Talk of China potentially curtailing economic stimulus hurts Chinese stocks, yuan and commodity currencies

Summary

• USDCAD: Dollar/CAD is trading right back within chart resistance in the 1.3370-90s this morning as concerns start to make the rounds that China’s PBOC may end the aggressive economic stimulus measures they’ve put in place more recently.  Chinese stocks slumped lower by 1.5% today; dollar/yuan rallied and surpassed yesterday’s high of 6.7190; the China-sensitive Australian dollar slumped further after losing the 0.7140s on the charts yesterday; and the Canadian dollar (a commodity currency) appears to be slumping in sympathy.  June crude oil prices are giving up overnight gains at this hour after a Bloomberg report reaffirms Saudi Arabia’s position to accommodate the market with extra supply in the event Iran finds it increasingly difficult to export oil.  Canada just reported its Wholesale Sales numbers for February and they beat expectations (+0.3% MoM vs +0.1%).  The main event of the week for USDCAD however (or the “party” as we described it to Reuters) comes tomorrow when the Bank of Canada announces its latest decision on interest rates.  We still believe that traders need to be an guard for a more cautious than expected monetary policy outlook from Stephen Poloz and company.  The USDCAD chart continues to coil in a manner that would suggest a big move is forthcoming; the market has failed to decline despite better than expected Canadian core CPI and Retail Sales out of Canada last week and despite yesterday’s explosive rally in oil prices.   All this suggests to us that the market is concerned about something and that the path of least resistance could be higher here.  The market appears to be tripping some buy stop orders above the 1.3400 level as we go to press.

• EURUSD: Euro/dollar traders don’t seem in the mood to do much here today as they return from the Easter holidays. Trend-line chart resistance in the 1.1260s (which we talked about yesterday) has asserted itself twice in overnight trade, and we’re now starting to see the selling pressure pick up as NY trading gets underway.  We think the USDCNH move back up through the 6.7190 level should be pause for concern for EURUSD as there is not much chart resistance on this pairing until the 6.74-6.75 level.  Is a shoe about to drop in China?

• GBPUSD: Sterling is seeing a bit of a bounce this morning, but this appears to be flow related in EURGBP more than anything else, as the famed cross rate once again violently reverses a breakout attempt above the 0.8650s.  Cross party talks are set to resume today as the UK parliament returns from the Easter recess.  Theresa May is still facing pressure from Tory MPs to resign and the Guardian is now reporting that she’s preparing a key Brexit vote for consideration within the next 10 days.  More here.  Chart resistance in the 1.3010-20 area is capping the trade as NY trade gets underway this morning and so we think the market continues to struggle here. 

• AUDUSD: The Australian dollar is not having a fun time of it this morning as the selling witnessed in overnight trade continues to pick up steam.  Blame it on China worries or the market’s inability to hold chart support in the 0.7120s, but we’re heading lower right now and there’s not much support on the charts until the 0.7070-0.7080s.  Australia reports its Q1 CPI figures at 9:30pmET tonight and the expectation is +0.4% QoQ and +1.7% YoY.  May copper prices continue lower for the third day in a row today, and have broken below key support at the 2.90 level.  We think the technical setup for AUDUSD is turning rather precarious unless the 0.7120s can be regained on a better than expected CPI print tonight.

• USDJPY: Dollar/yen tested the resolve of the fund longs in quiet Asian trade overnight, as the market tested the 111.60-80 support zone we talked about yesterday, and more buyers were found.  We’re now trading back towards yesterday’s highs around the 112.00 level, but with some upward momentum.  The S&P futures are trying to grind higher this morning, as are US 10yr yields. We think a positive week of corporate earnings out of the US could help USDJPY restart its march higher.

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

Market Analysis Charts

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GBP/USD Hourly Chart

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Charts: TWS Workspace

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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