Daily FX Market Commentary

Andy Harrison

Good morning,

LMAX Close

USDJPY 114.654 | EURUSD 1.24857 | EURJPY 143.154 | AUDUSD 0.8594 | NZDUSD 0.77174 | USDCAD 1.13862 | EURCHF 1.20363 | USDCHF 0.96404 | GBPUSD 1.59762 | EURGBP 0.78153 |

 

Interbank Ranges as of 6am London time

Highs    Lows

USD/JPY               115.52 | 114.06

EUR/USD             1.2530 | 1.24715

EUR/JPY               144.235 | 142.945

AUD/USD            0.8621 | 0.8553

NZD/USD             0.7748 | 0.7668

USD/CAD             1.1415 | 1.1380

EUR/CHF              1.2052 | 1.2031

USD/CHF             0.96495 | 0.96035

GBP/USD             1.6004 | 1.5955

EUR/GBP             0.7837 | 0.7815

For today

• EUR: The Euro’s traded quietly in early trading holding around the 1.2480 level and then a slight move higher into the 1.2490’s into Tokyo. Movement really started after the market in USDJPY moved, then the market got to read an article in the UK’s Telegraph released yesterday evening stating that if Draghi pushes ahead with QE then Weidmann will resign, with allegations that Draghi kept pertinent details and documents away from the two German ECB members in case it was passed on in an attempt to stymie QE in the future. The Euro made a move back through the 1.2500 levels triggering some light weak stops before halting at the 1.2530 levels. 1,2550 now offers light offers through to 1.2580 were better offers appear in front of 1.2600 a push through the 1.2620 levels opens up the 1.2700 levels for further tests. The downside bids begin around the 1.2460 level and run to 1.2420 with suspected option plays to that downside a push through the 1.2400 area will open up a deeper move to the 1.2330 levels before meeting strong bidding. Of course if this ECB spat continues then one or the other Draghi or Weidmann will join the unemployed if not both, and that will not go down well however, the consequences no QE or QE that is the question.
• GBP: Cable tagged along with the Euro drifting through the bulk of the session holding the 1.5960-70 area for much of the session before heading higher as the ECB spat continues to dominate the market however, while that news above is being blamed in part a large drop in the Japanese Nikkei and movement in the USDJPY had more to do with the market than its given credit for. Cable eventually touched through the 1.6000 levels but unable to capitalize on the move, GBP lost ground against the Euro with the market moving about 20 pips higher from the opening. Offers from the 1.6000-20 areas but after yesterday’s numbers the chances of the UK following the US rate rises if they arrive are further diminished. The downside sees bids into the 1.5950 levels however, as we’ve seen the downside is not as solid as it would appear with the stronger bids towards the 1.5870 areas based on the rise higher at the back end of 2013, a push lower and through these bids will open up deeper moves into the 1.5000 levels possibly.
• JPY: The USDJPY initially started quietly moving from the opening 114.70 levels to hold on the 114.60 levels into Tokyo. Then the market moved higher with a mixture of buyers across all players, the market pushed at the 115.00 levels however, large offers were visible in the markets and the range players and proprietary types sold into the market giving the level a brief respite, the next move was quick with the market bottoming around the 114.70 levels and bouncing quickly to force the sellers out and a move through the large offers speeding to 115.20 before running into offers, the market continued pushing higher brushing aside the remaining selling to touch the 115.50 areas, I could guess that a large option was taken out, having driven through the level the buyers quickly turned and tried to exit the market however, with all the buying now finished there was a lack of support and the market dropped quickly through the 114.50 and continued in a less frantic manner to trade to the 114.20 levels. USDJPY topside sees offers above the 115.50 levels now as range players look for some levels to fade the market however, given the ability of the market to drive through option barriers, sentimental levels trying to fade the market is clearly limited. With this move the market is now open to a move to the 120.00 level with possibly 117.00 the next line in the sand. Downside bids into the 114.20 levels are likely to dominated for the range play however, the downside is a bit thin with the best bids down around the 110.00 area and any bids in between for the moment likely to be more sentimental than technical but the USD has got the bit between the teeth and JPY and Abeconomics is continuing to drive the market. Also today was the first verbal intervention with Japan’s Suga stating closely watching forex moves?

