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Nomura Research: What’s Correlating in FX

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Nomura Research

We have constructed a monitor that tracks 1,961 correlations across markets (see full monitor on second page). To strike the right balance between stability and relevance, we focus on three-month correlations of changes in market prices. It should help to gauge the relationships driving asset prices. More importantly, identifying significant changes in these correlations can provide an early indication of “regime changes.” Focusing on G10 FX in this report, we find the following:

■ The largest correlations are dominated by equities. For example, USD/JPY has a 72% correlation with the Nikkei and EUR/CAD has a -77% correlation with the FTSE 100 (i.e., EUR falls against CAD when UK equities rally). In general, the dollar appears to be positively correlated with risk, and so the euro is the funding currency that is negatively correlated with risk. This shows in euro crosses correlating with risk (see Figure 1).

■ Outside of risk, rate differentials are correlated to some currency pairs: EUR/GBP, EUR/NZD and EUR/CAD stand out. Again, it seems the euro is the base currency through which fundamentals are expressing themselves (see Figure 1).

■ As for changes in correlations, the biggest increases to more negative or more positive appear to involve oil. It seems that a whole swathe of currency pairs from EUR/NOK to EUR/USD to USD/CHF have become correlated to oil prices (see Figure 2).

Nomura Top G10 FX correlations

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Societe Generale FX Daily – The Fed’s in a pickle

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Societe Generale FX Daily

■  The odds of this week’s US FOMC meeting delivering a rate hike are zero, according to Bloomberg. The chances of a cut are higher, but only 2%. What matters is the tone of the statement but the Fed has painted itself into a corner. The odds of a June hike are now down at 20% and the FOMC can’t signal a move without triggering market turmoil. A neutral/dovish message may provide a modicum of short-term comfort to markets and hold down the dollar but wouldn’t solve the problem of how to prepare markets for further policy normalisation.

■  Meanwhile, CFTC data paint a now-familiar picture of speculative FX positioning: Longs are building in AUD, CAD, NZD and JPY. MXN and EUR shorts are dwindling away and only GBP shorts grew in the week to Tuesday. The sum of positions is net short USD for the first time since July 2014. The four months after that saw the dollar rally 20% in trade-weighted terms as dollar longs were built up. The current environment is very different of course, but anything which makes the markets price in a faster pace of rate hikes than the current one (1.5 hikes by the end of next year) would be bad for risk sentiment and good for the dollar.

■  The merest whisper of further BOJ action at Thursday’s meeting was enough to scare some of the yen longs (and revive interest in the Nikkei). Most likely is that the BOJ will borrow from the ECB playbook and lower the cost of some loans to banks, to help offset the effects of January’s move. That won’t have much significance, and it’s not surprising that the yen is a bit stronger this morning. However, I do think the CFTC data accurately reflect short-term market sentiment and as Japanese demand for foreign assets remains incredibly strong, we look for further yen weakness in the few weeks.

■  European news doesn’t look likely to be the driver of the Euro. Treasuries/Bunds are in a range, like the currency. Money supply data are due Wednesday and should be reasonably encouraging, while Q1 GDP data are due on Friday, showing annual growth slowing to 1.5% from 1.6% which is neither here nor there. The chances of a re-run of the Spanish elections in June seem high but that’s not really a new development either.

■  Bookmakers reacted to the intervention of President Obama in the UK’s EU referendum debate by lengthening the odds of a ‘leave’ vote. Politically-inspired sterling shorts are being squeezed as a result, but the news that a major High Street retailer is in danger of administration is a reminder of headwinds facing the economy. Q1 GDP is likely to come in a 0.4% q/q, steady at 2.1% y/.y but definitely on a slowing trajectory. The scale of sterling short-covering is best seen in EUR/GBP, which looks overdone under 0.78. We’ll stick with short GBP/NOK as the best way of reflecting twin views about oil (cautiously positive) and the UK economy (gloomy).

■  Other ways to express views: Short EUR/RUB remains attractive. Jason still like shorts in SGD/INR. There’s about more to take out of shorts in USD/CAD and AUD/NZD longs are still performing, while we still like shorts in CHF/SEK. But the time is coming, with a growing focus on China’s debt problems and a market that has fully embraced the Fed’s dovishness, to figure out how to get outright long the US dollar again.

