October 18, 2016 / 11:17 PM / a year ago

IFR Markets ForexWatch Asia Regional Daily Briefing

SYDNEY, Oct 19 (IFR) - Market Briefs
    * U.S. core CPI misses f/c: +0.1% m/m vs +0.2% consensus

    * Annual rate +2.2% vs forecast of +2.3%

    * Headline rate as f/c: +0.3% m/m, +1.5% y/y

    * Canada manufacturing sales beat: +0.9% vs +0.3% f/c, +0.0%
prev 

    * Minutes: nine Fed banks call for discount rate increase,
up from eight

    * Dairy prices rise, volumes drop at auction -NZ's Fonterra 

    * POLL-US rates expected to rise in Dec, but lacklustre
growth looks likely-Rtrs

    * US October NAHB housing index 63, same as f/c, vs 65 in
Sept      

    * Brazil retail sales drop for second month in August
    

    * OPEC sec-gen optimistic on reaching oil output deal in
Nov    

    * Turkey heads towards vote on stronger presidency, with
nationalist nod-Rtrs    


Macro Themes in Play
    * Markets higher, bank sector leads as oil pushes yield
curves steeper, US 2s-10s through 200 dma for first time in over
a year, gives central banks appearance of a win (even though
they had little to do with it)

    * US short rates lower on Core CPI miss, Dec hike odds fade
further as doubts emerge on re-think of Yellen stance; massive
short position in Eurodollar futures starts to get squeezed;
Italy referendum comes into focus, could have bigger impact than
Brexit, put Fed off

    * DXY toppy as US rates slip; Cable up on CPI beat, trades
short for first time in more than month; USDJPY disappointing,
no legs from higher stocks/banks; EUR sideways, still heavy,
former PM Monti to vote 'no' in Italian referendum

    * AUD, CAD, EM higher, seen as cheap bets if Fed rate hike
in trouble; Gold/miners regain 200 dma, adds to building
sentiment in spread product


Looking Ahead - Economic Data (GMT)
    * 2:00  CN  Industrial Output YY  Sep   6.40% f/c,   6.30%
-prev

    * 2:00  CN  Retail Sales YY         Sep  10.60% f/c, 10.60%
-prev

    * 2:00  CN  GDP YY                     Q3    6.70% f/c, 
6.70% -prev

    * 2:00  CN  GDP QQ SA               Q3    1.80% f/c,  1.80%
-prev

Looking Ahead - Events, Other Releases (GMT)
    * No significant events 


Currency Summaries
EUR/USD  
    * Limited action in Europe's morning, NY opens near 1.1010,
dips near 1.0995 early

    * Sharp lift toward 1.1020 on US core CPI miss, rally sold
as USD bid emerges

    * Sharp drop in EUR/USD ensues, slide persists and 1.0970
hit

    * USD bid fades & some gains erode, EUR/USD nears 1.1000 but
bears lurked

    * USD bid fades & EUR/USD slips below 1.0980 late in the day

    * No major EZ data to drive, US Sep housing data a risk
tomorrow

 
USD/JPY 
    * Mixed day for JPY: up v USD, EUR & CHF & dn against most
others

    * Only a 1bp miss in US CPI to ponder: USD/JPY 104+ in NY
before slipping

    * USD sold broadly into & after Ldn fix: USD/JPY neared its
103.69 o/n low

    * Tenkan at 103.72 & Cloud top at 103.52 attracting dip
buyers 

    * But sellers are fading the hrly down TL from 104.63, last
by 104.23

    * US data just not firm enough to maintain recent back-up in
yields

    * Stocks up in US on good earnings, so JPY risk-on selling
offsets ylds

    * EUR/JPY threatening to close below the 114.19 Kijun & 50%
Fibo

    * GBP/JPY spiked up on GBP short squeeze toward post flash
crash high

    * Japan Aug All Industry Activity Index the only local
release

 
USD/CHF
    * EUR/CHF rally rejected by the Cloud base & prior 50% Fibo
at 1.0895

