Optimism for a dovish Fed lifts broad risk sentiment to start week

Summary

• USDCAD: Dollar/CAD is trading with a neutral tone to start the week.  The broader USD is mixed to weaker as traders gear up for what’s expected to be a another dovish FOMC meeting on Wednesday; April crude oil prices are gyrating following reports that OPEC will cancel its April meeting because it’s too early to talk about extending production cuts further; and global equities are trading bid despite reports that the Trump/Xi summit may get pushed back to June.  The economic calendar is going to be quiet heading into the Fed’s decision on Wednesday.  After that however, we’ll get the US Philly Fed survey on Thursday and the Canadian Retail Sales/CPI data on Friday.  The leveraged funds marginally added to their net long USDCAD position during the week ending March 12th.  We think the new USDCAD uptrend observed since the beginning of March now hinges upon trend-line support holding at the 1.3300 level.  Chart resistance today lies in the 1.3330s, then the 1.3370s.

• EURUSD: Euro/dollar is drifting higher this morning amid a broad, albeit mild, “risk-on” tone to global markets.  Traders don’t seem all that concerned about the delay with the Trump/Xi meeting.  If anything, there appears to be optimism that the Fed will keep its dovish stance in place when the FOMC announces its latest decision on monetary policy on Wednesday.  The leveraged funds marginally trimmed their net short EURUSD position during the week ending March 12th (when the market bounced off the 1.12 lows).  These positions are being put to the test again this morning, after EURUSD drifted above trend-line resistance in the 1.1330-45 area.  This week’s European economic calendar features the German ZEW survey for March (tomorrow), the German PPI figures for February (Wednesday), the EU summit (Thursday) and the Markit PMI data for Germany and the Eurozone (Friday).  The Chinese yuan is trading steady to start the week.  We think EURUSD may drift a little higher still today, but we think trend-line resistance in the 1.1360s will cap prices ahead of the Fed this week.

• GBPUSD: Sterling is lagging this morning as traders await the next major Brexit headlines.  All eyes will be on Theresa May this week to see if a) she can convince the DUP party to vote for her Brexit deal when it comes down to a 3rd meaningful vote on Wednesday, and b) she can convince EU leaders that a short Article 50 extension is better than a longer one.  GBPUSD sits stuck between support in the 1.3230s and resistance at the 1.3270-80s going into NY trade today.  We think the leveraged fund net short position in GBPUSD, which increased slightly during the week ending March 12th, remains vulnerable to any Brexit headlines that can be spun in a positive way.

• AUDUSD: The Aussie drifted higher this morning as well, but trend-line chart resistance in the 0.7120s appears to now be capping prices.  May copper prices are trading 0.7% higher, and now trade just shy of key trend-line resistance in the 2.93-2.9350 area.  The RBA reports its Minutes from the last interest rate decision tonight at 8:30pmET.  RBA member Bullock will be speaking tomorrow night.  Finally, Australia reports it February employment report on Wednesday night, where traders are expecting a gain of 15k jobs.  Like EURUSD, we think AUDUSD might test chart resistance again early this week, but we think traders will then fade any gains ahead of the Fed meeting.

• USDJPY: Dollar/yen is struggling to regain the 111.60s this morning after broad USD selling into Friday’s option cut saw the market lose this important chart support level.  The leveraged funds added to their net long USDJPY position during the week ending March 12th as shorts liquidated.  The BOJ Minutes from last week’s policy meeting will be released tomorrow night.  The Japanese markets will be closed on Thursday for Vernal Equinox Day.

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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