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Morgan Stanley FX Morning – April 11

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Morgan Stanley FX Morning

 

Why JPY has further upside: We expect further flows from various market participants to continue to support JPY. First, Friday’s reluctance for JPY to weaken (indicating de-risking ahead of the weekend) suggests that ‘the Street’ has not traded JPY long in significant amounts last week. Note that CFTC data showed the most net long positions building in the first four weeks of the year. Instead our client conversations focusing on the BoJ and its ability to weaken JPY are suggesting to us that the market has not fully adopted our view, suggesting JPY strength staying with us for even longer. Second, Japan’s retail accounts may still need to wind down their JPY-funded carry trades, suggesting more of this ‘P&L’ driven JPY buying in store. Third, pension funds and financial institutions’ foreign assets relative to total assets are near historical highs and most importantly still hugely currency-unhedged. The GPIF had allocated 36% of its portfolio to foreign assets at the end of December 2015.

The BoJ’s ability to weaken JPY remains limited, as we highlighted on Friday. Sovereign bond purchase-focused QE can no longer rely on the JGB yield curve acting as a transmission mechanism. Negative interest rates seem to undermine banks and monetary velocity, hence strengthening and not weakening JPY. The BoJ’s tool box appears to be limited to the purchase of private assets such as ETFs. The JPY-weakening impact of such BoJ equity purchases should be limited. The mechanism of JPY weakness in this scenario would be limited to the de-FX-hedging of equity portfolios, where many global equity investors have used JPY as a ‘quasi’ hedge for equity risk. Alternatively, the focus on increasing fiscal spending would require equity market investors to have more faith that Abenomics is going to work in order for JPY to weaken significantly. Bloomberg is reporting that foreign traders have sold Japanese equities for 13 straight weeks, the longest stretch since 1998. This ‘outflow’ from Japan has not weakened JPY as it has been met with a larger inflow from domestic investors.

The likelihood JPY resumes its appreciation is high, but the higher JPY moves, the bigger are the carry trade liquidation pressures. Here we under line our thoughts again. The second-round effects of JPY strength would terminate the US D downward correction, especially against liquid high-yielding currencies with the EM spectrum. Within the DM world it might be AUD suffering most. China’ s CPI remaining steady at 2. 3%Y puts focus on this this week’s trade and GDP data. China’s 1Q GDP will be released on Friday, with a high likelihood of seeing a positive surprise. The Chinese economy seems to be under going a cyclical rebound, while structural issues such as over capacity, low debt and investment multipliers have not been addressed yet. The question is how much of the good cyclical news has been priced in. Should AUD fail to rally following the anticipated strong 1Q GDP report then AUDUSD should have traded its corrective top to near 0. 7730. Within our strategic portfolio we sell AUDUSD near 0. 7650 and we recommend selling AUDNOK as our ‘trade of the week’.

The Fed-JPY link: We put special focus on AUDJPY, which offer s significant downside potential from here should JPY-based investors pile out of carry trades. Another interesting factor driving AUDJPY down comes via the Fed and risk appetite. USDJPY-bearish performance may remind Fed Chair Yellen that there aren’t just winners from a lower USD. Abenomics and the ECB’s Draghi’s “Whatever it takes” approach are the losers. Sure, lower inventories, negative net trade and the weak US manufacturing sector have pushed the Atlanta Fed ‘Nowcast’ GDP indicator to 0. 1%, but this week’s release of March retail sales should provide a timely reminder that US domestic demand conditions have remained growth-supportive. Markets currently under price our call for the Fed hiking rates in December. In addition, 1Q earnings will start to be released in the US today. Actual releases tend to surprise under whelming expectations. Market projections are for an aggregate 6. 9%Y decline of S&P500 listed company profits. Should positive surprises disappoint relative to previous quarters then risk appetite may get hit. If not, it might be rising rate expectations that limit the equity mar ket upside anyway. Whatever the outcome, AUDJPY should receive little support from the risk appetite side of matters.

EURGBP’ s next target is 0.85: The press is reporting that the ‘Save Dave’ political reaction to the release of the ‘Panama papers’ may suggest promoting Justice Secretary Gove to Deputy Prime Minister and allocating a prominent cabinet post to Boris Johnson after the referendum. Some may say this is part of the plan to bring the Conservative party back together but for FX trading it suggests two leading figures of the Brexit campaign increasing their political relevance ahead of the June 23 vote, increasing volatility in GBP. The economic fundamentals are not looking good either with the 7% current account deficit, the 4% budget gap and the UK household sector reporting a 2. 3% decline of its net savings in 4Q, leaving us firmly within the sterling bearish camp. Our favoured way to play this week is to be long EURGBP.

