AUD leads and GBP lags ahead of FOMC Minutes

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SUMMARY

ANALYSIS

USDCAD

Dollar/CAD extended its bounce yesterday morning when Prime Minister Justin Trudeau announced that Canadian parliament would be prorogued until the fall but the market’s swift rejection of former chart support, turned resistance, at the 1.3190-1.3200 level indicated that traders were not overly concerned about the news.  A hard to explain rebound in broad risk sentiment towards mid-day then lifted all boats, including WTI’s, and saw USDCAD slip back towards session lows/trend-line support in the 1.3150s.

The overnight slump for USDCAD has been largely influenced by the Aussie’s ascent to new 18-month highs versus the dollar.  Analyst chatter suggested that this was due to continued gains for copper and iron ore prices this morning and strong demand at an Australian 10yr bond auction last night.  We’d note technical strength for the Australian dollar as well, after traders managed to bid AUDUSD back above the pivotal 0.7230 into the NY close.

Canada just reported much softer than expected consumer inflation numbers in its July CPI report (0% MoM vs +0.4%, +0.1% YoY vs +0.5% and just +0.7% YoY for core CPI vs +1.1% in June), but the knee jerk bid in USDCAD has now evaporated and yesterday’s familiar trend-line support level (now in the 1.3140s) is now being threatened once again.  Next up is the OPEC+ JMMC meeting and, while the committee will likely address “less” compliance with the output cut deal over the last month, the overwhelming market expectation is they’ll advise keeping the current 7.7mln bpd level of production cuts in place for now.  Oil traders are looking for crude inventories to fall 2.67M barrels in this morning’s weekly EIA report at 10:30amET (last night’s API report showed an unexpected draw of 4M barrels).

US yields will be in focus today too as traders will want to see how the marketplace absorbs a $25bln 20yr bond auction at 1pmET after last week’s poor turnout for 30yr paper.  Finally we’ll get the FOMC Minutes at 2pmET, where we think the consensus USD short narrative “could” be put to the test.  The marketplace now very much expects the Fed to come out of is strategic review in September with some combination of average inflation targeting and yield curve control that will suppress real US rates and the USD even further, but we’re not so sure today’s Minutes will provide any clues to that regard given Powell’s unwillingness to share anything in his July 29th press conference.
 

USDCAD DAILY

USDCAD HOURLY

SEP CRUDE OIL DAILY

EURUSD

Euro/dollar seemed to ebb and flow with USDJPY flows overnight but it’s very much been quiet, consolidation-type of price action after yesterday’s breakout above the 1.1910s resistance level.  Hedging around this morning’s 1.6blnEUR option expiry at the 1.1900 strike could be a reason for the market’s pause as well, along with position squaring ahead of today’s US 20yr auction and FOMC Minutes.
 

EURUSD DAILY

EURUSD HOURLY

SPOT GOLD DAILY

GBPUSD

The UK reported a much higher than expected July CPI number this morning (+0.4% MoM vs -0.1% and +1.0% YoY vs +0.6%), but sterling buyers failed miserably on three attempts to get GBPUSD above Asia’s highs in the 1.2950-60s.  Analyst commentary afterwards also suggested that the July figures were a short-term blip that could easily get reversed in August and therefore not influence BOE policy.  The market has pulled back over 50pts as a result going into NY trade today, but buyers have shown up at chart support at the 1.3200-1.3210 level.
 

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Aussie is outperforming its G7 peers this morning after underperforming them yesterday.  We think yesterday’s strong, risk-on led, recovery for AUDUSD back above the 0.7230s has played a big part with today’s uptrend extension and we believe the talk of healthy demand for Australian bonds is a comfy underlying narrative.  Tomorrow’s NY session features a 700mlnAUD option expiry at the 0.7300 strike, which could attract more AUDUSD buying interest if we see continued USD selling after today’s FOMC Minutes.
 

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Much weaker than expected Japanese Machine Order numbers for June (-7.6% MoM vs +2.0%) peculiarly saw USDJPY lose chart support in the 105.30s last night and, while buyers returned strongly at the next chart support level in the 105.10s into late Asian trade, Europe hit the sell key and we think hedging around this morning’s $1.2bln worth of option expiries between 105.00 and 105.25 likely played a part in that.  Dollar/yen has now just reclaimed the 105.30s as US yields start to uptick a bit into this afternoon's US 20yr bond auction.   
 

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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