better bids appearing lower down.
• AUD: AUDJPY remains fairly flat overall and while the USDJPY rises to approach the 103.50 the AUD was forced lower however, it was limited. Opening around the 0.9055 level the Oz slipped back a little in pre-Tokyo but then started to move deeper once the USDJPY ground higher pushing to below the 0.9020 level before finding a comfortable level and AUDJPY buyers willing to move back into the pair. For the moment we are in mid-range and trading quietly in the pair. With topside offers around the 91cent area and little else showing the market still insists on the downside being the stronger side however, with this move up at least there is some room to move now. With light bids from 0.9010 downwards the key point is now the 0.8820 level.

Overnight News

JPY:

Japan Nov Unadjusted Current Acct Deficit Y592.8B; +230.1% Y/Y

Japan EconMin: Must be vigilant to widening current account deficit

Japan ex-PM Hosokawa Decides to Run in Tokyo Governor Race

Japan service sector sentiment improves in Dec

CNY:

PBOC fixes yuan mid-point at record 6.0930/dollar

China Aims to Widen Yuan Band, PBOC Official Says: Caixin

PBOC skips open market operations for 6th consecutive session

NZD:

New Zealand house prices rise in December – Q
Today’s data

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

JPY         Current Account Total (JPY) Nov A -0.5T | C -0.02T | P -0.06T

JPY         Eco Watchers Survey: Current Dec A 55.7 | C 54.2 | P 53.5

09:30     GBP       PPI Input M/M Dec C -0.20% | P -0.70%

09:30     GBP       PPI Input Y/Y Dec P -1.00%

09:30     GBP       PPI Output M/M Dec C 0.20% | P -0.20%

09:30     GBP       PPI Output Y/Y Dec P 0.80%

09:30     GBP       PPI Output Core M/M Dec P -0.10%

09:30     GBP       PPI Output Core Y/Y Dec P 0.70%

09:30     GBP       CPI M/M Dec P 0.10%

09:30     GBP       CPI Y/Y Dec C 2.10% | P 2.10%

09:30     GBP       Core CPI Y/Y Dec C 1.80% | P 1.80%

09:30     GBP       RPI M/M Dec P 0.10%

09:30     GBP       RPI Y/Y Dec C 2.70% | P 2.60%

10:00     EUR        Eurozone Industrial Production M/M Nov C 1.60% | P -1.10%

13:30     USD       Advance Retail Sales Dec C 0.30% | P 0.70%

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

13:30     USD       Import Price Index M/M Dec C 0.50% | P -0.60%

15:00     USD       Business Inventories Nov C 0.30% | P 0.70%

Harry Hindsight

• EUR: With no Data the market struggled to continue the rises the market saw over the past 24hrs running continually into offers above the 1.3680 level. Opening around the 1.3670 levels the market in Asia pushed at the topside tentatively several times however the offers kept a lid on events and we started to drop away into the London opening.  The dominant play though was the continuing strengthening of the Yen against all the others and while the Euro fared better than most it was forced lower as cross selling against the Yen kicked in triggering minor stops from retail players across the market. Euro’s dropped from the London opening to the 1.3660 levels and held for several hours into the NYK session where the same cross selling, this time the market moved to the 1.3640 levels. While the Yen strength was evident in the Euro, there was a knock on affect from the GBPJPY, with GBP struggling for liquidity at times this caused the EURGBP cross higher coinciding with the Euro’s drops back. Once the JPY found support the Euro was free to rise again whether the Yen movement held at bay the Euro from attempting the 1.3700 time will tell however, the market moved steadily back to the opening areas into the close finishing the last hour in the 1.3670-75 levels for a flat day.
• GBP: From the opening in Asia the Cable moved in a similar fashion to the Euro, moving from the opening 1.6480 levels and gradually rising to above the 1.6500 level where it spent a couple of hours to make any further headway. Come the late part of the session and moving towards London the Yen started to strengthen appreciably, GBPJPY selling was particularly strong and outstripped the available bids in the GBP affecting many of the GBP crosses as the market invented different legs to cover the GBP risk. By the London opening we were trading around the opening Asian levels and quickly dropped to the 1.6420 levels where we found minor support and a little respite before the selling renewed into the NYK session taking the market down to the 1.6360 levels, technically speaking the day was a reversal with the high and low, lower than the previous day which given the NYK market would possibly have some bearing on the move to below 1.6350 in NYK and holding below the 1.6400 into the close. EURGBP moved higher in two fairly quick moves having opened around the 0.8295 area the market did nothing through Asia and only once the GBP came under pressure from the JPY strength did the cross begin to move rising in two steps to above the 0.8345 levels but unable to push through the sentimental 0.8350 levels into the close.
• JPY: USDJPY opened lower from the start around the 104.08 areas and although it peaked above the 104.10 level selling moved into the market on the back of those NFP numbers from Friday, and it didn’t stop, at first it looked as if the market would soak up the pressure from retail Japan covering USDJPY longs, however after fixing supply joined in, it was all over apart from the shouting, dropping quickly to the 103.30 area the market found some support, sufficient for the Asian session and most of London however, while the market didn’t break any lower the selling did continue as evidenced by GBPJPY and while the JPY was easily covered the GBP side was a struggle. The move into NYK saw a fresh round of selling and we made our way slowly to below 103.00 and holding the 102.85 levels into the closing part of the day.
• AUD: In a perfect world the AUD should have been above the 91cent level no problem however, Yen strength was to some extent immaterial to AUD sellers of rallies. We opened just below the 90cent level and struggled with carry trade selling in the early Tokyo session moving slightly lower to test the 0.8990 levels before the carry trade started to buck the trend. The AUD continued to rise through Asia and into the London session peaking above the 0.9080 level in early NYK before settling back to finish the day above the 0.9050 level. AUDJPY reversed its gains in NYK dropping back as the JPY slid off to finish the day below 93.40 to stay in line with the years range.

Yesterday’s premiership results

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

AUD       Home Loans Nov A 1.10% | C 1.10% | P 1.00%

USD       Monthly Budget Statement Dec A $0.0B | P -$135.2B
Good Luck

Andy