Whose head is spinning?

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is trading back near its 1.3280-1.3300 support zone this morning, after a tumultuous overnight session of conflicting US/China trade headlines ultimately saw buyers fail with a breakout attempt above the 1.3330s.  The headlines come out in this order:

US, CHINA MAKE NO PROGRESS IN DEPUTY-LEVEL TRADE TALKS (SCMP) – Risk off

WHITEHOUSE - SCMP report is inaccurate. We are not aware of a change in the Vice Premier’s travel plans at this time.” (CNBC).  CHINA’S LIU TO STAY IN WASHINGTON THROUGH FRIDAY FOR MEETINGS – Risk on

Chinese trade sources tell Fox Business that the Chinese Trade Team will leave after one day of talks on Thursday – Risk off

US WEIGHING CURRENCY PACT WITH CHINA AS PART OF PARTIAL DEAL (Bloomberg) – Risk on

CHINA MOFCOM URGES US TO STOP UNREASONABLE PRESSURE ON CHINESE COMPANIES INCLUDING HUAWEI (Reuters) – Risk off

WHETHER CHINESE DELEGATION STAYS WILL DEPEND ON TODAY (Fox) – Risk on

We hate to say it, but the market is trading lower here simply because the last headline sounds slightly less negative in our opinion and we still have a whole news cycle ahead of us for the NY session where “something positive” could happen on the US/China trade front.  The US just reported its CPI data for September and the numbers missed expectations (flat vs +0.1% MoM and +1.7% YoY vs +1.8%), which is not surprising given Tuesday’s soft PPI data.  OPEC cut its 2019 global oil demand forecast for the fourth time in five months in its Monthly Oil Report released this morning.  More here from the WSJ.

Yesterday’s FOMC Minutes re-highlighted the fact the “several” policymakers favored keeping rates steady but this is nothing new in our opinion, and it doesn’t matter frankly when NOT disappointing the markets is clearly the only course of action for the Fed right now.  Jerome Powell’s favorite new phrase “The economy is in a good place” got no attention when he used it again in another speech yesterday.  To this we say, “ya right”.  The Fed’s is clinging to the low “official” unemployment rate as its key measure for the strength of the job market but it’s one of the most outdated, lagging and misleading indicators out there.

USDCAD DAILY

USDCAD HOURLY

NOV CRUDE OIL DAILY

EURUSD

The buyers came back in force during the overnight session today, after the initial, negative sounding US/China trade headlines from SCMP ignited a risk-off bid to gold prices.  The price spike in December gold up to the $1520 level got EURUSD back above its trend-line support zone in the 1.0965-1.0975 area, and we think this gave fuel to the chart technicians and buy stop hunters when Europe got going.  A break above the psychological 1.1000 resistance level then triggered yet even more buying and before you know it EURUSD was tackling its next major resistance level in the 1.1020s.

This morning’s 7:30amET release of the ECB Minutes showed the dissent amongst “a number of” policymakers surrounding Mario Draghi’s decision to re-launch QE (largely expected we would say), but we think the governing council’s overarching consensus for more forceful and pre-emptive monetary policy action is coming across as a slightly more dovish development for markets this morning…hence another reason why EURUSD could be stalling here.  The full minutes of the meeting can be read here.  All this being said though, we still think Christine Lagarde has a problem to fix at the ECB.  So long as the rift of dissent and lack of unanimity grows on every major policy topic, we think the new ECB President will be hard pressed to announce any further easing measures.  

The FT reported this morning that Mario Draghi and the governing council ignored in-house advice from the central bank’s monetary policy committee when deciding to restart QE last month.  More here.

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

Sterling is treading water once again around familiar chart resistance in the 1.2230-40s, but with some more negative momentum now as it gave up gains above this level earlier today.  We’d argue this morning’s UK data dump was largely a non-event for markets as the focus remains on Brexit.

UK GDP (Aug) -0.1% vs flat exp.  +1.1% YoY vs +0.9% exp 

UK Industrial Output (Aug) -0.6% MoM vs -0.1% exp

UK Manufacturing Output (Aug) -0.7% MoM vs flat exp.

We think traders will be watching Boris Johnson’s meeting today with Irish PM Leo Varadkar for more clues.  More here from the BBC.  We think a NY close below the 1.2230s will reaffirm confidence for the funds, who remain net-short the market.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

Australian dollar and Chinese yuan traders appeared to focus on the positives from last night’s barrage of conflicting US/China trade headlines during the overnight session, with the most notable moves in both currencies occurring after the Whitehouse’s denial of the SCMP story.  Both the AUD and CNH maintained an upward trajectory throughout early European trade today, and we think EURUSD’s rally through 1.1000 added some fuel to the fire.  However, these moves are reversing somewhat now as the US 10yr yield breaks above 1.60% and the German bund yield moves back above -0.50%.  We’re not quite sure yet what’s driving this hit to the “Fed rate cut trade” at the start of NY trade here, as the Fed’s Kaplan said an hour ago that he’s “open-minded” on further easing.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen is shooting higher here above the key 107.50 level as US and German yields break higher.  The moves are still fresh and the headlines continue to pour in.  Perhaps we’re going to see a positive US/China trade development shortly?  Stay tuned on Twitter @EBCTradeDesk.

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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