Australian dollar plunges as talk of RBA rate cut continues to grow

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is finally seeing a bounce this morning but we’d argue it has more to do with the overnight plunge in the Australian dollar (a fellow commodity currency) as opposed to some signs of de-escalation in US/Iran tensions.  It’s been pretty much uphill for USDCAD ever since AUDUSD lost the key 0.6920-40 support level.  Trend-line chart resistance in the 1.3010s is now being tested as traders prepare for a NY session that features the US November Factory Orders data and the US December Non-Manufacturing ISM report (both at 10amET).  The market consensus estimate for -0.8% MoM on the former and 54.5 on the latter.

USDCAD DAILY

USDCAD HOURLY

FEB CRUDE OIL DAILY

EURUSD

Euro/dollar’s NY close in the 1.1190s yesterday failed to impress in our opinion, which gave ammunition to the sellers in Asia to begin retracing the market’s most recent rally.  That retracement is pretty much complete now as NY trade gets underway for today, but we’d continue to note a combined 3blnEUR in option expiries in and around the 1.1200 strike for Wednesday and Thursday as possible targets for spot EURUSD prices.  February gold prices are trading steady this morning after filling their Sunday opening upside chart gap.  We think a weaker than expected Non-Manufacturing ISM report this morning could put the 1.1200 level quickly back in focus.

EURUSD DAILY

EURUSD HOURLY

FEB GOLD DAILY

GBPUSD

The tripping of sell-stop orders in EURGBP below 0.8500 is being blamed for the quick move higher in GBPUSD at the start of European trade today.  This explanation (from market chatter) has been given credence by way of how swiftly sterling has now reversed lower on both crosses.  GBPUSD is now trading just above chart support in the 1.3110s and EURGBP is trading confidently back above the 0.8505 support level it lost yesterday.  Sky News has learned today that Boris Johnson’s government has stood down emergency preparations for a no-deal Brexit, which is not surprising news in our opinion.  More here.  Similar to EURUSD, we think GBPUSD could recover here if the US Non-Manufacturing ISM report comes out weak.

GBPUSD DAILY

GBPUSD 10-MINUTE

EURGBP DAILY

AUDUSD

The Australian dollar is getting pummeled this morning after key chart support in the 0.6920-40 region gave way in overnight trade.  A sharp 6.7% MoM drop in December job ads (not normally market moving data) is stoking fears that the worsening wildfire situation may cause the official Australian employment data to start falling off a cliff as well.  Naturally, market chatter continues to swirl that the RBA will ease interest rates on February 4th to help the economy cope with the natural disaster.  We feel that the leveraged funds, who didn’t cover shorts during the run up to 0.7000 during the holidays (according to last night's weekly COT report), will feel emboldened here and may want to add to their winners should the market close NY below the 0.6870s.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Yesterday’s “seller failure below 108” was enough to propel USDJPY higher for the rest of the NY session, however the market has since run into stubborn chart resistance in the 108.40s and a US 10yr bond yield that has not yet given up the prospects of a new downtrend.  We think this is because traders got reminded once again overnight that Iran is still quite ticked off with the killing of its legendary military commander.  Ali Shamkhani, head of Iran’s security council, said that Iran is evaluating 13 possible ways to inflict a “historic nightmare” on the US.  More here from Bloomberg.  So while one could argue fears of World War III have receded since Sunday night, we think there’s still plenty of angst in the marketplace and this explains why the bounce in US yields and USDJPY has been rather tepid.

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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