Daily FX Market Commentary

Andy Harrison

Good morning,

LMAX Close

USDJPY 109.649 | EURUSD 1.26311 | EURJPY 138.499 | AUDUSD 0.87475 | NZDUSD 0.77896 | USDCAD 1.1197 | EURCHF 1.20622 | USDCHF 0.95502 | GBPUSD 1.62128 | EURGBP 0.77909 |

 

Interbank Ranges as of 6am London time

Highs    Lows

USD/JPY               110.09 | 109.555

EUR/USD             1.26325 | 1.2608

EUR/JPY               138.80 | 138.40

AUD/USD            0.8748 | 0.8663

NZD/USD             0.7821 | 0.7761

USD/CAD             1.1223 | 1.1196

EUR/CHF              1.2065 | 1.2058

USD/CHF             0.9567 | 0.9549

GBP/USD             1.6218 | 1.6179

EUR/GBP             0.77945 | 0.7787

For today

• EUR: Euro came under pressure after a slow start to the session holding the 1.2630 opening areas before dipping steadily to the 1.2610 levels as the Oz dropped dragging the majors down as the USD strengthened across the board, the market held the 1.2610 levels. Topside sees light offers in the 1.2640-50 areas before opening up the 1.2700 level again however, without fresh input from the ECB on Thursday the currency levels suits for the moment but this is not going to last too long, above the 1.2700 levels a move through 1.2720 will likely see some stops triggered in a move to the 1.2760 areas.  The downside market sees strong bids around the 1.2570 area as shorts look for a partial cut after the strong fall off over the past couple of months however, how deep these bids are is speculative at best and the move yesterday technically opens up a further push to the 1.2400 handle the next area of strength technically. Expect reasonable bids appearing around sentimental levels especially from the options crowd.
• GBP: Cable followed the general move lower having slowly drifted higher from the opening. Moving from the opening 1.6215 levels the market tipped having reached just below the 1.6220 areas. The market eased through the 1.6200 levels triggering some weak stops before holding the 1.6180 levels. Topside offers remain just above the 1.6230 areas which the market failed to push through yesterday, with light stops likely through the level and the market opening for a fresh attempt to the 1.6290-1.6300 offers. Downside bids around the 1.6170 areas are light however; this protects a better bid area from the 1.6150 levels down through 1.6100 with patches continuing all the way down. A push through the 1.6050 levels will see stops likely in size before opening the market a little as we move to the range from Nov-Dec of last year as the next choke point.
• JPY: USDJPY opened in the mid 109.60’s and traded slightly lower to make the lows before the Oz numbers tipped the market out of bed, while the Oz was the catalyst the market soon took it as a USD move and given the Oz decline USDJPY was quickly pushed higher as the bids in AUDJPY kept the market bid into the 95.20-40 area with fresh buying pushing the USDJPY through the 110.00. The move through the level didn’t follow through and the market slowly drifted back from the highs with very little conviction. So where now, while the market has been talking up the USDJPY and yield flows have been moving out of Japan at ever increasing levels the fact remains that sooner or later the BoJ/MoF has to face the fact that the weaker the JPY the more it costs to service its debt carried by overseas owners, over previous years the pair have attempted similar strategies and whether they are happy with this scenario remains to be seen however, it’s not as if they can export their way out of trouble, we’ve been there before and of course most of its major companies operate outside its borders to escape this type of currency fluctuation so a moot point. With the market now at pre-crisis levels the market is likely to find some further resistance with technical traders now looking for the 111.20-50 areas to be tested for me this is likely to the next key level however, before we get there if we can the market has to push through the 110.20 areas with still offers in play, this I believe is more likely to be a USD move more than JPY weakness and not likely with figures like yesterday. Weak stops through the 110.50 level will run again into option barriers along the way however, one would suspect these would be short dated and light at best with only standard top pickers attempting to pick the top. Downside the levels that yield players enter the market are now diminished by the exchange rates they are paying for the vehicles and while there will still be a likelihood of the hunters returning there has to be a tipping point where the exchange rate becomes too great to risk but then if you’re not in you can’t win. Downside bids are light around the 109.60 levels, this is likely to be tempered by weak stops from the breakout players leaving the level mixed at best, 109.20 holds better bids however, a push through the 108.80 levels opens a test through 108.50 and this in turn opens quickly for a big figure move to the low to mid 107 areas from the break out in mid-Sep. However, we’ve seen the yield buyers willing to buy to current levels so the downside will hold mix fortunes one imagines.
• AUD: Double bubble is the trouble or so it would seem, with the market focused on the apparent housing bubbles being created in both Oz and China likely to affect the economy of Oz along the way. While the market may be focused on this the RBA after today’s numbers is slowly being pushed into a corner of inactivity as the retail numbers show while conflicting with increase in employment not really what you expect to see. So was the Oz overpriced, probably however, it did curb outside buying pressures. The Oz opened quietly just below the 0.8750 areas before slowly slipping back in the move towards the retail sales number, when it was released it was a quick move lower taking out the 87 cent level and triggering weak stops through 0.8690 before finding support in the 0.8660/70 levels which remains the key support area last seen in Jan, a break here could open up an larger move towards the 80 cent areas with pre crisis ranges opening. Topside now struggles with offers around the 0.8700 level light but more substantial towards the 0.8750-60 levels, with no real stops to mention or key levels the market looks likely to be offered every 50 pips, so simply yield or bubble trouble.

