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Thursday, June 6, 2019

ECB extends "on-hold" rate guidance until 1H 2020, killing rate cut speculation heading into meeting.

ECB extends
Source: Powered by Exchange Bank of Canada – www.ebcfx.com/news

 

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SUMMARY

Mario Draghi’s press conference now underway.  Live link here: https://t.co/N52MkNqX25
EUR buying leading broad USD selling into NY trade.  GBP, AUD, CAD all trade higher.
USDJPY continues to struggle as US 10s, gold, Dec Euros continue to focus on Fed rate cuts.
Canadian Trade Balance for April beats estimates (-0.97bln vs -2.80bln expected).
US Trade Balance for April narrowly misses estimates (-50.8bln vs -50.7bln expected).
Fed’s Kaplan and Williams speaking today.  BOJ’s Kuroda speaks tonight.

 

ANALYSIS

USDCAD

Dollar/CAD appears to have found a short term bottom as we enter the latter half of the week.  The selling we’ve witnessed since last Friday’s bearish reversal came to a halt at Fibonacci chart support in the 1.3370s and then another bearish EIA oil inventory report knocked oil lower and invited the USDCAD buyers back in.  The gains since then however have been capped at chart support (turned resistance) in the 1.3420s, but European traders have bought two dips to chart support at the 1.3400 level so far this morning.  Both Canada and US will report their April Trade Balance figures shortly at 8:30amET, but we think these headlines will be overshadowed by Mario Draghi’s press conference (which is set to begin at the same time).  The ECB has just announced that they see interest rates staying put until at least the first half of 2020, which in the context of the recent Fed rate cut frenzy, sounds bullish for a narrowing of the interest rate spread between Bunds and Treasuries.  EURUSD is surging higher in response, and this is leading to some broad USD selling which is knocking USDCAD a little bit lower now.  We don’t think USDCAD does much today, unless EURUSD surges above yesterday’s post ADP highs.  We think price consolidation is more likely ahead of the US and Canada employment reports out tomorrow morning.

 

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

JUL CRUDE OIL DAILY

JUL CRUDE OIL DAILY

 


 

EURUSD

Traders are bidding EURUSD higher at this hour after the European Central Bank surprised the markets with a less dovish than expected monetary policy statement following their latest meeting.  While the rate on the new TLTRO program (MRO +10bp) came out a little higher (and more generous) than expected, what was more notable was the ECB’s view that interest rates will remain unchanged “at least through the first half of 2020” versus the prior communication of “at least through the end of 2019”.  With European money markets having priced in 10bp of interest rates cuts by March 2020 ahead of this announcement, this headline comes as a bit of a surprise and we think it’s an attempt by the ECB to kill rate cut speculation.  EURUSD fund shorts appear to be covering here in disappointment.  All eyes are now on Mario Draghi’s press conference, as he goes into more detail about today’s announcement.  Live link here.  A massive amount of options roll off the board (3.5blnEUR) in EURUSD between the 1.1200 and 1.1230 strike this morning at 10amET.  Near term chart support is 1.1215-25, and now the post ECB spike low of 1.1200.  Resistance is 1.1280, 1.1300, then 1.1325.  Yesterday’s bearish daily reversal candle in EURUSD could be completely cancelled out with a NY close today above the 1.1280 in our opinion.

 

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

AUG GOLD DAILY

AUG GOLD DAILY

 


 

GBPUSD

Sterling is trading with a range-bound tone this morning.  Traders faded yesterday’s post ADP rally into chart resistance at the 1.2720s, but have since bought the market back as EURUSD pops higher so far this morning.  The EURGBP cross is trying to bounce here today after a good 48hrs of profit taking.  We think GBPUSD might be choppy here for the rest of the week.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

 


 

AUDUSD

The Aussie is also enjoying a bit of a bid as EURUSD leads everything higher into NY trade.  Trend-line chart support in the 0.6960s held in late NY/Asian trade overnight.  Near term resistance lies in the 0.6980s.  We think AUDUSD ebbs and flows with EURUSD today.  July copper prices are bouncing 0.6% higher this morning, which is also mildly supportive.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY

 


 

USDJPY

Dollar/yen continues to struggle at familiar support in the low 108s as traders don’t seem to be believing the bounce in US stocks over the last two days.  Instead, the focus appears to remain on the US 10yr yield (2.10%), gold prices ($1341 +7.40) and the December Eurodollar interest rate futures contract (98.06)…neither of which have dialed back on the Fed rate-cut speculation trade.  We’re frankly not so sure what US stock traders are all excited about here (perhaps a last minute resolution to US/Mexico tariff discussions?).  We think USDJPY will remain under pressure here, so long as markets continue to price in further easing from the Fed.  Today’s session features some huge option expiries around current levels (7blnUSD between 108.00 and 108.50).  We’ll also get some Fed speak from Kaplan and Williams later.  The Bank of Japan’s Kuroda will be speaking at 11:30pmET tonight.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

DEC 3-MONTH EURODOLLARS DAILY

DEC 3-MONTH EURODOLLARS DAILY

Charts: TWS Workspace


About the Author

Erik Bregar

Erik Bregar - Director, Head of FX Strategy

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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.

Interested in creating a custom foreign exchange trading plan? Contact us or call CXI's trading desk directly at 1-833-572-8933.

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