Global risk tone relaxing a bit as US 10s2s spread trades wider, back above zero.
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Dollar/CAD is trading with a mild offered tone this morning after repeated forays above the 1.3320s failed in NY trade yesterday. The broader risk tone to global markets is also fairing better so far today, with the US 10s2s yield curve now trading a little bit wider at +3.4bp, the S&P futures up 26pts, and with global bond yields almost all trading moderately higher by a few basis points (except bunds). OPEC just released its August Oil Market report and they’re now calling the market outlook “somewhat bearish”. The cartel cut its 2019 global oil demand forecast to 1.10mln barrels per day (bpd) vs 1.14mln from last month, citing the slowing global economy and trade wars, but sees 2020 demand for its crude specifically averaging 29.41mln bpd, which is 140k bpd higher than its previous forecast, and it cited lower non-OPEC supply for this view. The report also showed OPEC members continuing to comply with agreed upon production cuts in July, with output across the group dropping 8.2% from June. Saudi Arabia is now pumping 9.58mln bpd, which is its lowest level of oil production since March of 2014. Crude oil traders seemed to be more focused on the dimmer 2019 demand outlook as that’s the real bit of “new” news here, and so the September futures have fallen back about $0.80 in the last hour. This is giving USDCAD a bit of a lift off yesterday’s trend-line support level in the 1.3280s. The US just reported its Housing Starts and Building Permits data for the month of July and the numbers came in mixed (Housing Starts -4.0% MoM vs +0.2% expected while Building Permits +8.4% vs +3.1% expected). Next up we have the August Michigan Consumer Sentiment Index (expectations for 97.2) and a 1.2blnUSD option expiry for USDCAD at 1.3340 (both at 10amET). The latter could attract buying interest should USDCAD challenge the 1.3320s again over the next hour.
SEP CRUDE OIL DAILY
Euro/dollar fell apart during NY trade yesterday (following our bearish technical outlook) and all it took was some more dovish comments from ECB board member Olli Rehn. More here from the WSJ. The German bund yield fell below -0.70% to a new record low on the headlines, and we’re trending lower again today (-0.72%). This continues to drag EURUSD lower in our opinion, and with trend-line support at the 1.1100 level now gone, we think the market risks slipping into the 1.1050s. The better risk tone to markets this morning is pulling December gold prices back below new trend-line support in the mid-1520s, and we think any further selling here of the precious metal could hurt EURUSD as well (given recent correlations since the US/China trade war escalation last week).
DEC GOLD DAILY
Sterling is charging higher this morning, which is a bit of a head scratcher given the lack of positive Brexit or UK economic headlines on the wires today, but we’d note another significant rout in the EURGBP cross after support at the 0.9160s gave way earlier. GBPUSD has exploded higher to a key trend-line resistance level in the 1.2160s, and we’re seeing broad demand for GBP against other currencies as well. Is some positive news for the UK about to drop?
The Australian dollar continues to wrestle with trend-line resistance in the 0.6780s, after yesterday’s NY close right at the level left an unfinished battle for traders heading into today. The more positive tone to risk assets today is seeing AUDUSD trade above the 0.6780s more so than below it in overnight trade, but there’s not a whole lot of momentum behind the market right now. September copper futures have rejected yet another attempt above the 2.60 mark today, and of course EURUSD is seeing further losses. Both could be contributing factors as to why AUDUSD is struggling to build upon the gains it achieved from the better than expected Australian jobs report yesterday.
SEP COPPER DAILY
Look the other way when it comes to dollar/yen, as it still remains largely stuck for the moment. There’s a mild bid tone to the market seeing as global equities and bond yields are trading moderately higher today, but there’s not a whole lot of momentum behind it in either direction. The 10yr Japanese government bond (JGB) yield continues to trade below the BOJ’s lower yield target threshold of -0.20% (which will now be the 6th day in a row), but we still haven’t heard anything from the central bank (which could partly explain trader nervousness to do anything here). Chart support remains in the 105.30s-105.60s, while resistance is still in the 106.70s-106.90s.
US 10YR BOND YIELD DAILY
Charts: TWS Workspace
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