Trades of the week:

G10 – Sell AUDNOK

Our structural bearish view on AUD, based on weak nominal growth, a poor terms of trade outlook and a slowing housing market, is likely to lead to 50bp of cuts by the RBA by year-end. We propose selling AUDUSD on rallies but prefer to sell AUDNOK today. NOK has been fairly shielded during the ups and downs in the oil price recently because of the sovereign wealth fund, and the ability for the government to ramp up fiscal spending if needed may limit the negative impact on the economy relative to other commodity producers.

Despite AUD depreciation over the last few years, Australia’s nominal trade deficit and current account remain near post-crisis wides. China’s rebalancing away from investment, particularly the steel capacity cuts announced in recent months, as well as the excess real estate inventory in Tier 3 cities pose large downside risks to iron ore prices. Furthermore, domestic demand has mainly been supported by the housing boom, which we expect to reverse. With the RBA’s inclusion of negative language on AUD in the most recent statement, we believe that too strong an AUD rally from here increases risks of an RBA cut in the near term, and we expect weaker data in the future. Both would support the trade.

The main risk for the NOK side this week is the lead-up to the OPEC meeting on April 17, with the probability of an agreement to cut production looking low for now. NOK’s correlation with oil is much lower than that of CAD.

We like to sell AUDNOK at market with a target of 6.0800 and a stop at 6.2950.

EM – Buy EURTRY

Evidence suggests that positioning in the Turkish lira has built up meaningfully since the rally in EM currencies started in late January. Lower oil prices, stronger-than-expected growth in 4Q15, which was further emphasised in last week’s better-than-expected IP data, and lower inflation have all contributed to a stronger fundamental footing for Turkish assets recently. One concern is the considerable uncertainty over monetary policy in light of the upcoming appointment of the central bank governor , which could come as soon as this week. The presidency of Turkey does not hide the fact that it would like to see interest rate cuts, and it’s quite likely that TRY will weaken a little ahead of the announcement, but we will only really know the stance of monetary policy once the new governor concludes the first meeting on April 20.

The main risk to the trade would be for the CBT’s initial communications to sound purposefully conservative, given the above considerations, as has been the case in Poland following changes to the MPC earlier in the year. Today will see February current account data released, and the expectation is for just over a US $2.2 billion deficit.

We like to buy EURTRY at market with a target of 3.35 and stop of 3.20.

 

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Credit Suisse FX Daily Technical Analysis

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Credit Suisse FX Daily

Today’s highlights:
■ NZDUSD has completed a large “bearish” outside reversal, turning the immediate risk lower for .6565/45.
■ AUDUSD has rallied further, with a clear break above .7490/.7533 needed to reinforce the base for .7739 next.
■ EURUSD above 1.1047/68 is needed to resolve the sideways range higher to establish a better base.
■ EURJPY ideally finds fresh selling on a challenge of trendline and price resistance at 125.48/97.
■ USDJPY is expected to find fresh selling on a test of price and trendline resistance at 114.28/29.
■ USDCAD’s bearish “outside” day keeps the focus lower for price support at 1.3225 next.
■ GBPUSD focus remains on trendline resistance and the 61.8% retracement barrier at 1.4296/351.
■ EURGBP below .7691 is needed to resolve the range lower for .7661.

Today’s trades/positions:
■ EURUSD: Long at 1.0960, stop below 1.0903 for 1.1165.
■ USDJPY: Short at 115.20, stop above 117.54 for 110.10/00.
■ GBPUSD: Flat, sell at 1.4350/51, stop above 1.4419 for 1.3840.
■ USDCHF: Short on the break below .9945, stop above 1.0039 for .9775.
■ AUDUSD: Long at .7400, stop below .7280 for .7730.
■ NZDUSD: Flat. Sell again at .6670, stop above .6720 for .6565/45.
■ USDCAD: Reversed short, stop above 1.3472 for 1.3040.
■ EURJPY: Short at 124.95, stop above 126.00 for 122.10.
■ EURGBP: Short at .7750, stop above .7830 for .7570.

