Weak Chinese Industrial Production figures for January ignite broad USD buying

Summary

• USDCAD: We’re finally seeing a bounce in USDCAD this morning, but this comes after extended losses from yesterday following crude oil’s continued march higher.  Buyers came to the rescue at trend-line support in the 1.3280-90s during Asian trade overnight.  April crude has emphatically resisted the Nov 2018 high of 58.70 this morning and the broader USD is rallying, led by weakness in the Chinese yuan (more on this below).  Today’s North American session doesn’t feature any notable economic releases, but we'll have Bank of Canada deputy governor Wilkins speaking at 6:50pmET tonight.  We think USDCAD has a chance to renew its uptrend should the market close above the 1.3330s today.  Failing to do that however should keep the pressure on.

• EURUSD: Euro/dollar is erasing all of yesterday’s progress above the 1.1300 level this morning, after China reported weaker than expected Industrial Production figures for January overnight (+5.3% vs +5.5% expected) and reports circulated about the Trump/Xi summit now being delayed until April.  This ignited a feverish bid under USDCNH (selling of Chinese yuan) and dragged EURUSD lower as Asian trade was coming to an end.  An attempt was made to get the market back above the 1.1320s in European trade this morning as EUR traders followed GBPUSD higher, but all this has reversed now and we have a market looking for buyers once again.  Support comes in at the 1.1290s today.  We think dollar/yuan’s surge above the 6.7200 level this morning could be cause for concern for EUR bulls, but let’s see how we close out today.

• GBPUSD: Brexit headlines continue to suck up all the oxygen on the newswires.  Sterling extended its rally higher yesterday leading up to the 3pmET UK parliament vote on a “no deal” Brexit.  When this motion failed (as expected), the market looked like it went on a stop hunt to trip out fund short positions.  We saw a sudden surge higher into trend-line resistance at the 1.3370s, but it’s been a volatile move lower ever since as market participants come to their senses.  One could argue that the odds of a “no-deal” Brexit are now significantly reduced, but UK lawmakers still have to figure out something else instead, and the clock is ticking.  Today’s Brexit headlines are centered around the Article 50 extension vote, which is expected to pass around 3pmET today.  The UK government is talking about an extension to June, but the EU is not supportive of that (they think Britain now needs more time).  Headlines are crossing about Theresa May’s Brexit plan possibly being voted on a 3rd time when push comes to shove, with rumors that the DUP party might finally come around and vote Yes.  Finally, talk of a 2nd Brexit referendum is making the rounds.  We think this is the most bullish scenario for GBP, as it would likely lead to a “No” vote and GBP traders could all go back to some sense of normality.

• AUDUSD: Australian dollar longs are not having a fun time of it this morning as the weakest Chinese industrial production data since 2009 took the wind out of the sails for the market.  Everything was going great for AUDUSD heading into the NY close, but the surprise headline saw USDCNH shoot up and AUDUSD give up the 0.7090 level that it broke above just a few hours beforehand.  Cue the sellers once again, and all of sudden AUDUSD is trading back down to yesterday’s trend-line support level in the 0.7040s.  We think the market chops here for a bit until traders figure out if this upside breakout in USDCNH is for real.

• USDJPY: Dollar/yen is benefiting handsomely from the broad USD buying theme sweeping over markets today.  Gains have finally extended to last week’s support, turned resistance, in the 111.60-70s.  Next up is the Bank of Japan’s latest monetary policy statement, to be released sometime after 10pmET tonight.  Traders are very much expecting the BOJ to maintain the status quo in every regard (0% interest rates, target of +/- 20bp on the 10yr JGB yield, and no change to the pace of its asset purchase program).  We think a move above resistance today will inspire buying into the low 112s.

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

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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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