Portfolio managers still apparently short of USD into month/quarter end
Take control of your international payments with CXI FX Now.
• Low transfer fees & great rates
• Fast international payments
• Safety and security
• Unparalleled customer service
• Consultative approach
Interested in creating a custom foreign exchange trading plan? Contact us or call EBC's trading desk directly at 1-888-729-9716.
Get real-time market coverage on twitter at @EBCTradeDesk or sign up here.
SUMMARY
- USD gets bought across the board, despite steady overall risk tone and ample dollar liquidity.
- USDCAD breaks above 1.4170-90s. AUDUSD reversing lower with 4th upside buyer failure in 0.6190s.
- EURUSD slumps for the second straight day. Sterling outperforming euro as 1.2290s hold.
- China’s Manufacturing PMI for March beats expectations. Trump & Putin talk oil market stabilization.
- Canada reports +0.1% MoM GDP growth for January, in-line with expectations.
- BREAKING: FED OFFERS REPO FACILITY TO FOREIGN CENTRAL BANKS WITH ACCOUNTS AT THE NEW YORK FED.
- Fed says move provides “alternative temporary source of USD other than sales of securities in the open market”.
ANALYSIS
USDCAD
So apparently portfolio managers still needed to buy dollars overnight for month-end and quarter-end rebalancing purposes. This the only explanation we can gather from market chatter this morning to explain today’s relentless bid. The 3-month EURUSD cross currency swap basis swap is trading at +34.5bp, which is now showing a glut of USD balance sheet capacity…so it’s hard to argue the USD strength is coming from perceived dollar funding stress. China’s Manufacturing PMI for March massively beat expectations overnight (52.0 vs 45.0); and May oil prices are jumping 8% higher after Trump and Putin agreed during a phone call to have their top energy officials discuss stabilizing energy markets…so it’s hard to argue that we’re seeing a “risk-off” USD bid here. June gold futures showed an unexplainable drop during the 5amET hour…perhaps someone’s expressing their USD view more pronouncedly this morning by leaning on the much more illiquid gold market?
It’s all a little hard to explain, but this incessant bid for dollars is ruining our 1.3900-1.4200 range thesis for USDCAD to start the month of April. We’re prepared to abandon this view should the market close NY trade today above the 1.4170-90s. The next major chart resistance zone is the 1.4280-1.4320s. Canada reported +0.1% MoM GDP growth for January, which was in-line with consensus.
USDCAD DAILY
USDCAD HOURLY
MAY CRUDE OIL DAILY
EURUSD
Euro/dollar slumped another 1% lower overnight, and this comes after yesterday’s 1% fall…all this on continued talk of portfolio manager demand for dollars heading into month and quarter end. Today’s 2blnEUR+ of EURUSD option expiries between the 1.1000 and 1.1035 strikes appear to be a complete non-factor (which is a bit unexpected in our opinion). Trend-line chart support in the 1.0920s are containing the market’s losses for now, and we’re starting to get a much more neutral technical outlook on the daily charts heading into April.
EURUSD DAILY
EURUSD HOURLY
JUNE GOLD DAILY
GBPUSD
Sterling is holding up much better vis a vis the euro this morning as traders defend Friday’s resistance level (now turned support) in the 1.2290s. Some chatter is making the rounds that the UK will be forced to ask the EU to delay the post-Brexit transition period by a year or two, because trade talks have apparently “ground to a halt” amid the coronavirus pandemic. One could argue this is GBP bullish and perhaps explains a large part of EURGBP’s decline since the broad USD funding issues began to abate over a week ago.
GBPUSD DAILY
GBPUSD HOURLY
EURGBP DAILY
AUDUSD
The Australian dollar is showing concerning signs of technical weakness today. While some Tokyo-fix related demand for dollars saw a mini-flash crash in AUDUSD during Asian trade last night, it was really early London’s 4th failed upside breakout attempt above the 0.6190s that sowed the seeds for this morning’s bearish reversal lower in our opinion. We think a NY close today below the 0.6110s would confirm the negative price pattern, but we think we also have to be prepared for a more neutral close should the markets give up their month-end USD bid after the London fix.
AUDUSD DAILY
AUDUSD HOURLY
USDCNH DAILY
USDJPY
Chatter from Japanese banks today suggested that “Japanese names” were also short of USD going into today’s Tokyo fix…which was not only month-end and quarter-end, but also fiscal-year-end in Japan. We still find it fascinating that large real-money market participants a) leave everything to the last minute like this and b) show their hands to the market by executing at the well-known fixing times. Have they heard of trading algorithms to more discretely execute their flows?
These month/quarter/year-end flows allegedly gave USDJPY its bid in the overnight session, but we’d note once again how the market is struggling with the 108 handle. Chart resistance in the 108.60s is now clearly capping prices and we think this could give the bears some momentum heading into some 10amET option expiries at 108.20.
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.
Currency Exchange International (CXI) is a leading provider of foreign currency exchange services in North America for financial institutions, corporations, and travelers. Products and services for international travelers include access to buy and sell more than 80 foreign currencies, gold bullion coins and bars. For financial institutions, our services include the exchange of foreign currencies, international wire transfers, purchase and sale of foreign bank drafts, international traveler’s cheques, and foreign cheque clearing through the use of CXI’s innovative CEIFX web-based FX software www.ceifx.com
Disclaimer: All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement. This publication has been prepared by Currency Exchange International for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Currency Exchange International, its affiliates or any of their employees incur any responsibility. Neither Currency Exchange International nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Currency Exchange International products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Currency Exchange International.
