FX markets quiet. Deluge of Fed-speak on tap this week.
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Dollar/CAD is starting the week with an offered tone as some CAD cross selling leads the way in an otherwise quiet FX market. Friday’s market surge on the back strong US payrolls and weak Canadian employment figures for June is now a distant memory as sellers pounced at chart resistance in the 1.3120s and the “Fed rate-cut trade” stabilized somewhat after being swiftly knocked down earlier in the day. We also think the market doesn’t want to be caught short CAD heading into the Bank of Canada interest rate announcement on Wednesday, where there’s not going to be pressure on Stephen Poloz to communicate a dovish outlook we would argue. Recent Canadian economic data has been decent, if we look at inflation, employment, GDP, and the BOC’s Summer Business Outlook Survey). The Fed, on the other hand, still has a global money market liquidity problem on its hand in our opinion, and we don’t think one better than expected US employment report is going to change their cautious outlook. Jerome Powell already admitted at the last Fed meeting that the US economic picture is a “good one”, so it’s quite obvious to us that they’re now looking at something else. For the time being though, markets have punished the “Fed rate cut trade” by swiftly selling bonds, gold and Eurodollars on Friday, and the Fed fund futures for July have now effectively priced out the odds of a 50bp cut when the Fed meets next at the end of the month. All eyes this week will be on Fed-speak as Jerome Powell delivers the Fed’s semi-annual Monetary Policy Report before Congress (10amET on Wednesday before the House Financial Services Committee and again at 10amET on Thursday before the Senate Banking Committee). We’ll also get the Minutes from the last FOMC meeting on Wednesday at 2pmET, some speeches from Quarles, Powell and Bostic tomorrow; and yet more speeches on Thursday (Bostic again, plus Barkin and Kashkari). This week’s calendar will also feature Canadian Housing Starts for June, Canadian Building Permits for May (tomorrow) and US CPI data for June (Thursday), but we think the Fed-speak should steal the spotlight. We think the trend for USDCAD remains down so long as the market stays below the 1.3130s.
AUG CRUDE OIL DAILY
Euro/dollar is hanging on this morning, after a combination of weak German Factory Orders data, dovish ECB speak and better than expected US payroll data sent the longs packing on Friday. The price gains from the last Fed meeting have now completely been reversed and we now have a market that has re-entered its multi-month downtrend (back below the 1.1300 level) and looks poised to extend lower (should the 1.1200 level fall). Germany reported mixed Industrial Production data for May earlier today (+0.3% MoM vs -0.4% exp but -3.7% YoY vs -1.1% exp). The firing of Turkish central bank head Murat Cetinkaya by President Erdogan saw TRY gap 2% lower to start the week, but we’re seeing very little reverberation in the emerging market FX space this morning. We’ll get the updated read on CME fund positioning (as of July 2nd) at 3:30pmET today because of the US holiday last week.
AUG GOLD DAILY
Sterling’s technical chart structure is looking a tad better this morning after traders managed to get the market back above the 1.2510 level heading in the NY close on Friday, but another wave of selling is coming in now to re-test the level. The UK will be reporting a barrage of May data on Wednesday (Manufacturing Production, Industrial Production, Trade Balance and GDP) but we think the focus here will be on the broader USD’s response to this week’s Fed-speak. We said that the June 25th bearish outside day would stall gains in GBPUSD, but it has apparently done more than that and firmly re-invigorated the fund short position here. We think buyers could take a stab again this morning should the 1.2510s hold, but we think the sellers remain in charge to long as GBPUSD stays below the 1.2580s.
The Aussie is enjoying a little bit of relative outperformance to start the week after traders managed to get prices back above the 0.6980 level heading into the NY close on Friday. We think August gold’s rebound back above 1404 had a part to play in that as well. Trading has been reduced to a lull however as NY trade gets underway today and we posit that this is simply the calm before the Fed-speak storm that is to come this week. Last week’s second rejection of the 0.7040 chart resistance level was a bit discouraging technically, but we think longs still have a shot should the 0.6940s hold. This week’s Australian calendar features the June NAB Survey tonight at 9:30pmET, the Westpac Consumer Confidence Survey tomorrow at 8:30pmET and a speech from the RBA’s Debelle on Wednesday night at 9:10pmET.
Dollar/yen benefitted handsomely from the treasury market sell-off that followed the better than expected US jobs report on Friday. The 107.50s proved to be solid chart support at mid-week following Tuesday’s gap fill move lower, and Friday’s surge saw the market take out its post G20 highs above the 108.30s. We think this could lead USDJPY to drift higher into this week’s scheduled Fed-speak, but ultimately we think bond yields will lead the way here. If the “Fed rate cut trade” is going to repair itself, we feel it needs to do it quickly this week, otherwise we think a whole bunch of treasury, gold, and Eurodollar longs will get discouraged and unwind their positions further.
US 10YR BOND YIELD DAILY
Charts: TWS Workspace
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