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BNP Paribas research – FX Daily Strategist Feb 12

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BNP Paribas Research

 

Significant change to Fed forecasts to impact USD direction

Financial  markets  remain  in  the  grip  of  severe  risk  aversion  and  against  this  backdrop  current  account  surplus-backed currencies continue to extend gains while receding Fed expectations undercut the USD generally.  The US money market curve is flirting with pricing risk of policy easing, a possibility the Fed Chair did no t dismiss outright in her Senate testimony even if she continued to emphasize it is not her expectation. In response to the tightening of financial conditions we have observed over  the past month, our economists have made significant changes to their Fed forecasts and now no longer expect the Fed to hike rates in 2016 or 2017  (see  here).  Essentially, we expect the fragile risk environment to preclude tightening in H1 and slowing activity to argue against further rate hikes thereafter. The shift in Fed expectations cle arly has big implications for the dollar  outlook  and  we  are  currently  reviewing  our  USD  forecasts  accordingly.  For  now,  the  funding  currencies  are  likely  to remain well supported and the USD on the defensive, though markets will remain wary of action and com ments from other G10 officials, particularly in Japan where verbal warnings are possible as officials return from Thursday’s holiday.

Soft Q4 GDP growth in Europe adds to pressure on ECB

We expect the first estimate of eurozone GDP to show growth of 0.2% q/q in Q4, with the corresponding number for Italy also at 0.2% q/q and Germany a little weaker at 0.1% q/q. With ECB already in full QE mode, eurozone data has typically had little market  impact  lately,  but  given  concerns  over  a  major  global  growth  slowdown,  markets  should  me  more  sensitive  to  this release.  Current  market  conditions  in  the  asset  markets  imply  that  the  EUR  should  continue  drawing  support  from  its  large current  account  surplus.  However,  we  continue  to  see  limits  to  EURUSD  appreciation.  Should  EURUSD  rally  through  1.15, levels last seen before the dovish ECB shift in October, ECB will be more likely to respond quite aggressively to the undesir able tightening in financial conditions at its March policy meeting.

Commodity currencies could follow USD lower

The CAD and AUD have held up better than might be expected this week, holding stable against a broadly weaker USD despite continued weakness in crude prices. We see scope for these currencies to  depreciate  in the weeks ahead, even vs. the USD. Both  are  current  account  deficit  economies  reliant  on  financial  inflows  and  both  are  exposed  to  continued  weakness  in commodity  prices.  While  the  broad  USD  retreat  may  have  reduced  the  risks  of  further  CNY  devaluation  for  now,  the  AUD remains exposed to negative news from China and further pressure on industrial metals prices. There is also scope for markets to increase pricing for RBA and  BoC  easing.  RBA Governor Stevens’  testimony to parliament yielded few surprises,  where he maintained an easing bias but also continued to sound relatively optimistic about the domestic outlook.

 

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Credit Suisse research – A top for Japan confirmed

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Credit Suisse Research

 

USDJPY finally confirms a medium-term top

As we have already highlighted on a couple of occasions this year (A major top for  Japan,  20th January),  we  have  been  bears  of  Japan,  looking  for  conclusive reversals of the bull trends in USDJPY and the Nikkei/TOPIX.  The brief spike post  the  BOJ  has  been  aggressively  reversed,  and  for  USDJPY,  the  longlooked for top below 116.15 has in our view finally been confirmed. We  thus  stay  bearish  and  look  for  further  weakness  to  113.99/85  next,  ahead of  support  from  a  rare  price  gap  from  October/November  2014  at  112.56/33. This  should  be  allowed  to  hold  at  first,  ahead  of  the  sell-off  extending  to 110.09/00  –  the  September  2014  high  and  psychological  support.  Bigger picture,  we  target  106.65/60  –  not  only  the  measured  target  from  the  top,  but also the 38.2% retracement of the entire 2011/2015 bull market. Resistance  shows  at  115.85/86  initially,  then  116.15/30,  with  117.54  needing to cap to keep the immediate risk bearish.

For  GBPJPY,  the  recovery  in  late  January  was  capped  by  a  cluster  of  resistances  at 174.87/176.18  –  the  38.2%  retracement  of  the  2015/2016  collapse,  April  2015  low  and falling  13-week  average  –  and  the  subsequent  rejection  from  here  maintains  a  large  top. Key  support  is  seen  from  the  January  2016  and  2014  lows  at  163.99/88,  below  which should  act  as  the  catalyst  for  a  resumption  of  the  downtrend  to  160.02/00,  ahead  of  the 50% retracement of the 2011/2015 bull market at 156.37.

