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SUMMARY
• GBP rallies across the board. Lawmakers now voting on plan to make it difficult for future PM to prorogue parliament.
• EUR sells off following Bloomberg report about ECB studying revamp of inflation mandate.
• Crude catches a bid following reports of Iran seizing a “foreign” tanker smuggling Iranian oil.
• Bank of Korea surprises with 25bp rate cut. AUD rallies following “ok” Australian jobs report for June.
• US Philly Fed report for July beats expectations. Canadian ADP report for June also beats.
• More Fed-speak on deck today from Bostic and Williams.
ANALYSIS
USDCAD
Dollar/CAD is trading with a choppy tone this morning as broad USD sales in Europe compete with a move higher in oil prices. The USD sales are being led by gains in AUDUSD following Australia’s decent employment report for June last night and by a rally in GBPUSD following comments that the EU’s chief Brexit negotiator Barnier is “ready to work on alternative arrangements” regarding the Irish border, however August crude oil prices seem to be getting their bid this morning from reports that Iran has seized a “foreign” tanker that was smuggling fuel from Iranian smugglers. All this is making for conflicting signals for USDCAD traders this morning in our opinion, and leaves the market holding above yesterday’s trend-line support level in the 1.3040s and below yesterday’s directional price pivot in the 1.3070s. The EURCAD cross is struggling so far today as the EUR gets sold broadly following reports that the ECB is studying a potential revamp to their inflation goal, but it continues to hold critical chart support in the 1.4640s. Canada just reported its ADP employment report for June and the numbers came in higher (+30.4k) versus May (-16k), however the US Philly Fed survey for July has also just been released and the figures beat expectations: +21.8 vs +5.0 and higher than expected in all sub-categories (Capex, Employment, Prices Paid and New Orders). More conflicting USDCAD signals if you ask us. Next up is some Fed speak from Bostic (9:30amET) and Williams (2:15pmET).
USDCAD DAILY
USDCAD HOURLY
AUG CRUDE OIL DAILY
EURUSD
Euro/dollar is lagging its G7 peers this morning after Bloomberg broke a story that the ECB is considering shifting how it targets inflation. More here. This could potentially be big news for EURUSD should the whole “below, but close to 2% inflation” mandate (which arguably hasn’t worked) be formally lowered or removed. This is a de-facto admission from the ECB that its policies have not worked in our opinion, and we think that’s why we’re seeing a knee jerk reaction lower in EUR across the board. Traders are now battling for position at the 1.1210s, which acted as the pivot for price action yesterday. We still think the path of least resistance remains lower in EURUSD right now. Reuters was out with a poll today showing that 2/3 of economists predict the ECB will change its forward guidance towards further easing when it meets next Thursday July 25.
EURUSD DAILY
EURUSD HOURLY
AUG GOLD DAILY
GBPUSD
We’ve long argued that technical market developments (ie. the charts) can foretell changes in the fundamental narratives driving a market, and we’ve seen a good example of this in the British pound over the last 24hrs. Yesterday we talked about a potential stall to broad GBP selling given swift technical reversals in GBPUSD (back above 1.2390) and EURGBP (back below 0.9045) and, sure enough today, we get some positive news on Brexit. The EU’s willingness to re-look at the Irish border issue (ala comments from Barnier) is an undoubtedly encouraging development and we could potentially see more positive headlines emerge from a vote in the UK House of Commons vote this morning (8:30amET), should lawmakers formally reject Boris Johnson’s “nuclear” option of pro-rouging parliament in the event of a “no-deal” Brexit. GBPUSD has surpassed chart resistance in the 1.2460s and now sits just shy of trend-line resistance in the 1.2490s ahead of the vote.
GBPUSD DAILY
GBPUSD HOURLY
EURGBP DAILY
AUDUSD
A $20 rally in gold prices came to the rescue for AUDUSD during NY trade yesterday, and last night’s "ok" June employment report out Australia added some fuel back to the fire. While the headline job gain missed expectations (+0.5k jobs vs +10k), it came off a stellar May report and traders seemed to be encouraged that full-time employment continued to grow (+21.1k) and that the unemployment rate didn’t tick higher (5.2%). A better than expected July Philly Fed report is now making attempts to get above chart resistance in the 0.7040s difficult, but the day is young.
AUDUSD DAILY
AUDUSD HOURLY
SEP COPPER DAILY
USDJPY
Dollar/yen’s struggles in the 108.30s early yesterday turned into an all-out “give up” after gold prices surged $20 higher into the London close. We couldn’t find a headline that drove the move in gold, but bond and money markets went along for the ride, which in turn pressured yields and the USD more broadly. USDJPY then gave up the 108.10 support level (which it has regained the day before) and it was a slippery slope lower into the NY close. A surprise 25bp rate cut from the Bank of Korea then added insult to injury for USD longs during Asian trade, and it didn’t take long for the market to threaten a break of the next chart support level in the 107.70s. This level fell in early European trade this morning, but the market has quickly regained it, and we have now have the positive US Philly Fed numbers driving us higher again.
USDJPY DAILY
USDJPY HOURLY
US 10YR BOND YIELD DAILY
Charts: TWS Workspace
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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