1-888-998-3948


Thursday, July 11, 2019

Everyone's blaming it on trade tensions. Could it be something more?

Everyone's blaming it on trade tensions. Could it be something more?
Source: Powered by Exchange Bank of Canada – www.ebcfx.com/news

 

Take control of your international payments with CXI FX Now.

• Zero transfer fees & great rates
• Fast international payments
• Safety and security
• Unparalleled customer service
• Consultative approach

Learn more about CXI's international payment services for businesses or call our trading desk directly at 1-833-572-8933.

Get real-time market coverage on twitter at @EBCTradeDesk or sign up here.

SUMMARY

Powell cites increased risks of trade tensions, slowing global growth, low inflation in testimony to Congress.
Rate cut of 25bp at July 31 FOMC meeting now a foregone conclusion.  Odds of 50bp cut increase back up to 30%.
Bonds recover, August gold surges back above 1404 level, Dec Eurodollar futures back to pricing EFF below 2.00%.
Bank of Canada keeps rates on hold, but gives global trade tension more airtime than expected.
August crude oil surges 4% following bullish EIA inventory data.  Tropical storm Barry adding to market bid.
US CPI reports June CPI in-line with expectations of +1.6% YoY.  Core measure BEATS, +2.1% YoY vs +2.0% exp. 
Jerome Powell back at it today; testifying this time before Senate Banking Committee at 10amET.
Fed’s Williams, Bostic, Barkin, Quarles and Kashkari speaking today as well.
 

ANALYSIS

USDCAD

Dollar/CAD had a volatile day yesterday; initially falling lower on Powell’s dovish remarks before Congress, then spiking higher following the Bank of Canada’s more dovish than expected hold to interest rates, and then falling lower again as crude oil prices surged higher.  Everyone’s blaming it on trade tensions, and by everyone we mean global central bankers.  Jerome Powell’s testimony and the FOMC Minutes released yesterday basically re-affirmed the Fed’s party line that increased trade tensions, slowing global growth and low inflation are the drivers that are going to force them to begin a new rate cutting cycle later this month.  “Cross-currents” have re-emerged, but the Fed won’t go into detail.  “Uncertainties” and “other developments” that have come in “since our June meeting” continue to weigh on the US economic outlook, but the Fed won’t tell us what they are.  Even the Bank of Canada referred to global trade tensions, in a more concerned manner, in its announcement yesterday.  Stephen Poloz, like Jerome Powell, cited a decent domestic economic outlook, but it seems he too is now caving and falling into line with the global bond market’s desire for more accommodative monetary policy.  So what are the central bankers not telling us?  Could off-shore USD funding markets (money markets) be experiencing some sort of stress in terms of liquidity?  The continued inversion of the LIBOR and Eurodollar futures curves would suggest so.  What could be causing this stress?  Could it be the slow motion train-wreck which is Deutsche Bank?  Could it be the real possibility of a “no-deal” Brexit?  Could the rush into global bonds be less about falling inflation expectations and more about a demand for high quality collateral in the anticipation of a negative shock?  Whatever it is, interest rate markets continue to reflect an anxiety that goes way beyond the threat of a few tariffs being levied here and there in our opinion.  Central bankers appear more and more powerless to control the bond markets, and more and more inept when it comes to forecasting and learning from past policy failures, but yet they have to exude confidence when speaking before us…and so what we’ve been seeing lately in our opinion is a delicate PR dance.  How do we sound positive and at the same time explain what the bond markets are saying without causing a panic?  The “Fed rate cut trade” was back on yesterday, for all tense and purposes, and we’ve since seen some big moves higher in US bonds, gold and Eurodollar prices, and broad USD selling, but all these markets are retracing a bit as we enter NY trade because of a slightly hotter than expected US core CPI measure for June, which was just reported at 8:30amET (+2.1% YoY vs +2.0% exp).  The broader USD, which initially saw selling after Powell remarks, is now trying to claw back some of its overnight losses.  We think USDCAD, in particular though, will remain under pressure so long as the market stays below the 1.3070 level.  A move above could invite some short covering however, so we’d be aware of that.  Jerome Powell is expected to deliver similar testimony before the US Senate Banking Committee this morning at 10amET.  We’ll also have a ton of other Fed-speak to comb through, with Williams speaking at 11:15amET, Bostic at 12:15pmET, Barkin at 12:30pmET, Quarles at 3:30pmET and Kashkari at 5pmET. 