For  EURJPY,  the  stronger  EUR  is  keeping  the  cross,  for  now  at  least,  well  supported above pivotal price and “neckline” support at 126.18/09.  Although a large topping threat is present,  only  below  126.09  would  see  this  confirmed,  turning  the  outlook  bearish  for 124.97 initially, then 121.95.

When  looking  at  the  JPY  in  Trade  Weighted  terms,  a  base  was  completed  at  the beginning  of  the  year.  The  BOJ  spike  was  contained  well  above  the  uptrend  from  June 2015,  and  the  subsequent  strong  rally  maintains  the  base.  We  thus  stay  bullish  and  look for  further  broad-based  JPY  strength.  Given  the  still  strong  relationship  between  the currency and equity markets, this is expected to keep equities under pressure.

For  the  Nikkei,  the  post  BOJ  bounce  has  also  been  quickly  reversed,  leaving  the  market retesting  its  recent  low  and  38.2%  retracement  of  2011/15  rally  at  16055/15.  Below  here, which  we  look  for,  should  confirm  a  medium-term  top  is  in  place,  for  a  decline  to  the  50% retracement  and  price  support  at  14545/30,  then  13885,  the  low  of  2014.  The  measured target from the top though is seen set lower at 12920.

The TOPIX though is already below its 38.2% retracement of the 2012/2015 bull market at 1317, and with a medium-term top already in place, we stay bullish and look for weakness to extend to our 1197/77 next target – the 50% retracement and late 2014 low.

Go  short  USDJPY  at  116.30/117.30,  place  the  stop  above  118.30.  Take  profit  at 106.75.

Go  short  Nikkei  at  17000/17200,  stop  above  17950.  Also  add  below  16000.  Take profit at 13200.

 

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Commerzbank research – How much upside potential does EUR-USD have?

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Commerzbank Research

 

How much upside potential does EUR-USD have?

EUR-USD is trading above 1.13  –  a  consequence of general USD weakness after the market’s re-assessment of the Fed expectations. Such levels, however, could prove to be unsustainable. The ECB policy will i.a. be influenced by the EUR exchange rates. The risk of a significantly more expansionary ECB policy is not properly reflected in the FX market.

For a long time the ECB was known as a central bank which was able to over-deliver compared to market expectations. This impression was destroyed by the December meeting. In December  the  ECB  significantly  disappointed  market  expectations  of  a  “strong” move,  by only delivering a small rate cut. And indeed: ECB President Mario Draghi’s old strategy – to create market expectations, which put the other Council members under pressure to deliver – failed spectacularly in December. That, however, does not imply that the ECB will always and forever be a paper tiger. Even under the assumption that Draghi did not find a sufficiently  large  majority  for  strong  measures  in  December  (which  would have  pushed  EUR-USD down),  we must concede: under different circumstances those who had opposed stronger measures in December might have behaved differently. And the relevant aspects of “circumstances”include the EUR exchange rates.

Yes,  of  course,  the  ECB  officials  will continue  to  formally  stick to  the  G7  London  accord, which implies that central banks refrain from manipulating exchange rates. This is the reason for Draghi’s regular statement that exchange rates would not be a policy target for the ECB.  Inside  the  London-accord  frame,  however,  the  ECB  does  everything  to  create  the impression that it would prefer lower EUR exchange rates. No wonder, as the exchange rate channel is the last one still functioning nearly normally. The ECB has all reasons to be concerned  regarding  inflation.  And  therefore  it cannot  afford to  accept  higher  EUR  exchange rates.  Elevated  EUR-USD  exchange  rates  therefore  increase  the  probability  of  stronger-than-expected ECB measures in March  – and therefore of a significant correction in EURUSD. The FX market is largely ignoring this risk. EUR-USD risk reversals trade at elevated levels. In fact only some days ago they printed in positive territory  –  a  situation we haven’t seen since mid-2009 (figure 1). The market obviously regards the risk of sharp down moves in EUR-USD as small.