Overnight News

JPY:

Japan business sentiment for manufacturers improves in Q3-BOJ tankan

Japan’s Kato Says Watching Yen’s Movement Closely

Japan’s Aso Declines to Comment on FX the Dollar over 110 Yen

Amari Says Excessive Currency Movements Undesirable: Nikkei

Tokyo Plans Business Zone to Boost Global Hub Status: Nikkei

Markit/JMMA  Japan Sept. Manufacturing PMI 51.7 vs 52.2 in Aug.

KRW/JPY:

S. Korea to Announce Measures to Cope With Weak Yen: Yonhap

S. Korea to Actively Respond to Volatile Yen/Won Movement: Maeil

CNY:

China’s September official PMI steady at 51.1

China PMI Shows Weak Business Mood, De-Stocking: Govt. Economist

NZD:

RBNZ’s Wheeler Says Kiwi Unsustainable in August Annual Report

AUD:

Australia August Retail Sales Miss Expectations

Australia Sept. Manufacturing Index Falls 0.8 Pt to 46.5

Australia RPData-Rismark Sept. House Price Index Rises 0.1 Pt M/M

Abbott: Aust. to Operate Support Missions over Iraq from Today

 

Today’s data

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

JPY         Tankan Large Manufacturers Index Q3 A 13 | C 10 | P 12

JPY         Tankan Non-Manufacturing Index Q3 A 13 | C 17 | P 19

CNY        Manufacturing PMI Sep A 51.1 | C 51 | P 51.1

AUD       Retail Sales M/M Aug A 0.10% | C 0.40% | P 0.40%

07:30     CHF        SVME PMI Sep C 52 | P 52.9

07:45     EUR        Italy Manufacturing PMI Sep C 49.5 | P 49.8

08:00     EUR        Eurozone Manufacturing PMI Sep (F) C 50.5 | P 50.5

08:30     GBP       PMI Manufacturing Sep C 52.6 | P 52.5

12:15     USD       ADP Employment Change Sep C 204K | P 204K

14:00     USD       ISM Manufacturing Sep C 58.5 | P 59

14:00     USD       ISM Prices Paid Sep C 57 | P 58

14:00     USD       Construction Spending M/M Aug C 0.40% | P 1.80%

14:30     USD       Crude Oil Inventories P -4.3M

Harry Hindsight              

• EUR: Having flirted with the 1.2700 level for the past 24hrs trading in a reasonably tight range through Asia the market tipping slowly into the London session increasing on the release of the CPI numbers. The core YoY number dropping 0.20% below expectations at 0.70% and the Euro started to move more dramatically trading through the 1.2650 levels and weak stops before briefly holding the 1.2610-00 area and renewing the move into the NYK session to trade to the 1.2570’s. US numbers weaker than expected supported the Euro as the USD weakened slightly however, what bounce the market saw was limited and the market only managed to make it to the 1.2630, once the London market wrapped up the market narrowed down to trade around that level into the close.
• GBP: The Asian market had a little bit of GBP to buy through the session a combination of end of month and GBPAUD rumours with calls for 2.000 by the end of the year. This took Cable from the opening 1.6240 and then off early lows just below 1.6230 to steadily rise to above the 1.6260’s into the grey hours. Holding the highs into the House price number the market moved higher moving into the high 1.6280’s before the long drag lower as the Euro numbers hit, the move lower was fairly quick dipping initially to the opening areas then dropping quickly as weak stops were triggered through the lows to trade down to the 1.6200 level where fresh bidding held the market for a short period of time, the bids ran out as fresh selling entered the market and talk of a large single ticket pushing the market down to the 1.6170 levels before finding enough support to hold the market, as with the Euro the market’s bounce was limited and connected more to the weak US numbers however, the market edged above the 1.6220 and held the levels until the end of the London session before drifting back slowly but held 1.6210 into the close.
