Daily FX Market Commentary

Andy Harrison

Good morning,

LMAX Close

USDJPY 116.398 | EURUSD 1.25096 | EURJPY 145.623 | AUDUSD 0.82195 | NZDUSD 0.7790 | USDCAD 1.16267 | EURCHF 1.20094 | USDCHF 0.95995 | GBPUSD 1.57502 | EURGBP 0.79426 |

 

Interbank Ranges as of 6am London time

Highs    Lows

USD/JPY               117.12 | 116.30

EUR/USD             1.2516 | 1.2485

EUR/JPY               146.39 | 145.575

AUD/USD            0.8235 | 0.8146

NZD/USD             0.7797 | 0.7731

USD/CAD             1.1646 | 1.1623

EUR/CHF              1.2010 | 1.2009

USD/CHF             0.9618 | 0.95965

GBP/USD             1.5753 | 1.5716

EUR/GBP             0.7954 | 0.7942
For today

• EUR: The Euro held around the 1.2510 levels for a good portion of the session deep into the Tokyo session, with the Asian market running a little scared of the EM problems with several running USD debt and the servicing of which is likely to impact on their economies as the USD rises saw further upset with the RUB interest rate rise and the consequential continuing rise to above the 78.00 level before slipping back to the 70 levels. This obviously is old news but across the board today USD slowly returned to ascendency which is unusual given today’s FOMC day. Volumes were nothing like we’ve seen however, better than you would normally expect and the market eventually turned lower in the Euro as the USDJPY moved quickly higher pushing against the light offers and retail selling in the market, the Euro eventually settled to around the 1.2485-90 area and again quietened holding into the grey hours. Topside offers are really above the 1.2570 level and into the 1.2600 area where the market has tested on a couple of occasions but been unable to break the level and seems to be the key now to moving higher, today’s FOMC may through further light on the situation with a dovish commentary likely to settle the markets somewhat if interest rate increases continue to be placed on the backburner however, this is still only putting off the inevitable. Chances are that the US will continue the pressure with mixed reviews on the next move continuing. A push through the 1.2600 levels will likely see a break higher and the market is vulnerable to a move towards the 1.2750 levels before again finding any decent resistant. Downside has light bids into the 1.2470 areas and a move opens up the weak support around the 1.2400 areas, of importance to the downside is the EURCHF and given the charts picture those 5min bottoms all to be broadly in line and suggestive of large enough bids to hold the market at the moment and likely to keep the Euro bid for the moment, of course this doesn’t hold if USDCHF goes bid.
• GBP: Cable did reasonably well yesterday and the market saw limited selling and a steady drift dropping from the 1.5750’s to the 1.5720 levels over the course of the session, volumes have been light and most of the movement for the Cable has been driven by the drifting Euro and the USDJPY move higher from the opening. Topside offers run from 1.5780 and into the 1.5800 level, a push through the 1.5810-20 areas will see a possible breakout to test into the 1.5950 however, this is not likely to occur in a quick move and the market will struggle into the 1.5850 and the 1.5900 levels to get there, again todays FOMC are likely to dominate the market for the most part with no change expected from the BoE’s MPC meeting and employment figures not expected to show anything surprising. Downside has seen plenty of congested trading over the past month and although the market has nothing significant until below the 1.5600 level, the market is likely to have patches of liquidity all the way to those levels. Through the 1.5600 the bids increase as the bottom pickers join in with the tech guys into the 1.5550 areas before the market opens up for a deeper move.
• JPY: USDJPY moved from the opening levels around trading steadily higher into the Tokyo opening on light volume and suspected day trading buying before the Tokyo market opened, the market touched above the 117.00 areas before dropping back with a slight improvement on the trade balance and the reversal of early buyers, moving back off the 116.50 level the market again pushed slowly to the 117.00 areas and has remained in touch with the area for the rest of the session. Very spotty now with a big range yesterday blowing away much of the near term levels and open for the most part, topside light offers through the 117.00 levels and stronger as the market approaches the 117.50 areas, weak and light stops are likely through the levels and the 117.80-118.00 area possibly holds stronger offers and then the market opens up to the topside again and into the 119.00 areas. Downside bids light around the 116.50 areas and 116.00 level a mixture below that level until the 115.50-60 areas and stronger bids expected and then more bids into the 115.20 areas these areas are likely to be patchy at best and the momentum will be key to further movements lower however, two things to remember is the flow to quality of safe havens from EM areas and year end liquidation of positions, this can all add up to poor liquidity and or very choppy moves over most of the markets.
• AUD: The strong decline in the carry trade continues with yesterday’s strong selling continuing into today’s session and dominating the Oz early in the Tokyo session with the Oz initially rising from a steady 0.8220 to the mid 0.8230 level before dipping slowly towards the lows and breaking quickly through the 82 cent level to trigger stops and clearing out the bids that held the market over the past 48 hours. Again the liquidity through the level was patchy at best and the 0.8180, 0.8170 held the market briefly before giving way as the market continued to weigh heavy, several factors were pointed out however, the main one for me still goes back to the underlying problem being EM and end of year however, margin calls maybe behind parts of the moves as I’m sure the retail market has been squeezed by the local pairings over the past 24 hours and some markets have seen quick moves in margin rates as the sector adjusts rates to fit the risks involved with volatile markets such as the RUB. The market eventually ran to the 0.8150 levels and has broadly held the level for a couple of hours however, the downside bids are limited to the 0.8100 areas and the market is open to further moves lower if it can push through the 0.8080-60 areas. Topside has initial offers into the previous levels around 0.8220-40 and stronger as you approach the 0.8280 levels, a break hear still has plenty of offering in the market and the fundamentals for Australia certainly look to be outweighing the carry trade buyers for the first time in a few years.