 

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

AUG CRUDE OIL DAILY

AUG CRUDE OIL DAILY

 


 

EURUSD

Euro/dollar has rallied a good 70pts higher since the dovish prepared remarks from Powell crossed the wires yesterday morning.  The 1.1220 resistance level fell to the wayside, as did the 1.1250s as we headed into Asian trade overnight.  The market has been struggling however to deal with a confluence of trend-line chart resistance in the 1.1280s ever since, and this morning’s beat on core US CPI for June is not helping things here in our opinion.  German bund yields have shrugged off the down-tick we saw post Powell yesterday, and are now trading at 1-week highs in the -0.25% area.  We’re not quite sure what this means yet, especially in light of the dovish ECB Minutes that came out at 7:30amET this morning.  Perhaps a little bit of spread trading going on here?  (ie. we’re now sure the Fed’s going to cut so let’s buy treasuries, let’s sell bunds until we get more clarity on how much the ECB will actually cut?)

 

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

AUG GOLD DAILY

AUG GOLD DAILY

 


 

GBPUSD

Sterling has galloped over 100pts higher since Powell re-affirmed the bond market’s desire for rate cuts yesterday morning.  Traders are now grappling with chart resistance in the 1.2550-85 as NY trade gets underway today, but it appears the swift selloff in EURGBP off the phycological 0.9000 level and rising 10yr gilt yields (now back above 0.80%) appear to helping to keep the market bid.

 

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

 


 

AUDUSD

A dovish Powell indeed came to the rescue for the Australian dollar yesterday.  The Fed chairman’s prepared remarks saw AUDUSD surge back above the 0.6930-40 support level.  Trend-line resistance at 0.6970 then gave way in overnight trade broad, follow-though, USD selling swept over markets.  We’ve seen a downside test of 0.6970 following the US June CPI figures, but buyers were quick to defend the level.  We think this bodes well for AUDUSD technically heading into the end the week, provided Powell doesn’t shock the markets today (US Senate testimony is expected to be the same as what was delivered to the US House Financial Services Committee).

 

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

SEP COPPER DAILY

SEP COPPER DAILY

 


 

USDJPY

Dollar/yen was never able to challenge the 109.05 level yesterday as Powell’s remarks quickly knocked US bond yields and the broader USD lower.  So too went USDJPY, and the market broke two key support levels heading into the NY close (108.70 and 108.40).  This helped precipitate follow through selling, in our opinion, when Asia woke up and decided to sell USD broadly as well.  Buyers stepped in however at horizontal chart support in the 107.80 as European trade got underway today, and we’ve since seen them push the market higher still after the stronger than expected US CPI report for June.  We think USDJPY trades with a range-bound to bid tone today as almost 2blnUSD in options expire here between 108.30 and 108.50.  US yields also appear to be feeling some upside pressure from the rally in German bund yields to 1 week highs.

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

linkedin twitter

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.

 

About Currency Exchange International
Currency Exchange International, CXI, is the leading provider of comprehensive foreign exchange services, risk management solutions and integrated international payments processing technology in North America. CXI’s relationship-driven approach ensures clients receive tailored solutions and world-class customer service. Through innovative and trusted FX software platforms, CXI delivers versatile foreign exchange services to our clients, so that they can efficiently manage and streamline their foreign currency and global payment needs. CXI is a trusted partner among financial institutions, corporations and retail markets around the world. To learn more, visit: www.ceifx.com

Disclaimer: All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.

This publication has been prepared by Currency Exchange International for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Currency Exchange International, its affiliates or any of their employees incur any responsibility. Neither Currency Exchange International nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Currency Exchange International products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Currency Exchange International.

 

 

 

 

 

Posted By Mandee Myers at 08:15 AM
comments powered by Disqus

Platinum Passport

Travelers: Never miss a thing and be the first to know about CXI branch promotions, travel tips and hot trends.

Currency Insider

Corporations & Financial Institutions: Want to get ahead of the curve for the upcoming week? Get CXI's currency market trend analysis sent directly to your inbox weekly.