Not a good day for Euro PMIs & Brexit

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SUMMARY

ANALYSIS

USDCAD

It was very much a disappointing day for recent USDCAD buyers yesterday as the market couldn’t benefit from some early morning risk-off flows following weaker than expected US jobless claims and Philly Fed data.  Instead, chart resistance in the 1.3230s reasserted itself, and a combination of option expiry related buying in EURUSD and some positive sounding COVID-19 vaccine headlines from J&J then sparked a broad selloff for the dollar.

Almost all of this misguided vaccine optimism has been rightly reversed in overnight trade today following some poor European flash PMI data for August and some rather depressing Brexit updates out of chief negotiators Barnier and Frost.  Euro/dollar has plunged down to its next support level in the 1.1760s after spiraling below yesterday’s pivot in the 1.1830s.  Sterling has imploded and totally reversed its 100pt surge from yesterday, which has now refocused trader attention on yesterday’s pivotal battleground in the 1.3120-30s.  The S&Ps, October WTI, precious metals and bond yields are all sliding in reaction to this morning’s negative macro soundbites and the risk currencies (AUD & CAD) are looking vulnerable.  

Canada just reported a 23.7% jump in Retail Sales for the month of June, but the market is ignoring this data set as usual of late because it’s stale in the context of a new, fast-moving COVID-19 world and we all know that the Canadian economy rebounded further as it continued reopening efforts in June.  Keep an eye out for over $1.4bln worth of USDCAD options expiring at the 1.3250 strike at 10amET morning, as it could finally tempt a clean break above the 1.3230s.
 

USDCAD DAILY

USDCAD HOURLY

OCT CRUDE OIL DAILY

EURUSD

Euro/dollar traders are re-focusing on fresh European business sentiment for a change this morning and the data is not moving in the right direction anymore.  After bouncing back smartly over the last couple months with reopening efforts following the worst of the pandemic lockdowns throughout Europe, today’s flash PMIs out of France, Germany and the Eurozone were all reported lower than expected for the month of August (details below).  This likely reflects the deteriorating COVID-19 situation in Europe over the last couple weeks and now introduces a new variable to the consensus long EURUSD trade that has been pinning its hopes on further Fed accommodation of late.  

We think it’s likely we’ll see a new record long position from the leveraged funds in this afternoon’s weekly COT report, given that the reporting period ended on Tuesday when the market broke to new swing highs above the 1.1910s…and we believe this could put renewed focus on stretched EUR bullishness. 

EURUSD DAILY

EURUSD HOURLY

SPOT GOLD DAILY

GBPUSD

The August flash PMIs out the UK unexpectedly beat market expectations across the board this morning, but this has been completely overshadowed by the weak business sentiment surveys from the rest of Europe and some rather depressing Brexit updates from the latest round of negotiations this week.  See here, from our friends at PoundSterlingLIVE, for a nice summary of what the EU’s Michel Barnier and the UK’s David Frost had to say.  

Sterling/dollar gave up the 1.32 handle on EURUSD selling following the release of the French and German PMIs, and it has now collapsed all the way back below yesterday’s contested 1.3120-30 level on strong EURGBP buying following this morning’s Brexit headlines.  The day is young but the sterling bears have regained the momentum for now.
 

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Aussie is holding up remarkably well this morning despite the negative PMI/Brexit headlines out of Europe and the risk-off tone that has broadly pressured stock and commodity futures lower as a result.  Perhaps this morning’s 500mlnAUD worth of option expiries between 0.7150 and 0.7200 are curbing serious sell interest for now?

We think today’s US equity market action will be the key driver going into the weekend and we’d be concerned for the recent AUDUSD uptrend if the 0.7130-40s support level were to give way.
 

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen has been caught in the crosshairs of broad USD volatility and slumping US yields over the last 24hrs, and with that the market is trading close to its opening levels from NY trade yesterday.  The momentum has shifted somewhat lower however as yesterday’s give-up of the 105.80-106.00 zone was technically negative and because this level is now resisting price action today.  We think USDJPY could end the week back above this zone if US 10yr yields bounce a couple basis points today.
 

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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