Trump says Fed "boneheads" should cut interest rates to zero "or less".

SUMMARY

ANALYSIS

USDCAD

A couple of Trump tweets are making the rounds this morning as NY trading gets underway:

The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet....The USA should always be paying the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”

Markets aren’t reacting to this latest tirade on the Fed by the President, but what’s funny to us is that these comments subtly hint at the US economic outlook potentially being more dire that the Fed would have us believe.  Why does the US, and the rest of the global economy for that matter, constantly need stimulus?  Could it be because things really aren’t that great and what central bankers thought was stimulus all this time hasn’t really been stimulus at all?  Are central banks becoming increasingly irreverent in the interest rate/funding markets and are these market participants now taking matters into their own hands?

All this is making for some interesting banter this morning on the Twittersphere as USDCAD wrestles with the 1.3150 support level once again.  There have been lots of headlines in the oil market since the NY close but it’s not having much of an effect on price.  First off we got the bullish API report late yesterday, showing a 7.22M barrel draw to inventories versus expectations of -2.6M.  Then we got OPEC’s Monthly Oil Report, which showed the cartel once again lowering its 2019 and 2020 global oil demand forecasts, citing economic slowdown concerns.  OPEC said it also saw strong non-OPEC supply growth over the next year and it urged producers to support market stability in an effort to avoid potential oversupply.  The EIA will report its weekly oil inventory report this morning at 10:30amET, with traders now expecting a draw of 1 to 3mln barrels.  The IEA will release its monthly oil market report tomorrow at 4amET.  The US just reported its PPI data for the month of August and the numbers narrowly beat expectations on both the headline and core measures (+0.1% MoM vs flat for the former and +0.3% MoM vs +0.2% on the latter).  We think the 1.3150 level will once again be pivotal for USDCAD price action today.

USDCAD DAILY

USDCAD HOURLY

OCT CRUDE OIL DAILY

EURUSD

Traders appear to be paring some bets that the ECB disappoints markets tomorrow as the drum from some sell-side institutions beats louder that we’ll in fact get a monetary bazooka.  We can see this tension building in overnight EURUSD options volatility, which has now shot up in price to a new 2019 high (15.75).  EURUSD has fallen back below chart support at the 1.1010 level, and traders now have some large option expiries at 1.0990-1.1000 to digest (1.3blnEUR), along with some better US producer inflation data.  The European Central Bank will announce its highly anticipated decision at 7:45amET tomorrow, and this will be followed by a press conference at 8:30amET.

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

UK Prime Minister Boris Johnson has been dealt another blow this morning after a Scottish appeals court ruled that his prorogation of parliament was unlawful.  More here from the BBC.  Sterling traders don’t seem to care though, as GBPUSD trades just moderately lower.  We think the market tests chart support once again in the low 1.23s, but more because of broad USD strength.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar poked its head above familiar trend-line chart resistance in the 0.6860s during late Asian trade last night, with traders citing a positive sounding headline from Global Times editor Hu Xijin: CHINA WILL INTRODUCE IMPORTANT MEASURES TO EASE THE NEGATIVE IMPACT OF THE TRADE WAR”.  This optimism quickly faded though after the market ran into more chart resistance at the 0.6880s and this coincided with EURUSD selling at the start of European trade.  With this morning’s move back below the 0.6865 level, we think there’s a risk AUDUSD pulls back even more and creates a mild bearish reversal on the daily chart.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen resumed its ascent in Asian trade last night after another strong NY close for US 10yr yields helped the market finally surpass chart resistance at 107.50.  The US benchmark yield now sits atop chart resistance at 1.70% (now support) and the German equivalent has broken above the -0.57% level we talked about yesterday.  We think USDJPY buyers might run into some resistance ahead of the 108.00 level.

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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