FOREX WEEKLY. Weekly information issued by the FOREX Advisory Team. Trader view in 2 snapshots. 8 February 2017

Transcription

1 FOREX WEEKLY 8 February 2017 Weekly information issued by the FOREX Advisory Team Global Forex Sentiment The RBA left its cash rate unchanged at 1.50%, as expected. In its statement, the central bank noted that conditions in the global economy have improved over recent months and that above-trend growth is expected in a number of advanced economies, although uncertainties remain. Regarding the currency, the central bank said that the depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment. The ECB`s Coeure said that since its last peak in 2011, the euro has depreciated by almost 30% against the dollar. The euro is now at a level that is appropriate for the economic situation in Europe. Coeure said the single currency has adjusted as a consequence of necessary ECB policy to support the economy. The market is worried about Europe and focus is being rotated from the US to EU. The reflation story does not apply to Europe but to Germany. The geo-political risk is currently considerable and this is not a re-visit of May 2010 when one country was struggling financially and the rest of the union tried to repair and pre-empt domino effects to the neighbors. This time it is about overall commitment and desire amongst the people of certain countries to remain in a union which has brought them few benefits or advantages. In this case, it will be general elections that kicks it all off in Holland, France, and Germany. Italy will also hold a referendum at some stage which will indirectly also be about EU. JPY has been under appreciation pressure recently due to USD weakness and as a result of safe haven demand. In view of the high current account surplus, Japan may increasingly become a target of the new US President s criticism if they try and weaken their currency with the help of verbal interventions. The future course of Japanese officials is likely to depend notably on the success of Prime Minister Shinzo Abe s visit at the White House on Friday. Trader view in 2 snapshots EUR USD Full view: page 2 GBP USD Full view: page 3 European elections fuel exit anxiety Same strategy than last week Play trading range Sell a Strangle in GBP low delta A publication of the FOREX Advisory Team Banque SYZ SA Tel. +41 (0) fxtrading@syzgroup.com Contacts: José-Manuel Luna Pier-Luigi Bonelli Ugo Biancaniello Table of contents (click on hyperlinks) Trader view Bloomberg FX Forecasts... 4 IMM Positioning... 4 Global Market Focus... 5 Disclaimer at the end of the document.

2 TRADER VIEW: EUR USD: Euro extends decline as European elections fuel exit anxiety Trading Idea & Hedging Solution The last week strategy is still in place and for this week we can suggest the same strategy but with strikes adapted to the actual spot level of : Buy a bullish Risk Reversal in EUR: Buy a Call EUR Put USD strike and Sell a Put EUR Call USD strike expiry 1 month for a zero upfront premium Support II Support I Spot Resist ance I Resist ance II Technical The bearish bias is still in place with a strong resistance at , followed by the area of Supports are set at , at and at Market Update The euro is under pressure amid concern of mounting protectionism seen among leaders contesting in major European elections in the next few months. The market is driven by the unwinding of Trumpflation trade and pricing in of geopolitical risks mainly from Europe as elections draw near. A win by Marine Le Pen in French presidential elections coupled with the loss of Chancellor Angela Merkel in the German parliamentary ballot this year would pull apart the European Union. The Netherlands will hold a general election in March, the French are due to choose a new president in April, and Germany is scheduled to have a federal election in September. Nationalists including French National Front leader Le Pen and Geert Wilders of the Dutch Freedom Party are seeking to build on Trump s surprise victory last November. Le Pen will take France out of the European Union if she wins, her chief economic adviser said. Mario Draghi reaffirmed that the euro is irreversible in a defence of the single currency against populists who reject it. Draghi has made the claim multiple times before, but the issue of whether and how a country can leave the single currency returned to the fore after French presidential candidate Marine Le Pen said she would take France out of the euro if elected. Even after Greece and its European partners stepped back from the brink of a split in the summer of 2015, the procedures for a euro exit remain undefined and the repercussions of such a move are near impossible to gauge. Page 2

