Markets not in a good mood to start September

SUMMARY

• New US/China tariffs now in effect.  S&Ps -23. Crude oil -3%. Gold +16.
• EURUSD sales continue, following Friday’s key breakdown below 1.10.
• GBPUSD falls below 1.20 level, but emergency “no-deal” Brexit vote sees a relief bounce.
• RBA leaves rates on hold as expected, doesn’t signal any new dovish tones. AUDUSD bounces.
• USDJPY trading steady ahead of US Markit and ISM manufacturing PMIs.
• USDCAD threatening upside break.  Bank of Canada looms for Wednesday.

ANALYSIS

USDCAD

Dollar/CAD is testing the upper boundaries of its recent price range this morning as the USD trades broadly higher.  Some of this appears to be a mild case of “risk-off” following weekend news that the US and China went ahead with their latest tariff increases on each other.  Some of the broad USD buying also appears to be coming from key technical breakdowns in both EURUSD and GBPUSD, with the former breaking below 1.10 and the latter falling below 1.20.  We also think there’s a bit of angst in the air ahead of the US Markit and ISM manufacturing PMIs for August, which will be released at 9:45amET and 10amET respectively this morning.  USDCAD is now testing trend-line extension resistance in the 1.3360-70s, and is on the verge of an upside breakout.  The leveraged funds at CME remain net short the market.  We think the CAD is looking even more vulnerable now to a dovish surprise from the Bank of Canada when it announces it latest decision on interest rates this Wednesday. 

USDCAD DAILY

USDCAD HOURLY

OCT CRUDE OIL DAILY

EURUSD

Things are going from bad to worse for the EURUSD market right now, with this week’s sellers seemingly getting their impetus from Friday’s late technical breakdown below the key 1.10 level.  As we mentioned on Twitter on Friday, this move to new lows forces traders to look left on the charts once again (weekly charts to be specific) and what you’ll notice is not much in the way of technical support now until the high 1.08s/low 1.09s in our opinion.  Rumors are also now circulating that the ECB will cut deposit rates 20bp and announce a massive new stimulus package when it meets next week on Sep 12th.  We think traders, while correct to assume the ECB will eventually to be forced down the rabbit hole of even looser policy, might be getting a little ahead of themselves here.  This will be Mario Draghi’s last meeting as ECB President before former IMF chief Christine Lagarde takes over and we don’t think he’ll want to shake things up materially for her right before passing the torch.  The German 10yr bund yield traded as low as -0.743% this morning, which was a new record low.  The leveraged funds, who still remain net short EURUSD, added marginally to their positioning during the week ending August 27.  

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

All eyes on are the UK parliament today as some angry lawmakers return from their summer recess.  Sterling/dollar fell below the key 1.20 level in early European trade in the lead up to the weaker than expected Construction PMI print for August (45.0 vs 45.9 expected), but it has since seen a pop higher following reports that the UK speaker of the House of Commons has allowed the opposition’s request for an emergency debate today; all in an effort to block UK PM Boris Johnson from pursuing a “no-deal” Brexit if worse comes to worse.  Johnson is now threating to call a new general election in response, should the House legislate him to beg the EU for yet another Brexit extension to January 2020 (which is what UK opposition leaders are proposing).  The market appeared to breathe a sign of relief following the release of these headlines, but we’d argue the sellers still remain in charge here (as evidenced by GBPUSD’s swift rejection of the 1.2060s – yesterday’s support turned resistance).  The leveraged funds at CME started bottom picking in GBP funnily enough during the week ending August 27, by virtue of longs adds to positions for the first time in 3 weeks.  Turns out buying Angela Merkel’s Brexit optimism was a bad move, as GBPUSD now trades at a new two year low. 

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar is attempting another bullish outside pattern on the charts again today (similar to last Monday), but today’s motivation appears to be coming from trader relief that the Reserve Bank of Australia didn’t make more dovish than expected changes to its forward outlook, when it announced its expected hold to interest rates last night.  The tone of this month’s press release sounded very similar to August’s in our opinion, and so we think this is what’s driving AUD’s rebound in European trade so far today.  The leveraged funds at CME haven’t done much in the last three weeks, and while they trimmed their net short position marginally during the week ending August 27, they still remain almost as short as they were in late June. 

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen started this holiday shortened week with a quiet, range-bound tone; and we think the next catalyst for price action will come from this morning release of the US Markit and ISM manufacturing PMIs for August.  The US 10yr yield followed the German bund yield lower in European trade today, but this hasn’t had a huge effect on USDJPY as Friday’s lows in US 10s have been reclaimed and the S&P futures have not yet seriously re-tested Friday’s lows in the 2880s.  The leveraged funds added to both long and short positions during the week ending August 27, leaving their net long USDJPY position largely unchanged from the week before. 

USDJPY DAILY

USDJPY HOURLY

US 10YR 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.