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• Rehash of April FT headline sees equities, bond yields, CNH and commodities currencies all higher. RNBZ keeps rates unchanged.
• Gold falling 0.8% with yesterday’s bearish hammer close not helping.
• US Durable Goods Orders for May come in mixed. Weekly EIA oil inventory report up next at 10:30amET.
• Fed’s Bullard: SITUATION DOESN'T CALL FOR 50 BASIS POINT RATE CUT
• Fed’s Powell: MONETARY POLICY SHOULDN'T OVERREACT TO SHORT-TERM SWINGS IN SENTIMENT
• July Fed funds rate cut bets pared back, but far dated Eurodollar interest futures not convinced yet.
Dollar/CAD traders are back in sell mode again this morning after US Treasury secretary Mnuchin said the US/China trade deal is 90% complete, when speaking to CNBC earlier. This is old news in our opinion, and sounds very similar to a Financial Times article in April where the US said they were in agreement with China on 90% of the agreement, but not when it came to the very important 10% which deals with exchange rates, industrial subsidies and intellectual property theft. The headline scanning trading algorithms, which don’t actually interpret news by the way, are giving Mnuchin the benefit of the doubt this morning and are buying risk (stocks, bond and money market yields, the Chinese yuan and commodity currencies all up while gold pulls back). USDCAD has slipped below trend-line support in the 1.3170s again after rejecting the 1.3210s yet again yesterday. A combination of less dovish than expected Fedspeak out of Bullard and Powell yesterday invited some broad USD buying back in for a while but more tough talk from US officials, going into the G20 meeting later this week, dragged USDCAD back lower. We also found Powell’s poor clarification of last week’s dovish communication to be further evidence of that the Fed is hiding something and it looks like the December Eurodollar interest rate futures agree. How do we go from “tentative evidence these cross-currents were moderating” and “can afford to be patient” to “the cross-currents have re-emerged”, blaming it on trade uncertainty and an aggressive rate cut signal in the span of one month? Powell also said that the Fed is not looking at short-term financial conditions and shouldn’t overreact to short-term swings in sentiment. We say “ya…right”. We continue to believe something is not right in global money markets but the Fed is kicking and screaming not to acknowledge it. We’re literally trading in an upside down world now, with yield curve inversions popping up everywhere…even in LIBOR. What are you not telling us Mr. Powell? The US just reported its Durable Goods report for the month May and it was a mixed set of numbers (-1.3% MoM vs -0.2% on the headline but better than expected on the core capital goods/order reads ex. defense). Next up is the weekly EIA oil inventory report at 10:30amET, where traders are expecting a decline of 7.3M barrels after last night’s surprise 7.55M draw from the weekly APIs. We think the trend remains down for USDCAD, so long as we stay below the 1.3205 level.
AUG CRUDE OIL DAILY
Euro/dollar is trading very quietly this morning as NY trade gets underway. Chart support in the 1.1350s continues to hold after Bullard's comments yesterday saw traders push the market lower into the level. We can’t say we were all that surprised given the market’s inability to regain the 1.14 handle and gold’s failure to regain the 1440s heading into the London close. The Fed’s Bullard said the “current situation doesn’t call for a 50 basis point rate cut” in July, and while we’ve seen the July Fed fund futures adjust accordingly since those remarks, a quick look at the US treasury curve and the Eurodollar interest rate curve this morning suggests interest rate traders have not been overly swayed that the Fed will have to cut quickly and aggressively later this year. German bunds yields are trading steady at -0.32% this morning and the spread for Italian BTPs over bunds sits at +245bp versus last week’s lows in the +231bp area. We think today’s action in EURUSD may be choppy, as over 3.5blnEUR in options expire between the 1.1370 and 1.1390 strikes.
AUG GOLD DAILY
Sterling found some buyers at chart support in the 1.2660s this morning as Bank of England governor Mark Carney took the mic in UK parliament, but sellers have been back on the prowl after GBPUSD failed to get back above chart resistance at the 1.2710 area. More here from Reuters on Mark Carney’s speech. Yesterday’s bearish outside reversal candle on the daily GBPUSD chart, made worse by way of the Bullard/Powell inspired intra-day USD rally, seems to be casting a shadow over traders this morning. Pound futures traders liquidated 1,459 contracts in yesterday’s trade. We think the technical outlook for GBPUSD has turned decidedly more choppy here in the near term. The EURGBP cross managed to venture back above the 0.8940-50s yesterday and recent buyers appear to have so far survived a downside test of this level in London trade today. We think a push in this cross towards the 90 handle (which is doable now in our opinion), could pressure GBP more broadly. Is there perhaps some negative Brexit news on the horizon?
The Australian dollar is enjoying a mild breakout higher above the 0.6960s today. This comes on the heels of continued buying in NZDUSD, after the Reserve Bank of New Zealand decided to leave interest rates on hold at 1.50% (which was a bit of a disappointment to those in the OIS market who we’re pricing in a 20% chance of a 25bp cut last night). The statement from the central bank was rather dovish though, citing a slowdown in the global economic outlook. Money markets are now pricing a 63% chance that rates fall by 25bp at the next RBNZ meeting on August 7. More here from the Guardian. Adding to the fuel for AUDUSD this morning was the re-hashed “we’re 90% there” story from CNBC regarding US/China trade talks. While we believe this AUDUSD break-out is technically positive for the market and could ultimately lead to a move into the 0.7000s, we’re a bit concerned that the Australian dollar isn’t benefiting more from today’s positive headlines and we would note that the off-shore Chinese yuan and July copper prices have already completely reversed the CNBC headline as we head into NY trade.
Dollar/yen is extending its gains this morning, after some less dovish than expected comments from Bullard and Powell prompted some bond traders to reduce exposure yesterday afternoon. The CNBC Mnuchin headline earlier today provided the impetus for the next leg higher through 107.50 and into chart resistance at the 107.75 level. The USDJPY market desperately needed to bounce yesterday to prevent a cascade of selling in our opinion as there’s literally no chart support below the 106.80-90 level we mentioned yesterday (the Jan 3rd flash crash range).
DEC 3-MONTH EURODOLLARS DAILY
Charts: TWS Workspace
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