Guess work on my part however, you buy Nikkei several months ago and also put a hedge on the FX risk, this hedge then becomes unstable once the market reaches 115.00 in USDJPY or the Nikkei has become too vulnerable so as a necessity you need to close both the Nikkei and Option at that point, if you are the writer of the option you would by necessity try to defend the level to keep the option in play, the push through triggered the option and the Nikkei selling had already kicked in, you then have a natural position of Long JPY and you start to buy your USDJPY to convert the proceeds from the Nikkei position run through 115.00 in USDJPY and cut out your option hedge which negates the loss from the FX risk. But I don’t know what came first the egg or the chicken.

• AUD: Oz has been reasonably well behaved there was an initial push on the release of the Employment releases however, as usual the numbers confused the market with Employment change showing a large rise and the Unemployment rate coming in worse than expected, this caused a spike to the 0.8605 area before dropping quickly back to set new lows below the 0.8560. While the AUDJPY moved during the USDJPY movements there seemed to be less interest in the cross and the Oz remained in a choppy 0.8560-0.8600 range until the USDJPY started to give ground releasing the downward pressure on the Oz and the market moved comfortably higher into the 0.8620 area. Topside I would suspect has offers into the 0.8660 levels with weak stops through that level and an opening to the 0.8700 before running into any further offers. Downside Sees very little until closer to the 85 cent level with limited expectations of bids through there into 0.8480, this said is the downside really that open or will the carry trade become more important if it moves away from the 99.00-100.00 levels we approached yesterday. Pay attention to USDJPY seems to be the best bet for the moment.

Overnight News

JPY:

Most BOJ Members: Yen Depreciation Having Positive Effects Now

Suga: Natural to Consider Various Measures for Weak Yen

Japan’s Suga says will closely watch forex moves

CHF:

SNB’s Jordan Says Gold Vote Will Make Cap Defence Harder: Blick

Swiss Gold Vote Is Invitation for Speculation: Jordan Tells NZZ

KRW/JPY:

S. Korea Closely Monitoring Yen-Won Rate: Official

AUD:

Australian Oct. Employment Rises 24,100 M/M; Est. 20,000 Gain

CNY:

China Enhances Foreign Affair Law: China Vice Premier Wang Yang

CAD:

Canada’s AAA Credit Rating Affirmed by S&P on Stability, Economy

Today’s data

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

AUD       Unemployment Rate Oct A 6.20% | C 6.10% | P 6.10% | R 6.20%

AUD       Employment Change Oct A 24.1K | C 10.3K | P -29.7K | R -23.7K

JPY         Leading Index Sep (P) A 105.6 | C 105.5 | P 104.4

06:45     CHF        SECO Consumer Confidence Oct C -4 | P -1

07:00     EUR        German Factory Orders M/M Sep C 2.20% | P -5.70%

09:10     EUR        Eurozone Retail PMI Oct P 44.8

09:30     GBP       Industrial Production M/M Sep C 0.40% | P 0.00%

09:30     GBP       Industrial Production Y/Y Sep C 1.50% | P 2.50%

09:30     GBP       Manufacturing Production M/M Sep C 0.30% | P 0.10%

09:30     GBP       Manufacturing Production Y/Y Sep C 2.80% | P 3.90%

12:00     GBP       BoE Rate Decision C 0.50% | P 0.50%

12:00     GBP       BoE Asset Purchase Target C 375B | P 375B

12:30     USD       Challenger Job Cuts Y/Y Oct P -24.40%

12:45     EUR        ECB Rate Decision C 0.05% | P 0.05%

13:30     CAD       Building Permits M/M Sep C 5.20% | P -27.30%

13:30     USD       Initial Jobless Claims C 285K | P 287K

13:30     USD       Non-Farm Productivity Q3 (P) C 0.80% | P 2.30%

13:30     USD       Unit Labour Costs Q3 (P) C 0.90% | P -0.10%

15:00     GBP       NIESR GDP Estimate Oct P 0.70%

15:00     CAD       Ivey PMI Oct C 59.2 | P 58.6

Harry Hindsight              

• EUR: The mid-term results in the US saw the Republicans take control of the Senate to add the control of the House of Representatives giving a more friendly political control to the markets and so the USD rose as the market moved into the London session. The market had moved steadily higher from the opening 1.2545 levels to touch just below the 1.2570 levels through the Tokyo session, once the news was released the market steadily moved lower into the London session trading in a tight channel moving steadily to the 1.2480 areas. With mixed PMI’s adding to the Euro’s decline, retail sales was the real reason it was unable to recover with the market holding in a reasonably tight range into the close with only a brief move to above the 1.2500 levels and below 1.2460 into early NYK. The market eventually closed around the 1.2480’s after a busy early part of the day. For the moment the descent in the ECB are a side issue that may or may not bubble to the top tomorrow or in the coming weeks.
• GBP: Early gains in Asia were quickly lost having traded from the 1.6000 levels to 1.6020 the market quickly dropped back through the 1.6000 triggering some weak stops and falling into the grey hours to 1.5950 and light supportive bids the release of the Services PMI number weaker than expected sent the market through the support and down quickly to the 1.5870 levels before finding sufficient support to stop the slide further, the move higher was a little more sketchy with talk of a large buyer prowling the market taking the market from the lows back towards the 1.6000 surprising those that had sold and triggering weak stops, the market then moved into a quiet trading session around the 1.5960-80 before a close in the middle.
• JPY: The USDJPY moved steadily higher through the Asian session moving from the 113.55 levels quietly in pre-Tokyo making a move to the 113.80 level, the market then traded quietly into the US senate news sparking the market higher driving through the 114.00 levels, there was a brief pause before continuing higher into the grey hours and pushing to the 114.40. London pushed through the level but was unable to take it any further than the 114.60 levels, NYK early buyers took it another leg higher and the market traded to above the 114.80 level before holding a quiet 114.60-80 levels into the close.
• AUD: AUDJPY was the dominant feature in the Asian session until the US senate mid-term news. The Market in the Oz moved steadily higher moving from the 0.8740 levels to above 0.8760, as the JPY weakened the AUDJPY rallied however, the market pushed to above the 99.70 level in the carry trade before hitting long term holders taking profit, this turned the Oz lower and then the US release. The market moved to below the 87 cent level into the London session. The weakening JPY and the strong selling of the carry tipped the Oz to the 0.8660 levels, this time there was no stopping and the market dropped quickly to the 0.8620 levels. The market struggled around those levels before moving into NYK and further selling drifted in and the market pushed solidly through the 86 cent levels and spent that later part of the session holding around the 0.8580 levels.

Yesterday’s premiership results

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

NZD       Unemployment Rate Q3 A 5.40% | C 5.50% | P 5.60%

NZD       Employment Change Q/Q Q3 A 0.80% | C 0.60% | P 0.40%

JPY         Monetary Base Y/Y Oct A 36.90% | C 36.20% | P 35.30%

GBP       BRC Shop Price Index Y/Y Oct A -1.90% | P 1.80%

JPY         Labour Cash Earnings Y/Y Sep A 0.80% | C 0.90% | P 1.40%

CHF        CPI M/M Oct A 0.00% | C 0.00% | P 0.10%

CHF        CPI Y/Y Oct A 0.00% | C -0.10% | P -0.10%

EUR        Italy Services PMI Oct A 50.8 | C 49.6 | P 48.8

EUR        Eurozone Services PMI Oct (F) A 52.3 | C 52.4 | P 52.4

GBP       Services PMI Oct A 56.2 | C 58.5 | P 58.7

EUR        Eurozone Retail Sales M/M Sep A -1.30% | C -0.60% | P 1.20% | R 0.90%

USD       ADP Employment Change Oct A 230K | C 210K | P 213K

USD       ISM Non-Manufacturing Composite Oct A 57.1 | C 57.8 | P 58.6

USD       Crude Oil Inventories A 0.5M | C 1.8M | P 2.1M

Good Luck,

Andy