• JPY: The market moved into the Asian session just below the 109.50 levels and started immediately to drift lower, a drop in unemployment helped the Yen to strengthen further however, the downside remained limited and although we pushed to the 109.20 area during the Asian session the market moved steadily higher as the other majors weakened against the USD on the Euro numbers, struggling through the 109.70 areas before breaking higher again to the 109.80 levels before slipping back to the 109.60’s and finishing the day around those levels.
• AUD: A choppy day for the Oz with the market opening around the 0.8720 levels and dipping into early Tokyo to trade below the 0.8700 level following the NZD as building permits disappointed big time, the Oz recovered from the low pushing gradually higher as back to the opening levels before pushing through and triggering weak stops. While cross trading dominated the market the Oz was unable to push through offers around the 0.8770-0.8800 levels and the market remained capped into the London opening before easing back again as the USD was forced higher from the weakening Euro and GBP. Having moved down to the 0.8710 levels the market again started to reverse its loses as the US numbers hit slightly weaker than expected and the market ran out around the 0.8750 level in a quiet closing period.

Yesterday’s premiership results

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

NZD       Building Permits M/M Aug A 0.00% | C 0.00% | P 0.10% | R -1.70%

GBP       GfK Consumer Sentiment Sep A -1 | C 0 | P 1

JPY         Unemployment Rate Aug A 3.50% | C 3.80% | P 3.80%

JPY         Household Spending Y/Y Aug A -4.70% | C -3.60% | P -5.90%

JPY         Retail Trade Y/Y Aug A 1.20% | C 0.30% | P 0.50% | R 0.60%

JPY         Industrial Production M/M Aug (P) A -1.50% | C 0.20% | P 0.40%

NZD       NBNZ Business Confidence Sep A 13.4 | P 24.4

JPY         Labour Cash Earnings Y/Y Aug A 1.40% | C 1.00% | P 2.60% | R 2.40%

CNY        HSBC Manufacturing PMI Sep (F) A 50.2 | C 50.5 | P 50.5

JPY         Housing Starts Y/Y Aug A -12.50% | C -13.70% | P -14.10%

GBP       Nationwide House Prices M/M Sep A -0.20% | C 0.50% | P 0.80%

CHF        KOF Leading Indicator Sep A 99.1 | C 99 | P 99.5

EUR        German Unemployment Change Sep A 12K | C -2K | P 2K | R 3K

EUR        German Unemployment Rate Sep A 6.70% | C 6.70% | P 6.70%

GBP       GDP Q/Q Q2 (F) A 0.80% | C 0.80% | P 0.80%

GBP       Current Account (GBP) Q2 A -23.1B | C -16.8B | P -18.5B | R -20.5B

GBP       Index of Services 3M/3M Jul A 1.00% | C 1.00% | P 1.00% | R 1.10%

EUR        Eurozone Unemployment Rate Aug A 11.50% | C 11.50% | P 11.50%

EUR        Eurozone CPI Estimate Y/Y Sep A 0.30 % | C 0.30% | P 0.40%

EUR        Eurozone CPI – Core Y/Y Sep (A) A 0.70% | C 0.90% | P 0.90%

CAD       GDP M/M Jul A 0.00% | C 0.20% | P 0.30%

CAD       Industrial Product Price M/M Aug A 0.20% | C -0.20% | P -0.30%

CAD       Raw Materials Price Index M/M Aug A -2.20% | C -1.40% | P -1.40%

USD       S&P/Case-Shiller Composite-20 Y/Y Jul A 6.70% | C 7.40% | P 8.10%

USD       Chicago PMI Sep A 60.5 | C 61.5 | P 64.3

USD       Consumer Confidence Sep A 86 | C 92.4 | P 92.4

Good Luck,

Andy