Overnight News

JPY:

Japan exports rise 4.9% YoY in November MOF

Japan May Reduce New JGB Sales by About 1.3t Yen Next Yr: Asahi

NZD:

Moody’s ‘Very Comfortable’ With N.Z. AAA Sovereign Rating

N.Z. Govt. Debt Draws Most Foreign Purchases in More Than a Year

N.Z. External Debt as Proportion of Economy Falls to 11-Year Low

N.Z. Goods Deficit Widens as 3Q Imports Surge to Record

CNY:

China Sets Yuan Reference Rate at Strongest Since Feb. 19

RUB:

Putin Plans No ‘Special Statements’ on Markets, Kommersant Says

Asia:

ADB Cuts Developing Asia Growth Forecasts for 2014, 2015

ADB Cuts China Growth Forecasts For 2014, 2015 on Property

Today’s data

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

NZD       Current Account Balance (NZD) Q3 A -5.01B | C -5.32B | P -1.07B | R -1.08B

AUD       Westpac Leading Index M/M Nov A -0.10% | P 0.03% | R 0.10%

JPY         Trade Balance (JPY) Nov A -0.93T | C -0.99T | P -0.98T | R -0.99T

09:30     GBP       BoE Minutes

09:30     GBP       MPC Official Bank Rate Votes C 2–0—7 | P 2–0–7

09:30     GBP       MPC Asset Purchase Facility Votes C 0–0—9 | P 0–0–9

09:30     GBP       Jobless Claims Change Nov C -22.0K | P -20.4K

09:30     GBP       Claimant Count Rate Nov P 2.80%

09:30     GBP       ILO Unemployment Rate (3M) Oct C 6.00% | P 6.00%

10:00     EUR        Eurozone CPI Y/Y Nov (F) C 0.30% | P 0.30%

10:00     EUR        Eurozone CPI – Core Y/Y Nov (F) C 0.70% | P 0.70%

10:00     CHF        ZEW (Expectations) Dec P -7.6

13:30     CAD       Wholesale Sales M/M Oct C 0.90% | P 1.80%

13:30     USD       CPI M/M Nov C -0.10% | P 0.00%

13:30     USD       CPI Y/Y Nov C 1.50% | P 1.70%

13:30     USD       CPI Core M/M Nov C 0.20% | P 0.20%

13:30     USD       CPI Core Y/Y Nov C 1.80% | P 1.80%

13:30     USD       Current Account Balance Q3 C -$94.4B | P -$98.5B

15:30     USD       Crude Oil Inventories P 1.5M

19:00    USD       FOMC Rate Decision C 0.25% | P 0.25%

Harry Hindsight              

• EUR: A steady rise in the Euro through the Asian market belaying the volumes that actually moved through with RUB being the centre of the markets nervousness and having a knock-on effect with flows from EM currencies into safer markets. Rising from the opening levels just below the 1.2440 level it edged up through Asia to the 1.2460 levels, the opening in London saw the release of the first PMI number from Europe with the French numbers mixed but a good services boosted the Euro and the market moved higher into the waiting offers, German numbers followed within 30 minutes and the offers were quickly taken out and the 1.2500 level crumpled as the bidding triggered light stops. Both the Eurozone numbers exceeded expectations however the move was almost finished and 1.2530 remained standing, the return trip was less spectacular and the market dipped quickly lower but only just through the 1.2500 levels before slowly rising again to trade above the 1.2570 as the market followed through this time and into the NYK session. The NYK session the Euro begin to slid a little and the market traded back to the 1.2500 levels more as a consequence of the USDJPY rallying back towards its opening levels for the market to close not too far from the above the 1.2510 areas.
• GBP: As with the early flows through Asian the market moved up from the opening below 1.5640 to trade into the mid 1.5660’s and the London opening, with the inflationary numbers showing surprising higher consensus numbers than BoE’s Carney had intimated over a month ago the release of numbers in line with his expectations briefly rocked the market back taking the Cable to the 1.5620 areas before it would seem everyone remembered his commentary and call at 1% for the year end due to energy price drops, the market rebounded off the lows and quickly moved to the 1.5720 level and then a more steady rise to above the 1.5780 level before slowing and ranging in the 1.5760-20 area for the remainder of the session. EURGBP remained in a fairly tight range around the 0.7940-60 levels apart from the release of the inflationary numbers in the UK where a quick spike to above the 0.8000 levels.
