USD trading mixed into NY trade

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD avoided the start of a new downtrend yesterday by bouncing back up towards the 1.3150-60 level into the NY close.  One could argue that the sellers got a little bit ahead of themselves on the “totally done” phase one US/China trade narrative, and what we saw yesterday in NY trade was a tempering of the broader “risk-on” mood.  This mood deteriorated mildly in the overnight session following some dovish Minutes from the RBA’s last policy meeting and some headlines from Boris Johnson that re-opened fears of “no-deal” Brexit at the end of 2020.   USDCAD was able to extend higher to Sunday night’s chart resistance in the 1.3180s but the market has since faded again over the last few hours.  Some 2nd tier economic data has just been released out of the US and Canada (see below), and we’d say that the results are mildly supportive USDCAD.  

We think the market might face some tug of war today as the funds (who remain net short USDCAD and didn’t get their bearish NY close below the 1.3150s yesterday) try again to push the market lower, but they currently have to deal with some broad USD buying that could intensify a bit with move back into the 1.3170s.

US Housing Starts (Nov): 1.365Mvs 1.345M (beat)

US Building Permits (Nov): 1.482M vs 1.410M (beat)

Canadian Manufacturing Sales (Oct): -0.7% MoM vs 0.00% (big miss)

USDCAD DAILY

USDCAD HOURLY

JAN CRUDE OIL DAILY

EURUSD

Euro/dollar staged a mild rally in early European trade today and while we can’t point to a specific headline driver of price action, we’d note that US yields are slightly lower, gold prices are slightly higher, and the EURGBP cross is outperforming big time on the heels of this morning’s no-deal Brexit angst.  Chart resistance today comes in at the 1.1170s for EURUSD while support resides in the 1.1140-50s.  We’re talking about tight ranges for the time being and odds are the market stays this way and perhaps moves a touch lower again as massive option expiries between 1.1125 and 1.1150 will be the feature for tomorrow’s trade.

EURUSD DAILY

EURUSD HOURLY

FEB GOLD DAILY

GBPUSD

“Gap fill completed” is what we’re saying this morning to describe the price action in GBPUSD.  It didn’t take long but the market has now 100% filled the 350pt upward price gap it made following Thursday evening's election exit poll results.  So what was the catalyst for today's move lower?  Reports that Boris Johnson will be adding a clause to his Brexit Withdrawal Bill that will legally prohibit extension of the transition period beyond December 2020.  More here from the BBC.  Just when you thought Brexit was done and over with…we now have “no-deal” Brexit angst building once again.  While one could argue today’s move lower in GBPUSD is a bit of an overaction (considering we’re talking about a deadline that is over a year away), today’s headlines read negative and to come full circle…sterling had a chart gap to fill.

Today’s UK employment report for October presented an arguably mixed outlook for job market; better than expected on headline job gains (+24k vs -10k expected), but weaker than expected wage growth (+3.2% 3M/Yr vs +3.4% expected).  Tomorrow’s session will feature the UK’s November CPI report.  Deutsche Bank is out with a big call this morning, saying the Bank of England will cut rates by 25bp in January.  It will be interesting to see if Mark Carney and company begin to telegraph this at Thursday’s BOE meeting.

With GBPUSD now trading below the 1.32 handle and EURGBP now screaming back above the 0.8400 level, we think the momentum in sterling has clearly shifted to the downside.  Hedging flows around some rather large option expiries at the 1.3200 strike (for Thursday and Friday) could come to rescue for the market later this week, but traders don’t seem to care about this right now.  We see some mild support in the 1.3110s today, but not much else underneath there until last Thursday’s pre-election lows in the 1.3050s.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

Friday’s bearish outside reversal proved rather ominous for the daily AUDUSD chart.  See here for when we first talked about it.  The market’s downward momentum stalled yesterday following the overhyped headlines surrounding the phase one US/China trade deal, but it picked up steam in the overnight session today following the release of the RBA Minutes from the December 3rd  policy meeting.  Full press release here.  We believe the market’s interpretation that the minutes sounded dovish and that the RBA could indeed cut rates on February 4th if they feel the economic outlook has deteriorated by that point.  

AUDUSD now looks poised to re-test the 0.6810-30 support zone.  The reaction from the OIS market is a bit more sanguine this morning however, showing just a 13% chance of an RBA rate cut at the next policy meeting.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

The dollar/yen fund longs are anxiously awaiting their upside breakout to the 110 handle, but it’s not happening and instead the market has been dangling at chart resistance in the 109.60s ever since yesterday afternoon.  A 4bp slide in US 10yr yields from yesterday's highs isn’t helping, nor is dollar/yuan’s defense of the 6.9900 support level.  If we’re going to get more phase one US/China deal hype, we’re going to need it soon in our opinion otherwise we think the funds might start to liquidate in frustration.  Reuters is reporting talk of a USDJPY barrier option at 109.80, which could explain some of the weight on the market here.

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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