EURUSD trades to new 2 year low

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is starting the week with a bid tone as November crude oil prices trade 1% lower.  This follows some rather calm comments from Saudi Arabia’s Mohammed bin Salman, who told 60mins last night that he’d prefer a political and peaceful solution to Iran as opposed to a military one.  More here from Aljazeera.  We’re not quite sure what to make of Saudi Arabia’s position ever since the attacks on its oil facilities on Sep 15th.  They’re going along with the US narrative that the culprit was Iran, but yet they haven’t overreacted and say they want peace (not war).  We’ve said from the very beginning that we thought the Saudi attack was another false flag event for the region and we think that’s why the oil markets continue to trade lower here (price out geopolitical risk).  USDCAD has regained chart support in the 1.3230s as traders now await the Chicago PMI report for September at 9:45amET.  The funds abandoned both long and short positions during the September-to-December futures rollover (week ending Sep 24), but more so short positions, leaving the market’s net short USDCAD position now at its lowest point since early July.  This week’s North American calendar should be eventful for markets:

Tuesday: Canadian GDP (July) and US ISM (Sep)

Wednesday: US ADP Employment (Sep)

Thursday: US Non-Manufacturing ISM (Sep) and US Factory Orders (Aug)

Friday: US Non-Farms Payrolls (Sep)

We’ll also be getting a ton of Fed-speak.  

Tuesday: Clarida, Bullard, Bowman

Wednesday: Harker, Williams

Thursday: Mester, Kaplan, Clarida

Friday: Bostic, Powell, Brainard, Quarles

We think the market could find some legs to rally this week provided buyers hold the 1.3220-30 support area.

USDCAD DAILY

USDCAD HOURLY

NOV CRUDE OIL DAILY

EURUSD

Euro/dollar is collapsing at the start of NY trade here today as it appears the sellers are gunning for another massive option expiry.  Some mediocre German Retail Sales and Unemployment data for August messed up the market’s attempt to regain trend-line support in the 1.0930s earlier this morning in our opinion, and once the sellers dominated this level again, we think the over 4.3blnEUR in options rolling off between the 1.0870 and 1.0900 strikes became their next logical target for prices.  These options expire at 10amET, and so it’s quite possible we see a bounce after that, but we think the sellers are firmly in control here.  Germany just reported flat inflation growth for the month of September versus market expectations for a gain of +0.1% (which will not help the market’s mood).  This week’s European calendar features the pan-European manufacturing PMIs tomorrow and the Services PMIs on Thursday (all for September).  The funds moderately trimmed their net short EURUSD position during the week ending Sep 24.

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

A slightly better than expected annualized figure for UK GDP growth for Q2 (+1.3% vs +1.2%) seemed to helped sterling in early European trade this morning, but it appears the selling in EURUSD has been hard for traders to ignore since then.  GBPUSD has given up most of its early session gains, but it continues to hold chart support in the 1.2290s.  The funds trimmed short positions and added to long positions during the week ending Sep 24, bringing their net short GBPUSD position down to the levels we saw in mid-July.  UK opposition leaders are reportedly set to gather soon to discuss further how to stop a no-deal Brexit because the chorus from the Tory government about the UK leaving the EU on Oct 31 (even without a deal) is growing louder.  UK Chancellor Sajid Javid told BBC radio this morning that he thinks there’s a way to get around the Benn Act, which forces the government to ask the EU for an extension after Oct 19.  Markets don’t seem all too concerned about the weekend’s Brexit news, and so we think GBPUSD could try to stage another bounce attempt.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar continues to hold chart support in the 0.6740-50s to start the week.  Friday’s headlines about the US possibly limiting Chinese access to US capital markets and this weekend’s denial by the US Treasury department is not getting much play in the broader markets, nor is the slightly better than expected manufacturing PMI data out of China for September (reported over the weekend).  China begins its week-long Golden Week holiday tomorrow and so don’t expect any overnight influence from the Chinese yuan for the next little while.  The Reserve Bank of Australia will announce its latest decision on interest rates early tomorrow morning (12:30amET).  The OIS market is pricing in a 78% chance that the RBA cuts rates by 25bp.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen is inching up against chart resistance at the 108.10 level this morning as US 10yr yields are trying to firmly get back above the 1.70% level.  Over 1.2blnUSD in options expire between the 108.00 and 108.05 strikes this morning, and so this is an obvious magnet for price.  There appears to be some quarter-end stress in the funding markets this morning, with the GC O/N repo rate opening at 2.80% on Reuters, but markets don’t seem to be overreacting as this was largely expected.  The NYFed also just finished its latest overnight repo operation with just $63.5bln in collateral tendered from banks (which will be the third undersubscribed operation in a row since they raised their award limit to $100bln last Wednesday).  The funds trimmed USDJPY short positions and added to long positions during the week ending Sep 24, brining their net short position down to its lowest point since early August.  We smell a positive, longer-term, USDJPY trend-reversal in the works, especially if these funds finally bail on short positions, and we think a move above the 108.40s would solidify that.

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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