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    US FX Market Open – Thursday, March 31, 2016: DOLLAR INDEX REMAINS FRAGILE

     

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    Overnight Events

    • GBP/USD choppy in 1.4326-1.4395 range-data impact
    • EUR/USD plays 1.1311-1.1383, USD/JPY 112.15-112.67
    • DAX - 0.6%, Brent -0.1%, Gold 0.8%, DXY -0.2%
    • DE Feb R.Sales 5.4% y/y vs -1.2% rvsd prev, 2.2% exp
    • DE Mar Jobless 6.2% vs 6.2% prev, 6.2% exp
    • UK Feb Consumer Credit GBP1.287bln  vs 1.607bln prev, 1.4bln exp
    • UK Feb Mtg Lending GBP3.648bln vs 3.743bln prev
    • UK Q4 GDP 0.6% q/q vs 0.5% prev, 0.5% exp
    • UK Q4 GDP 2.1% y/y vs 1.9% prev, 1.9% exp
    • UK Q4 C/A –GBP32.66bln vs –20.11bln prev, -21.10bln exp
    • EZ Mar flash Infl. -0.1% y/y vs -0.2% prev, -0.1% exp
    • S&P revises China Sov Credit outlook to negative from stable Rtrs
    • UK Consumer Confidence Remains at 0 in March (Reuters Poll -1) – Gfk
    • Concerns about Brexit and EZ Appear to hit UK Consumer Confidence – Gfk
    • HK Unit of China's Guosen Securities Defaults on Dim Sum Yuan Bond - FT
    • Guosen says there has been No "Breach" of Offshore Yuan Bond
    • BOJ’s Kuroda: Will Continue QQE with Negative Rates as Long as Needed
    • Kuroda: Govt has not declared defl. Escape-can't say No Risk of Return to defl

    Currency Summaries

    EUR/USD  
    • Asia range 1.1340-1.1311, takes out Wed’s 1.1365 peak for 1.1383 in London
    • EUR cross demand and fresh USD weakness lifting the pair through 11 Feb 1.1377
    • Comes as DXY breaks yesterday's 94.588 low for 94.555
    • No reaction to in line EZ inflation data.  Wed's low 1.1284 supports, Stops 1.1270
    • Expiries 1.1295-1.1300 (882mln) and related delta hedge buyers below
    • NFP tomorrow - Options pricing breakeven of 77 pips for Friday NY cut straddle
     
    USD/JPY
    • Peaked 112.67 in to fix, eased to 112.15 after, settles 112.30-40's
    • 200HMA is 112.65. Resistance Wed's 112.81 peak then, 21DMA 112.86
    • Support Wed's 112.02 low. Repatriation flows should limit demand early April
    • Options pricing just 77 pips breakeven for NFP tomorrow
    • 1mth vol gets BoJ/FOMC now – 10.0 vs 9.25 Wed', a reasonable 250 pips
    • EUR/JPY pips Wed’s 127.82 peak. Next resistance 16 Feb high 128.18
    • Daily cloud top 128.38. Support 126.97 Asia low and 55DMA 126.95

    EUR/CHF
    • EUR/CHF positive bias holding but m/e flows said light and tight
    • Hits 1.0953 high vs a 1.0920 base and back at 1.0942 open into NY
    • Risk/EM holding steady but stocks having a bad day-DAX off 0.7%
    • USD/CHF off its 0.9593 Wed spike low but remains bear biased
    • Chart: https://reut.rs/22RdfWA

    GBP/USD   
    • GBP/USD extended north to threaten 1.44 after UK Q4 upwardly revised
    • 1.4379 was high shortly before official 4.30am ET UK ONS data release
    • 1.4326 was early Europe low. UK Q4 C/A deficit soared to 7% of UK GDP
    • EUR/GBP was helped to European am high of 0.7913 by month-end demand
    • 0.7947 (pre-Easter 14mth high) & 0.80 among resistance levels beyond

    USD/CAD
    • USD/CAD fell by more than half-a-cent to a low of 1.2940 during European am
    • Losses influenced by expectation of heavy USD/CAD fixing sales for quarter-end
    • 1.2913 was 5mth low shortly before penultimate Q1 Ldn fix Wednesday
    • Canada Jan GDP data due 8.30am ET. Growth of 0.3 f/c vs 0.2% in Dec

    AUD/USD   
    • AUD/USD rose half-a-cent from 0.7634 during European am amid month-end flow focus
    • Recent talk about possible month-end USD selling trumps further copper price fall
    • London copper falls 1% to 4wk low Thursday
    • RBA meets next week: interest rate futures suggest 27% chance of 25bp rate cut

    NZD/USD
    • NZD/USD is consolidating recent gains as quarter-end looms
    • 0.6927 = high water-mark for kiwi since 0.6882 early Europe low
    • Spot scaled a 9mth peak of 0.6965 Wednesday after 0.69 stops tripped   

    Today’s events

    An expiring FX option heading into the New York Cut, if close enough to the strike price, can act as a magnet for selling/buying.  If the option is large, it can generate enough trading to move the market.  

    Option Expirations(Source:ThompsonReuters)

    • Vols pressured across the board post Yellen as risk re priced
    • EUR/USD 1mth to mid 8’s, but support at post FOMC/13mth low 8.35
    • Risk reversals bias flips to EUR calls in 1mth
    • USD/JPY 1mth gets BoJ/FOMC now – paid 10.0 vs 9.1 Wed’ (reasonable 250 pips)
    • Volatile GBP props Cable gamma and Brexit risk supports further out the curve
    • NFP keeping a bid under shorter dated vols, but premiums not expensive  

    Chart - Battle of the Dojis  (Source:ThompsonReuters) 

    GBP/USD charts showed a strong bear signal on Wednesday from a long upper tailed candlestick Doji with its open and close tight at 1.4380-82 and a 1.4457 high.  Daily indicators are offering up some bearish confirmation and slow Stochastics are turning over from overbought levels. Daily momentum is still with the bulls though today's reading is lower. Today’s action casts some doubt on the reversal potential with another Doji in play but a mirror of the Wednesday signal. Consecutive long legged Dojis indicate market indecision and there's a danger the price action turns sideways for a while rather than change direction. On balance, we would sell GBP/USD at 1.4405 ahead of an intraday Fibo at 1.4407 for 1.4260 with a 1.4475 stop.  Chart: https://reut.rs/22R7yYN

    Economic Data(Source:Bloomberg)

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