Boris Johnson becomes new UK Prime Minister
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Dollar/CAD is trading higher this morning as the “Fed rate-cut trade” unwinds a little further and two poor Canadian data points over the last couple days (May Retail & Wholesale Sales) linger in the minds of traders. US bonds, Eurodollar futures and gold prices are all slightly weaker, and the broader USD is breaking back above key some levels against the EUR, AUD and JPY, which is adding fuel to this counter-trend rally in USDCAD in our opinion. Buy stop orders appear to have just hit above the next trend-line resistance level in the 1.3150s and we’ve since seen a bit of a retracement lower. Quite possibly the USDCAD rally stalls here now. September crude oil prices are trading marginally lower this morning, but still within yesterday’s range as traders await the weekly API oil inventory report at 4:30pmET today.
SEP CRUDE OIL DAILY
The Euro/dollar sellers are out in force today as anxiety appears to be mounting ahead of the ECB meeting on Thursday. We think we’re also seeing a bit of “buy USA” type flows today following Trump’s announcement that the White House and congressional leaders reached a two-year deal with regard to the debt ceiling. Yesterday’s NY close below chart support in the 1.1210s was another negative omen for this market in our opinion. It now puts the 1.1140s (next trend-line support) square in the sights for the funds, who are probably rushing to get back short here after liquidations over the past few weeks.
AUG GOLD DAILY
The UK has a new prime minister this morning but sterling traders don’t seem to care. Boris Johnson defeated rival Jeremy Hunt by 92,153 to 46,656 in today’s final vote to decide the Tory leadership race, and while this news may sound positive for markets that are clamoring for some sort of certainty regarding the UK’s future, this result was largely expected by traders and does nothing, in our opinion, to change the dismal outlook with regard to Brexit negotiations. Boris Johnson will still be facing a divided parliament and dissent within his own party regarding his Brexit plan, and while the EU’s Barnier and Juncker said they look forward to working with the next UK prime minister this morning, we find this a little hard to believe. We think the funds have piled back into GBPUSD short positions over the last month because Boris Johnson represents increased “no-deal” Brexit risk. In a very short speech he gave shortly after winning today’s vote, Johnson said “we are going to get Brexit done on October 31st”. GBPUSD rallied through chart resistance in the 1.2450-60s heading into the results of the vote this morning, but has since pulled back below the level. EURGBP continues to chop around from 0.8950-0.9000 so far this week.
The Australian dollar completely lost its upward momentum in NY trade yesterday as broad USD flows didn’t cooperate with the market’s improved technical structure post European trade. The NY close for AUDUSD was poor technically, as price fell back below chart support in the 0.7040s. Today’s slump in EURUSD and September copper prices is not helping AUD sentiment in our opinion. Traders need RBA governor Lowe to say something positive (or less negative) in his speech tomorrow night in our opinion, as any prolonged stay below the 0.7040 may lead to further technical selling.
SEP COPPER DAILY
Dollar/yen has crawled above trend-line resistance at the 108.00 level so far today, but there is not a ton of momentum behind it. Yes, it appears we now have a deal on the US debt ceiling, but the “Fed rate cut trade” we’ve seen in place since the beginning of June doesn’t appear to be fully reversing trend just yet. US bond and gold futures are recovering their overnight losses as we head in NY trade and the broad demand we saw for USD earlier today seems to be abating.
US 10YR BOND YIELD DAILY
Charts: TWS Workspace
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