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Global markets steady ahead of looming US/China phase one deal signing

CXI January 14th, 2020

 

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SUMMARY

 
“Risk-on” takes another leg higher in Asia following Chinese $80bln purchase pledge.
European time zone dialing back the optimism a bit following SCMP article.
USDCNH breaks below 6.8850 support to make new 6-month low, but now reversing higher.
“Buy the rumor…sell the fact” market reaction on our minds for tomorrow.
USDCAD still stuck in familiar 1.3110-30 to 1.3090 range.  AUD glued to 0.6900 option expiries.
EURUSD back lower after running into 1.1140s resistance.  Big option expiry at 1.1100 strike today.
Sterling holding the 1.2960-80s as Boris Johnson speaks positively today.
USDJPY scales 110 level to trade to new 6-month highs, but US yields still not following suit.
US CPI for December comes in slightly less than expected.

ANALYSIS

USDCAD

Dollar/CAD remains confined to its 1.3110-30 to 1.3190 range this morning as mixed chart technicals and conflicting fundamental drivers (US/China trade optimism vs weak oil prices) combine to keep traders sidelined ahead of tomorrow’s US/China “phase one” deal signing.  We saw USDJPY and the CNH extend to new 6-month highs during Asia overnight after China pledged to buy nearly $80bln of manufactured goods from the US over the next two years, plus over $50bln more in energy supplies, according to Reuters sources.  More here.  This optimistic headline follows yesterday’s news that the US Treasury removed China from its list of currency manipulators.  However, some of this optimism is being dialed back now as an SCMP article make the rounds about the “phase one” deal details potentially not getting released this week.  More here.  We’re also hearing talk that the level of Chinese purchases pledged (in the Reuters article above) is again not realistic.

We have a feeling tomorrow’s signing will be a “pomp and circumstance” type of event that will lack substance, but could potentially set traders up for a classic “buy the rumor…sell the fact” type of market reaction.  Similar to the reaction we saw in sterling after the UK election last month, we think the markets could have a wake-up call and quickly focus on the more important and more difficult “next phase” of negotiations.  Should this happen, we think the USD could rally broadly against commodity currencies including the Canadian dollar.

The US just reported its CPI report for the month of December and the inflation figures came in slightly less than expected (+0.2% MoM vs +0.3% on the headline and +0.1% MoM vs +0.2% on the core measure).  The Fed’s John Williams is now moderating an event and the Fed’s Esther George is expected to deliver a speech at 1pmET this afternoon.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

FEB CRUDE OIL DAILY

FEB CRUDE OIL DAILY

 


 

EURUSD

Euro/dollar crept higher to the mid-1.11s during NY trade yesterday, but the market ran into chart resistance at the 1.1140s and has since pulled back with a vengeance.  While US yields haven’t shot up today, we’re seeing that slip below $1550 for February gold prices that we alluded to yesterday (which we said would be EURUSD bearish).  Today’s massive 2.5blnEUR option expiry at the 1.1100 strike is likely playing a role in today’s EURUSD weakness as well.  We think traders will have their eyes on the 1.1090s support level once again now, despite this morning’s slightly softer than expected US CPI data.

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

FEB GOLD DAILY

FEB GOLD DAILY

 


 

GBPUSD

Chart support in the mid-high 1.29s continues to hold in GBPUSD this morning after Boris Johnson insisted that it’s “epically likely” that the UK will seal a trade deal with the EU by the end of the year.  More here from the Daily Mail.  The UK Prime Minister also removed some negative event risks for 2020 today by refusing to grant Scotland powers to hold an independence vote.  More here from the Guardian.  If we combine today’s positive comments from Boris Johnson with a rather tepid follow-though to the bullish NY close for EURGBP yesterday, we’re not surprised to see sterling “holding the line” here so to speak.  We think there’s a risk that chart support in the 1.2960-80 eventually breaks; unleashing another wave of GBP selling, but we think the market may need to head a little higher first to attract more sellers.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

 


 

AUDUSD

The Aussie is glued to the 0.6900 strike this morning as 1.3bln of the 10blnAUD in option expiries around this level, for this week, is set to go off the board at 10amET this morning.  This morning’s slightly weaker than expected US CPI data has been a non-event for markets.  The overnight move in USDCNH today, on the other hand, is particularly interesting.  The market fell below 6.8850 chart support on its way to new 6-month lows (on more optimistic US/China trade headlines) but it has since reversed higher and is trying to reclaim this level.  Could a NY close back above 6.8850 technically foreshadow the “buy the rumor…sell the fact” type of market reaction that we’re thinking about for tomorrow? 

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY

 


 

USDJPY

Dollar/yen breached the psychological 110.00 level in overnight trade today as Japanese names were said to play a little catchup to yesterday’s “risk-on” rally after being out of the office for their Coming of Age Day holiday on Monday.  US 10yr yields continue to lag however (they’re not printing new 6 month highs) and we think this should concern USDJPY longs.  We think dollar/yen is also vulnerable to a “buy the rumor…sell the fact” type reaction to tomorrow’s US/China phase one deal signing.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon


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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