    * Dropped all the way down to the weak Asia open: possible
tombstone Doji

    * ECB meeting & EU Summit (May v other 27) Thur possible
risk-off events

    * Greek bailout talks are also in the mix this week

    * Swiss Sep M3 & Trade data are also out on Thur

    * Fair chance SNB's EUR/CHF soft floor at 1.08 will be
retested

    * Take a huge risk-off event (like Brexit in June) to get
well below 1.08

    * USD/CHF eked out a minor new Oct high of 0.9914

    * No news behind it and still looking at big hurdles in
mid-0.9900s   

 
GBP/USD   
    * GBP shorts squeezed. Cable retested the Oct 12 high at
1.2326

    * Prices also got close to the falling 10-DMA at 1.2341

    * Intraday post-flash crash high was 1.2484; daily one was
1.2443 on the 10th

    * UK govt lawyer said MPs will "very likely" have to ratify
final Brexit deal

    * Uncertain what fall-back position would be if MPs rejected
EU-UK deal

    * PM May up against tough EU Summit crowd on Thursday
 

    * A50 High Court case.

    * UK Jobs/Earning data out Wed 

    * EUR/GBP tumbled toward its Kijun line at 0.8911, w a 15
low

    * Still well above up TL fm Sep lows at 0.8801 on Wed


USD/CAD
    * O/N range 1.3055/3133, Noram range 1.3051/3139, close
1.3116 (NY +50 pips)

    * AUD/CAD up 23 pips in NY 1.0050 (+0.45%), WTI/Brent
+0.35/0.75% 

    * DXY -0.02% (+0.10% in NY) Huge EUR/USD option expiries
capped mkt 

    * US CPI on f/c, earnings +0.2% but NAHB data soft
[page:2417] 2Yr spread 20.9

    * CAD/JPY dropped 40 pips in NY to 79.13, -0.5%, USD/JPY the
driver (yields)

    * S&P +0.75% (+0.25% NY) Cda Mfg sales beat +0.9%. BoC
tomorrow's focus

 
AUD/USD     
    * Pair opens NY near 0.7680 after Europe adds to Asian
gains, bear pressure in early NY

    * Trades near 0.7660 as USD firms across the board, dip
buyers lurk though

    * USD bid fades & equities open firm, AUD/USD lifts toward
0.7680

    * AUD/NZD dives from 1.0680 toward 1.0630, AUD/USD lift
fades, near 0.7665 late

    * No Oz data due, China Q3 GDP and Sep retail sales & IP
data are upcoming risks


NZD/USD
    * NY opens near 0.7205 after Europe adds to post-CPI gains
from Asia

    * USD firm early on, NZD/USD slips near 0.7190 but lifts on
US core CPI miss

    * Rally to 0.7210 quickly erodes as USD goes bid, 0.7183
trades

    * USD bid fades & AUD/NZD sinks, combination lifts NZD/USD
near 0.7220

    * Pulls back near 0.7195 late as a small USD bid emerges

    * No NZ data due in Asia, China data dump might impact

 
LATAM
    * USD/MXN 18.5950/18.7430 in NY after 18.7120/18.8700 O/N,
last 18.8850

    * Pair trades heavy on oil bounce, HF demand & risk appetite
lift (MSCI EM +1.76%)

    * Bolsa MXX +0.87%, Brent/WTI +0.35/0.75%,
USD/MXN -1.25% 18.6110

    * USD/BRL set to end NY by 3.1795 -0.67%, general demand for
EM assets

    * All eyes on BcB at tomorrow's COPOM, market split between
SELIC -0.25/-0.50%

    * USD/CLP ends -0.31% 667.69 (copper -0.1%) BCCh mulling a
cut 


USD longs face another quick exit 
Speculators have probably bought too many dollars again. A
build-up in bullish dollar bets has regularly occurred alongside
increases in betting on US rate hikes this year. Time and again
this speculation has been unwound. Today, specs are holding the
biggest bets on a higher dollar since February. Four billion
dollars were added to longs when the dollar rose 2% last week.
Dollar longs have doubled in one-month with DXY up 3%. As it
stands, futures have priced in another 10bp of US tightening in
that same period. Futures price 32bp of tightening for the next
12 months, 25bp of which is expected this year. The last time
speculators held bigger bets, the Fed was talking 4 hikes. Then
futures traders priced 50-60bp of tightening. Dollar bulls
should watch 97.35-45 area closely. The 200-HMA is 97.37 while
Oct 12/14 lows occurred 97.45-51. This rally has weaker
foundations than those undone earlier this year. USD longs: reut.rs/2e3FX4O
 US rates reut.rs/2ebT2pr

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