3 TRADER VIEW: GBP USD : Trading range Trading Idea & Hedging Solution We suggest to sell a Strangle in GBP with low delta for yield enhancement, on a spot reference of : Sell a Put GBP Call USD strike (16D) expiry 1 month to receive a premium of 0.25% of GBP Sell a Call GBP Put USD strike (23D) expiry 1 month to receive a premium of 0.30% of GBP Total upfront premium to receive on this strategy: 0.55% of GBP Support II Support I Spot Resist ance I Resist ance II Technical A very nervous price action in the last 24 hours, it feels as if short covering is very fast and dips remain in demand. In terms of levels we need to remain flexible and look at bigger levels with higher intraday tolerance. Supports are at , and then Resistances are set at , and then Market Update Cable dipped through a key tactical support level around yesterday but quickly found support when Bank of England official Kristin Forbes fretted rising inflation and voiced support for a rate increase. It was interesting that the currency found such strong support when UK interest rates hardly reacted to the news. U.K. labor-market pressure may be mounting, food-price inflation is returning and one Bank of England policy maker is starting to voice concern. A report on Wednesday showed starting salaries for permanent staff rose the fastest in nine months in January. While the central bank said last week that there s more supply in the labour market than previously envisaged -- and that wages will therefore stay relatively subdued -- the survey from the Recruitment and Employment Confederation and IHS Markit indicates signs of building pay pressure. The British Parliament overthrew a major obstacle for the government on the way to Brexit yesterday. The MPs voted against a major amendment of the Brexit bill which will enable the government to begin the exit negotiations. The amendment would have entitled Parliament to have a greater say in the negotiations about the exit agreements with the EU. Instead the majority of MPs seems to be prepared to only vote on the final agreement at the end of the two year negotiation period. However, that is not exactly a real concession on the part of the government. Should Parliament vote against the agreement Great Britain would leave the EU anyway - the government guaranteed that - only without any agreement at all. That would entail considerable real economic effects for Great Britain as it would then have to rely on WTO rules in its trading relations, a fact that would massively restrict its foreign trade. In other words: from an economic point of view that would be an absolute worst case scenario. Page 3

4 SYZ ANALYSTS FORECASTS BLOOMBERG FX FORECASTS March Mat urit y EURUSD EURCHF USDCHF Q Q Q Mat urit y EURJPY USDJPY AUDUSD Q Q Q Mat urit y EURGBP GBPUSD USDCAD Q Q Q3 months IMM POSITIONING March 2017 Cont ract size Posit ion Non-commercial Commercial Last Act ual Last Act ual EUR 100K JPY 12'500K CHF 125K GBP 62.5K AUD 100K CAD 100K Short 184' ' ' '996 Long 131' ' ' '274 Net -52'348-45'713 60'267 53'278 Short 93'967 90'547 56'703 71'166 Long 27'127 32' ' '598 Net -77'830-58' '213 81'432 Short 19'842 23'952 6'638 9'049 Long 6'198 6'812 32'558 32'754 Net -13'644-17'140 25'920 23'705 Short 114' '004 69'560 69'077 Long 51'521 42' ' '852 Net -63'172-61'772 73'025 69'775 Short 44'258 47'131 24'539 30'063 Long 54'552 59'187 15'346 14'533 Net 10'294 12'056-9'193-15'530 Short 33'656 47'131 37'697 30'063 Long 36'175 59'187 34'655 14'533 Net 2'519 12'056-3'042-15'530 Page 4

5 GLOBAL MARKET FOCUS U.S. Jobs report is touchdown Trump in Obama s end zone The January jobs report produced a payroll surge well in excess of consensus expectations. The headline increase fell just shy of the upper bound of the forecast range (238k). As success has many fathers, analysts will undoubtedly debate whether this is the capstone of President Obama s job creation legacy or an early response to the rise in economic optimism since the election -- it is likely a combination of both, although technically, the survey week for the report occurred before Inauguration Day. The main takeaway: Labour-market momentum is solid and wage pressures remain quiescent. While the report generally reflects healthy conditions in the labour market, the headline payroll strength may be somewhat overstated due to seasonal-adjustment issues in the retail sector. Retailers generally undergo significant layoffs at the start of the year, which should be accounted for in the seasonal adjustment of the data. The whopping 46k increase in retail hiring -- the strongest since February of last year -- suggests that the usual job cuts were undersized relative to what typically occurs. This likely reflects timing issues of the counting of the survey relative to seasonal layoffs, as opposed to some dramatic ramp-up of hiring for the industry. Taking this into account means that underlying payroll momentum, while still impressive, is somewhat softer than the headline result (227k). A patient Fed will be encouraged by the January payrolls report. Job creation is healthy, labour costs do not appear to be accelerating and labour participation is edging higher. The run- hot camp at the Fed, which likely includes many dovish-leaning members who are considered to be the core of the committee, will feel validated by these results and will seek to stay the course regarding a gradualist approach to policy normalization until the data suggest that labour conditions are heating up. BI Economics stands by its expectation for policy makers to execute the next rate increase at the June meeting. January s 227k payrolls increase exceeded the 180k projected by consensus. It was the strongest gain since September (249k). The result followed a slight, upwardly revised figure of 157k in December, which was previously estimated to have been 156k. January s increase was a solid improvement from the 4Q average of 148k. Page 5

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