In their central scenario our ECB watchers still assume that the ECB will indeed only deliver another small (10bps) rate cut in  March. This would certainly not create significant downward pressure on EUR-USD or other EUR exchange rates. This scenario still is possible.  But it is based on the assumptions that (a) financial markets calm down again and (b) EUR-USD  trades  at lower  levels  than  currently.  The  fact  that EUR-USD  can  gain in  phases of weak stock markets can only be explained by the market’s assumption that the ECB would hardly  react  on  negative  circumstances.  This  assumption  is  brave.  Every  day  of  financial market turbulence and every pip of higher EUR-USD quotes increases the probability of a more aggressive ECB.

For the medium-term (i.e. after March 10th) I see good chances for EUR-USD  –short positions. And I expect lower EUR-USD riskies again.

 

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UBS Research – FX Flows: USD weakness not echoed in flow data

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UBS Research Global FX Comment PDF Report

 

A mixed picture…

The theme of the week was broad based dollar weakness, but USD flows were less clear-cut showing a more or less flat picture (Figure 1). Despite the notable 3% rally in spot EURUSD over the week, EUR actually saw the second largest outflow in G10 after NZD. Yen flows were more in-line with price action, with noticeable JPY inflows helping reverse the entire USDJPY rally following the BoJ’s NIRP announcement, and leaving the pair down 3.4% on the week. Sterling topped the G10 chart in terms of net inflows, with hedge funds recording the 10th consecutive week of net GBPUSD buying – a record since we began compiling FX flow data. In EM, the picture was also mixed with TRY, SGD and ZAR seeing notable net inflows, whilst HKD, BRL and CZK were net sold.

FX Flows & Turnover

EURUSD: In a similar pattern to the last two weeks, EURUSD was again aggressively sold by hedge fund clients. Asset managers and corporate clients were net buyers as private clients moderately sold the pair, but on the whole EURUSD was sold.

USDJPY, EURJPY:  USDJPY was strongly sold by asset managers and hedge fund clients, and to a lesser extent by corporates. Private clients were net buyers of the pair but on the whole USDJPY was decisively sold. EURJPY was more or less flat with some hedge fund buying being offset by asset managers selling.

GBPUSD, EURGBP: GBPUSD was bought by all groups except private clients, who marginally sold the pair. EURGBP was sold by all client groups except hedge funds who modestly bought the pair. On the whole sterling saw good demand and was net bought versus both USD and EUR.

USDCHF, EURCHF: CHF flows lacked clear directionality. EURCHF was flat for all intents and purposes, with modest hedge fund inflows being offset by corporate client outflows. USDCHF was slightly net sold on the back of asset managers and private clients.

USDCAD, AUDUSD, NZDUSD: CAD saw a third week of inflows, primarily on the back of hedge funds, and with some participation from corporate clients. Both Aussie and Kiwi were net sold, with hedge fund clients again leading the charge as other clients showed limited directionality.

EURNOK, EURSEK, USDNOK, USDSEK: SEK saw good demand against both the EUR and the USD, helping it claim the second position in the G10 flow score card. Asset managers were noticeable buyers of SEK against both EUR and USD. NOK was net sold versus the EUR, mostly as a result of hedge fund flows, and was flat versus the dollar.

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Credit Suisse FX Daily – EURGBP maintains a large bullish base above .7494.

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Credit Suisse FX Daily Research

Today’s highlights:
■ EURUSD  has  initially  been  capped  below  61.8%  retracement  resistance  at 1.1259, but we stay bullish for 1.1387, then 1.1459/95.
■ EURGBP maintains a large bullish base above .7494.
■ USDJPY spotlight remains on critical support at 116.15/115.97.
■ AUDUSD  below  .7002/.6986  can  set  a  top  and  again  expose  the  .6828/27 early year lows.
■ GBPUSD  has  found  a  cap  at  the  50%  retracement  barrier  and  “neckline” resistance at 1.4660/4701.
■ USDCHF reinforces a top below former trendline support now at .9977.
■ USDCAD  has  found  fresh  buying  interest  at  the  38.2%  retracement  of  the March 2015/January 2016 rally at 1.3631.