• JPY: USDJPY gradually eased lower as the combination of end of the year liquidation and flight to quality sent the USDJPY moving from the opening 118.00 areas and a steady decline as the JPY strengthened across the board, dipping into the grey hours through the 117.50 levels. The move into the London session saw a final flurry as the Tokyo market came back from lunch and the market quickly dropped to the 116.50 levels in early trading before holding for an hour or so. A final push through the 116.50 levels as the market moved towards the NYK opening saw another deep and quick move into the 115.50 areas and then the recovery started turning back to the 116.50’s dipping and then running strongly back through the levels to just below 117.70, the recovery was against light offerings and although the market held below the 117.50 levels in the run to the close. Light profit taking from day traders long from the 115.50/116.00 levels again sent the market down for a finish around the 116.50’s the downside being dominated by real money and CTA against the retail and early day traders who eventually turned.
• AUD: A surprisingly steady day for the Oz given the 250 pip move in the USDJPY opening around the 0.8210 area and moving steadily higher over the first half of the day to trade again above the 0.8270 levels before dipping back as margins for the retail market were stretched and returning to the 0.8210-20 areas for the close only just higher than the opening. Its worth noting that the release of the CNY HSBC PMI number was the low for the day as the market dipped to test the 82 cent levels before quickly recovering.

Yesterday’s premiership results

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

CNY        HSBC Manufacturing PMI Dec (P) A 49.5 | C 49.7 | P 50

EUR        France Manufacturing PMI Dec (P) A 47.9 | C 48.7 | P 48.4

EUR        France Services PMI Dec (P) A 49.8 | C 48.6 | P 47.9

EUR        Germany Manufacturing PMI Dec (P) A 51.2 | C 50.4 | P 49.5

EUR        Germany Services PMI Dec (P) A 51.4 | C 52.6 | P 52.1

EUR        Eurozone Manufacturing PMI Dec (P) A 50.8 | C 50.5 | P 50.1

EUR        Eurozone Services PMI Dec (P) A 51.9 | C 51.6 | P 51.1

GBP       CPI M/M Nov A -0.30% | C 0.10% | P 0.10%

GBP       CPI Y/Y Nov A 1.00% | C 1.30% | P 1.30%

GBP       Core CPI Y/Y Nov A 1.20% | C 1.50% | P 1.50%

GBP       RPI M/M Nov A -0.20% | C 0.10% | P 0.00%

GBP       RPI Y/Y Nov A 2.00% | C 2.30% | P 2.30%

GBP       PPI Input M/M Nov A -1.00% | C -1.60% | P -1.50%

GBP       PPI Input Y/Y Nov A -8.80% | C -8.30% | P -8.40%

GBP       PPI Output M/M Nov A 0.20% | C -0.30% | P -0.30%

GBP       PPI Output Y/Y Nov A -0.10% | C -0.60% | P -0.50%

GBP       PPI Output Core M/M Nov A 0.50% | C 0.00% | P 0.10%

GBP       PPI Output Core Y/Y Nov A 1.40% | C 0.80% | P 0.90%

GBP       DCLG UK House Prices Y/Y Oct A 10.40% | C 13.20% | P 12.10%

EUR        German ZEW (Current Situation) Dec A 10 | C 5 | P 3.3

EUR        Eurozone ZEW (Economic Sentiment) Dec A 31.8 | C 19.8 | P 11

EUR        Eurozone Trade Balance (EUR) Oct A 19.4B | C 18.2B | P 17.7B | R 17.9B

CAD       International Securities Transactions (CAD) Oct A 9.53B | C 5.21B | P 4.37B | R 4.64B

CAD       Manufacturing Shipments M/M Oct A -0.60% | C -0.40% | P 2.10% | R 2.20%

USD       Housing Starts Nov A 1.03M | C 1.04M | P 1.01M

USD       Building Permits Nov A 1.04M | C 1.06M | P 1.08M | R 1.05M

Good Luck,

Andy