Bloomberg US/China article lifts risk sentiment into NY trade

SUMMARY

ANALYSIS

USDCAD

The trading algorithms are falling for another questionable US/China trade headline out of Bloomberg this morning.  The headline reads “US, China Move Closer to Trade Deal Despite Heated Rhetoric” and the article cites “people familiar with the talks”.  “The people, who asked not to be identified, said that U.S. President Donald Trump’s comments Tuesday downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling, as he was speaking off the cuff”.  More here.  

The S&P futures, Chinese yuan, USDJPY and US yields immediately shot higher, along with commodity currencies like CAD.  Chinese Global Times editor Hu Xijin was laughably right again with his predictions, when he trolled the Trump administration on Twitter earlier this morning:  “I predict there is a high probability that President Trump or a senior US official will openly say in a few hours that China-US trade talks have made a big progress in order to pump up the US stock markets. They've been doing this a lot.” 

This wave of trade-related “risk-on” is now threatening the USDCAD uptrend, as prices retreat below the 1.3280s support level and back towards the 1.3260s.  It should be a big day for the market today, with all the event risk coming during the 10amET hour:

10:00 – Bank of Canada rate decision (no change expected) + US ISM Non-Manufacturing PMI for November (54.5 expected vs 54.7 prev) + Fed’s Quarles testifying before the House Financial Services Committee

10:30 – Trump press conference at NATO summit + weekly EIA oil inventory report (-1.734M expected vs +1.572M last week and -6.1M from the APIs last night)

There won’t be a press conference after today’s press release from the Bank of Canada, but deputy governor Timothy Lane is scheduled to give a speech titled “Economic Progress Report” to the Ottawa Board of Trade tomorrow morning at 8amET.

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JAN CRUDE OIL DAILY

EURUSD

Euro/dollar saw a bit of selling during the London AM as the Bloomberg story knocked February gold prices $10 off their session highs, but the market is rallying back higher now following a dismal US ADP employment report for November.  The +67k print missed expectations of +140k and it was the second worst reading since March of 2010.  Ouch!  We think this will make traders worry about Friday’s Non-Farm Payrolls report (the official employment report) for November.  Any sustained price momentum for EURUSD above the 1.1080s bodes well for further gains in our opinion.

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FEB GOLD DAILY

GBPUSD

Sterling has exploded higher today as the drumbeat of a Tory majority victory in next week’s UK election gets louder and more obvious.  The bullish triangular consolidation we pointed out last Thursday largely predicted this outcome in our opinion and we think the leveraged funds, who started rebuilding short positions over the last two weeks, are watching their stop-loss buy orders get triggered en masse this morning.  This is now quickly becoming Boris Johnson’s election to loose as a great deal of Brexit optimism is now priced in because of it. 

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AUDUSD

The Aussie took a hit in Asian trade last night after Australia reported weaker than expected QoQ growth for Q3 (+0.4% vs +0.5%), but it has since clawed back most of its losses following this morning’s positive sounding US/China trade headline from Bloomberg.  Near term resistance lies in the 0.6850s (the Asia highs) and near term support resides in the 0.6810s (the London lows), with both technical levels corresponding well to already established trend-lines.  This morning’s weak US ADP report follows Monday’s poor ISM Manufacturing PMI and is now suddenly giving the fund net short AUDUSD position something to fret about once again.  The funds have been rushing back into short positions over the last three weeks.  A NY close above the 0.6850 level could portend further gains to the high 0.68s in our opinion.

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USDJPY

Dollar/yen and equity traders are being thrown a life-line this morning after the conveniently timed US/China trade headline came out from Bloomberg.  The Beijing Bureau Chief for CNBC, Eunice Yoon, is now trying to throw some cold water on Bloomberg’s reporting, saying over Twitter: “My sources here say China thought it had agreement in principle on tariff rollback in early Nov but President Trump backed away from it. So unclear how “close” two sides really are.”  

We’re not quite sure who or what to believe anymore when it comes to US/China trade headlines, but we know this…these headlines will keep coming and the markets (more specifically the trading algorithms) will take them at face value.  USDJPY has swiftly bounced off chart support in the 108.40s as a result of this morning’s headline, but the upside momentum has stalled since the US ADP report came out.  Over 1blnUSD in options expire between the 108.85 and 108.95 strikes this morning at 10amET, which could be a magnet for spot USDJPY prices should the 108.60s hold.

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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.

Interested in creating a custom foreign exchange trading plan? Contact us or call CXI's trading desk directly at 1-833-572-8933.