Today’s trades/positions:
■ EURUSD: Long at 1.1155, stop below 1.1054 for 1.1450.
■ USDJPY: Short at 117.30, stop above 117.80 for 116.05.
■ GBPUSD: Flat. Sell again at 1.4590, stop above 1.4669 for 1.4150.
■ USDCHF: Flat. Sell at 1.0025, stop above 1.0078 for .9805.
■ AUDUSD:  Flat.  Sell  at  .7150,  stop  above  .7220  for  .6830.  Also  sell  on  a direct break below .6986.
■ NZDUSD: Flat. Sell at .6680, stop above .6753 for .6365.
■ USDCAD: Assume flat, buy at 1.3800, stop below 1.3710 for 1.4100.
■ EURJPY: Long at 130.05, stop below 129.50 for 131.90.
■ EURGBP: Long at .7585, stop below .7520 for .7750.

Societe Generale – In the Charts Forex

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Societe Generale Research

Today’s key points

Having achieved our advocated target of 0.7750,  EUR/GBP has been undergoing a pause. The pair has sustained above the confirmation level of the double bottom and inverted H&S at 0.75/0.7450 which remains an important support. Recently, the pair has rebounded after testing a multi month trend support (currently at 0.76) and is now closing in on January highs of 0.7750. It is noteworthy that it has completed a typical 3-year down cycle earlier and further recovery looks  on  cards  however  a  break  beyond 0.7750  will  be  needed  to  signal  a  larger  pullback towards September 2014 highs of 0.8070/0.81.

After testing intermittent resistance at 100/100.40, the Dollar Index is undergoing a short term pullback. Very short term, it has tested the triangle limit at 96/95.60 and is now approaching towards  immediate resistance at 97.45. A move below 96/95.60 will mean a test of 94.40, the 76.4% retracement of recovery since last August. Please refer to the  Chart Alert  published last week about an alternative view on the index.

USD/CAD probed the multiyear ascending channel support last week at 1.3760/1.37, where it has formed a  daily  hammer and bullish engulfing. With daily stochastic indicator near  a  trend support, a recovery looks possible. A break above 1.3910, a steeper descending trend will lead to  a pullback  initially  towards  1.4170 and even towards 1.4290/1.4330, the 61.8% retracement from January highs.

Deutsche Bank G10 Trade Idea of the Week – Short EUR/SEK

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Deutsche Bank Research

Target 9.15, stop 9.52, entry 9.4250
These  are  relatively  good  levels  to  reenter  EUR/SEK  shorts,  Thursday’s
Riksbank  meeting  notwithstanding.  Even  if  the  Riksbank  were  to  cut  rates
again, a very strong domestic data pulse mean that the move should be faded.

Goldman Sachs – China: FX reserves fell US$99bn in January to US$3.23tn

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Goldman Sachs ResearchBottom line:

The PBOC’s FX reserves decreased US$99bn to US$3.23tn in January (Bloomberg
consensus: -$118bn; December: -$108bn). After adjusting for estimated currency
valuation effects, the fall in reserves may have been about US$89bn (vs. estimated -$130bn in December).
As has been the case in the last few months, additional SAFE and PBOC data, likely
to be released in the next two weeks, should give useful supplemental information
regarding the underlying flow situation.

Main points:
The People’s Bank of China (PBOC) reported that its foreign exchange reserves fell
by US$99bn in January (vs. a US$108bn decrease in December), to US$3.23tn at the
end of the month. We estimate that currency valuation effects could amount to
around -US$10bn (assuming the currency composition of China’s FX reserves is
similar to that of the global average), and therefore sales of FX reserves might have
been about US$89bn in January (vs. estimated $130bn in December). The continued
rapid loss in FX reserves suggests that FX outflow remained at a rapid pace.
As we have discussed previously, however, headline FX reserve data do not
necessarily give a comprehensive picture on the underlying trend of FX-RMB
conversion by corporates and households. This is not related to any accuracy issues
of reserve data, but is due to the fact that valuation effects are uncertain and that
other non-PBOC financial institutions may also use their (spot) balance sheet to
absorb underlying flow pressures. Correspondingly, the PBOC or related entities
may have accumulated forward positions that do not affect reserves immediately.
In our view, a preferred gauge of the FX-RMB conversion trend amongst onshore
non-banks would be based on SAFE data on banks’ FX settlements on behalf of their
onshore clients. That report captures banks’ FX transactions vis-à-vis non-banks
through both spot and forward transactions, and will be out on February 23. Data on
the positions of FX purchases by the banking system should also shed useful additional light, and are likely to be released around middle of the month (we
discussed the coverage and definitions of various official FX data sets in Asia
Economics Analyst: Sizes and Sources of China’s Capital Outflows, January 26,
2016).