USD trading mixed in quiet start to holiday shortened week

SUMMARY

• US traders returning from Memorial Day long weekend devoid of major US/China trade headlines.
• USDCAD bouncing but trend-line resistance in the 1.3470s capping.
• EURUSD holding support in the 1.1170s after Thursday’s gold-inspired bullish outside day pattern.
• GBPUSD traders deciding what to do next following Theresa May’s announced June 7 resignation date.
• AUDUSD trading bid with copper and EURUSD.
• USDJPY continues to struggle as US 10s start the week below 2.30%.
• Bank of Canada announces its latest interest rate decision tomorrow.

ANALYSIS

USDCAD

Dollar/CAD is trading with a mixed tone this morning as US traders return from the Memorial Day long weekend.  A mild wave of selling in European equities and the S&P futures earlier this morning has helped the USD more broadly, but there hasn’t been a whole lot of momentum behind the move and USDCAD is now hitting familiar trend-line resistance in the 1.3470s.  This week’s calendar features the Bank of Canada interest rate decision tomorrow, where no change is expected.  While we think Stephen Poloz will acknowledge the recent improvement in Canadian data (record employment report for April, higher than expected core CPI for April, better than expected Retail Sales for March), we think he’ll continue to express concern over global trade uncertainty and oil prices (both of which have deteriorated since the April meeting).  Thursday’s session will bring the 2nd look at US GDP for Q1, along with a speech from the Bank of Canada’s deputy governor Wilkins.  Finally, on Friday we’ll get the US PCE Index (April), Canadian GDP (April), Canadian Raw Material Price Index (April) and the Chicago PMI (May).  The leveraged funds continue to hold a net long position in USDCAD, but they have trimmed long positions as of May 21.

USDCAD DAILY

USDCAD HOURLY

JUN CRUDE OIL DAILY

EURUSD

Euro/dollar continues to hold chart support in the 1.1170s despite reports that the European Commission is considering disciplinary procedures against Italy for its failure to meet EU budget rules.  More here.  The Italian 10-yr BTP yield shot up to 2.70% from 2.55% yesterday when the news broke, but EURUSD traders appear to be taking the news in stride ever since.  Italian deputy PM Salvini has said today that he will use all his energy to fight outdated EU fiscal rules, while the EU’s Moscovici said that he does not prefer sanctions against Italy.  This week’s European calendar features the German employment report for May (Wednesday), and the German Retail Sales for April (Friday) and the Italian Q1 GDP figures (Friday).  The funds added to their net short EURUSD position as of May 21 but we suspect they’ve trimmed this since the gold-inspired bullish outside day recorded on the daily chart last Thursday.  Chart resistance today for early this week resides in the 1.1210s.  We think any move above this level will incite more buying towards the 1.1300 level.

EURUSD DAILY

EURUSD HOURLY

USDCNH DAILY

GBPUSD

Sterling traders are suffering from a bit of anxiety ever since Theresa May announced on Friday that she’ll be resigning on June 7.   While the news provided a bit of relief rally for GBPUSD, Brexiteer Boris Johnson is currently the front-runner to become the next Tory leader/prime minister, and we think some traders are starting to think about “no-deal” Brexit risk once again.  This week’s UK economic calendar doesn’t feature any prominent releases, as so we think market participants will be focused on the upcoming leadership race, which is expecting to kick off in two weeks’ time.  Near term chart support lies in the 1.2620-30s, while resistance resides just above the 1.2700 figure.  The funds piled into new short positions during the week ending May 21.  We think they remain in charge sub 1.2750-80.  The EURGBP cross looks well supported into month end, with traders buying yesterday’s dip back below the 0.8800 figure.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Aussie continues to enjoy some upward momentum since it bottomed with EURUSD last Thursday.  We’re now trading within yesterday’s tight 0.6915-0.6935 range as US traders return from the holiday weekend.  July copper prices are also trying to extend gains since bottoming last week and we think a move above the 2.72 level could be quite supportive for AUDUSD.  Dollar/yuan, on the other hand, has been trading bid to start the week as US/China trade tensions linger.  We think AUDUSD could find continued buying interest should USDCNH stay below the 6.9300 level.  This week’s Australian economic calendar features the April Building Permits data for release on Wednesday night ET.  The funds extended their net short position to -66.1k contracts during the week ending May 21.

AUDUSD DAILY

AUDUSD HOURLY

JUL COPPER DAILY

USDJPY

Dollar/yen continues to struggle after last Thursday’s risk off move saw chart support give way in the 109.85-95s.  The S&P futures have been trading range-bound ever since and the cash US 10-yr yield is starting the week offered below 2.30% (which isn’t helping in our opinion).  Buyers appear to be taking a stand at chart support in the 109.20s this morning but there are no major US economic releases/central bank speeches scheduled for today which could provide catalysts for further upside momentum.  Bank of Japan governor Kuroda will be speaking tonight at 8pmET.  The funds liquidate both long and short positions during the week ending May 21, bringing down their net long USDJPY position slightly week-over-week.

USDJPY DAILY

USDJPY HOURLY

S&P 500 DAILY

Charts: TWS Workspace

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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