USD collapses as key support levels give way

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SUMMARY

ANALYSIS

USDCAD

A rather uneventful NY afternoon session ended yesterday with a little bit of excitement as rumors swirled about the resignation of Canadian Finance Minister Bill Morneau.  The market vaulted off the 1.3190-1.3200 zone into Asian trade, but sellers reemerged at chart resistance in the 1.3230s a few hours later when Morneau’s resignation was confirmed and cooler heads prevailed.  A wave of broad USD selling also came in around the 8pmET hour, led by a plunge in USDJPY, and while some traders cited headlines about a major announcement from North Korea on Wednesday as the reason for the local safe-haven flows back into the yen, this honestly felt like a move to take out sell stop orders below the 105.90 support level given the market’s negative momentum since last Friday. We think another six-month low for the PBOC’s daily USDCNY fixing also contributed to the dollar’s offered tone throughout Asian trade.  

The rout continued in Europe this morning as spot gold prices reclaimed the psychological $2000 level and as technical support levels for the USD gave way against sterling (1.3120-30s), the Aussie (0.7230s) and the Loonie (1.3190s).  EURUSD smashed through stop orders in the 1.1910s at the start of NY trade and the cash S&P 500 just traded to a new all-time high, and this is adding insult to injury for the broader USD.  Dollar/CAD is holding chart support in the 1.3150s however and we think this is because of a swift 1% move lower for September WTI oil prices at the start of NYMEX trade (catalyst unclear though).      

US Housing Starts for July beat expectations (1.496M vs 1.240M) and Deputy PM Chrystia Freeland has just been appointed Canada’s next finance minister.

USDCAD DAILY

USDCAD HOURLY

SEP CRUDE OIL DAILY

EURUSD

Euro/dollar has vaulted above its August trading range this morning to trade at its highest level since May 2018.  This is very much a momentum trade at the moment and we wouldn’t fight it until we see clear signs of buyer failure.  A rather large option expiry is developing at the 1.1900 strike for tomorrow’s NY cut (currently 1.3blnEUR in size) and we wonder if hedging around this event could put the brakes on this rally. 

EURUSD DAILY

EURUSD HOURLY

SPOT GOLD DAILY

GBPUSD

Sterling/dollar has surged to a six-month high this morning as traders don’t ask questions and jump aboard the dollar-bashing bandwagon.  We think the market faces a key chart resistance test today in the 1.3210s.  A strong NY close above here could usher in a panicky surge to the 1.35 handle as very little chart resistance remains at this point, whereas failure on the part of buyers here could finally bring about a pause to the market’s recent uptrend.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar is lagging its G7 pairs this morning but it has still managed to reach its highest level since early 2019 on broad USD selling.  Last night’s RBA Minutes were a non-event, with the Australian central bank confirming no need to further policy easing right now, and traders were not bothered at all by news that China launched an anti-dumping probe into wine imports from Australia.  

All the media hype about this morning's new all-time highs for the S&Ps seems to be triggering some broad profit taking in the stock market and all of sudden we see AUDUSD threatening to erase its technical breakout above the 0.7230s overnight (which is a sign of buyer failure).
 

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen plunged below the 105.90s last night as sell stop orders got triggered.  We wouldn’t read too much into last night’s North Korea headlines and would instead remain focused on the marketplace’s desire to once again sell the USD after the passage of last week’s auction-driven US yield spike.  The market is currently struggling to hold its next key support level in the 105.30s and we think tomorrow’s $1.2bln worth of option expiries at 105.00-105.25 could prove magnetic if the broader USD can’t recover here 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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