Mnuchin says US/China trade deal is 90% complete...again

SUMMARY

ANALYSIS

USDCAD

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EURUSD

Euro/dollar is trading very quietly this morning as NY trade gets underway.  Chart support in the 1.1350s continues to hold after Bullard's comments yesterday saw traders push the market lower into the level.  We can’t say we were all that surprised given the market’s inability to regain the 1.14 handle and gold’s failure to regain the 1440s heading into the London close.  The Fed’s Bullard said the “current situation doesn’t call for a 50 basis point rate cut” in July, and while we’ve seen the July Fed fund futures adjust accordingly since those remarks, a quick look at the US treasury curve and the Eurodollar interest rate curve this morning suggests interest rate traders have not been overly swayed that the Fed will have to cut quickly and aggressively later this year.  German bunds yields are trading steady at -0.32% this morning and the spread for Italian BTPs over bunds sits at +245bp versus last week’s lows in the +231bp area.  We think today’s action in EURUSD may be choppy, as over 3.5blnEUR in options expire between the 1.1370 and 1.1390 strikes.

EURUSD DAILY

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GBPUSD

Sterling found some buyers at chart support in the 1.2660s this morning as Bank of England governor Mark Carney took the mic in UK parliament, but sellers have been back on the prowl after GBPUSD failed to get back above chart resistance at the 1.2710 area.  More here from Reuters on Mark Carney’s speech.  Yesterday’s bearish outside reversal candle on the daily GBPUSD chart, made worse by way of the Bullard/Powell inspired intra-day USD rally, seems to be casting a shadow over traders this morning.  Pound futures traders liquidated 1,459 contracts in yesterday’s trade.  We think the technical outlook for GBPUSD has turned decidedly more choppy here in the near term.  The EURGBP cross managed to venture back above the 0.8940-50s yesterday and recent buyers appear to have so far survived a downside test of this level in London trade today.  We think a push in this cross towards the 90 handle (which is doable now in our opinion), could pressure GBP more broadly.  Is there perhaps some negative Brexit news on the horizon?

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AUDUSD

The Australian dollar is enjoying a mild breakout higher above the 0.6960s today.  This comes on the heels of continued buying in NZDUSD, after the Reserve Bank of New Zealand decided to leave interest rates on hold at 1.50% (which was a bit of a disappointment to those in the OIS market who we’re pricing in a 20% chance of a 25bp cut last night).  The statement from the central bank was rather dovish though, citing a slowdown in the global economic outlook.  Money markets are now pricing a 63% chance that rates fall by 25bp at the next RBNZ meeting on August 7.  More here from the Guardian.   Adding to the fuel for AUDUSD this morning was the re-hashed “we’re 90% there” story from CNBC regarding US/China trade talks.  While we believe this AUDUSD break-out is technically positive for the market and could ultimately lead to a move into the 0.7000s, we’re a bit concerned that the Australian dollar isn’t benefiting more from today’s positive headlines and we would note that the off-shore Chinese yuan and July copper prices have already completely reversed the CNBC headline as we head into NY trade. 

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USDJPY

Dollar/yen is extending its gains this morning, after some less dovish than expected comments from Bullard and Powell prompted some bond traders to reduce exposure yesterday afternoon.  The CNBC Mnuchin headline earlier today provided the impetus for the next leg higher through 107.50 and into chart resistance at the 107.75 level.  The USDJPY market desperately needed to bounce yesterday to prevent a cascade of selling in our opinion as there’s literally no chart support below the 106.80-90 level we mentioned yesterday (the Jan 3rd flash crash range).

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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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