Massive M&A flows in EURJPY spurs broad risk-on wave across global markets

Summary

• USDCAD: Dollar/CAD and the broader USD are falling apart this morning as chatter circulates about a massive 3bln EURJPY buy order that was executed in the market earlier.  According to Reuters, this is rumored by dealers to be related to the MUFJ’s 5.6bln EUR purchase of the aviation financing business of Germany’s DZ Bank.  While the acquisition was announced by Japan’s MUFJ on March 1st and is expected to close in June, it looks like the FX portion of the transaction is now underway.  If we look at the chart for EURJPY, it exploded higher above trend-line chart resistance in the 125.70s at 4amET, but so too did stocks, commodities and almost every other major currency against the USD and the JPY!  China reported upbeat export and loan growth data for the month of March about an hour before this, and while some news outlets are saying this is a reason behind today’s “risk-on” tone to global markets, we think the EURJPY move and how incredibly correlated markets are now due to trading algorithms, is the story du jour.  USDCAD struggled at chart resistance in the 1.3390s yesterday and it has now given up overnight support in the 1.3350s as the USD trades broadly lower and May crude oil prices trade +1.3% higher.  Some buyers have stepped in at Wednesday’s pivot around the 1.3330s.  Today’s calendar features some 2nd tier data out at 10amET (US Michigan Consumer Sentiment Index) and the Bank of Canada’s Timothy Lane speaking on a panel at the IMF at 2pmET (Topic: Should Central Banks Issue Digital Currencies).  Over 1.2bln USD in options expire at the 1.3300 strike in USDCAD this morning, and so we wouldn’t be surprised to see further pressure here into the weekend.

• EURUSD: Euro/dollar has broken higher above chart resistance in the 1.1280s this morning and this move occurred right around 4amET when the EURJPY cross shot higher.  We think this may now invite further buying up to the 1.1340-50s and force the entrenched EUR fund short position to re-evaluate, despite more dovish tones from the ECB this week.  We’ll get an updated read on fund positioning as of April 9th from the CFTC later this afternoon.  Recall that their net short position in EUR reached a 32 month high as of April 2nd.

• GBPUSD: Sterling is rallying +0.5% higher this morning, but it has nothing to do with Brexit unfortunately and all to do with broad, risk-on, EURJPY-inspired, USD selling.  The market is bumping up against some trend-line resistance now in the 1.3110-20 level as NY trading gets underway.  The next major resistance level after this comes in at the 1.3170s in our opinion.  The EURGBP cross attempted another break above familiar chart resistance in the 0.8650s earlier today, but this move appears to be fizzling out yet again (which is GBP supportive in our opinion).  You might be asking yourself this morning: what happens now with Brexit?  See here for a nice summary from the BBC.

• AUDUSD: The Aussie has been rallying strongly this morning as well, with the 4amET pop higher in EURJPY igniting a swift move higher in AUDUSD back above this week’s price pivot in the 0.7150s.  This has allowed the gains to snowball in our opinion, and we’re all of sudden trading back at Wednesday’s trend-line resistance level in the 0.7170s.  We think the current momentum of the market might see buyers try to break above it today, but we think they may tire at the 0.7200 level (where more chart resistance lies).  The RBA's bi-annual Financial Stability Review, released overnight, expressed increased risks from global growth moderation and the highly indebted Australian household sector.

• USDJPY: Dollar/yen has been a natural benefactor of the EURJPY rally today, with gains being accentuated by a clean break above USDJPY chart resistance in the 111.60s.  The S&P futures are up 20pts at this hour, and are now trading at a new high for 2019.  The US 10yr yield is now trading comfortably back above 2.50%, and is knocking on the door of chart resistance at 2.55%.  Who would of thought that a peculiar selloff in gold prices and some massive M&A flows would have come to the rescue for the USDJPY fund longs this week.  We’ll get an updated read on their net positioning from the CFTC later today.  We think USDJPY traders need to hold the 111.80s today in order to maintain the current upward momentum.  The next major chart resistance level comes in at the 112.40s in our opinion.

Tune in @EBCTradeDesk for more real-time market coverage.

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About the Author

Erik Bregar - Director, FX Trading

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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