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Tuesday, July 2, 2019

Poor global manufacturing PMIs for June + renewed EU tariff threat snuff out mild G20 optimism

Poor global manufacturing PMIs for June + renewed EU tariff threat snuff out mild G20 optimism
Source: Powered by Exchange Bank of Canada – www.ebcfx.com/news

 

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SUMMARY

June Manufacturing PMIs disappoint across Asia and Europe, putting renewed pressure on bond yields.
US threatens EU with $4bln worth of new tariffs amid ongoing spat over aircraft subsidies.
OPEC and Russia agree to extend production cuts as expected.  Crude oil fades Sunday gap higher.
US/China agree to trade “truce” at the G20.  Future tariffs on hold, US telco’s can do business with Huawei.
RBA cuts interest rates by 25bp last night, giving the bond market what it wanted.
Holiday shortened week features the US & Canadian June employment reports on Friday.
US markets will be closed on Thursday for Independence Day.

 

ANALYSIS

USDCAD

Canadian traders are returning from a busy long weekend of news to find USDCAD moderately higher from Friday’s closing levels.  The G20 meeting produced a “truce” between the US and China whereby the US would refrain from imposing further tariffs, US telecom companies would be able to sell components to Huawei once again and China would begin purchasing agricultural commodities from US farmers.  OPEC and Russia decided to extend oil production cuts by nine months to March 2020.  A bunch of June Manufacturing PMIs from around world disappointed market expectations yesterday but the US Manufacturing ISM actually beat consensus.  Finally, the Reserve Bank of Australia cut interest rates by 25bp again last night in yet another display of central banks bending to the will of global bond markets.  USDCAD traders seem to be taking their queues so far this week from Friday’s encouraging close above chart support in the 1.3070-80s despite an upbeat Business Outlook Survey and selling in August crude oil following its Sunday gap higher as one could argue OPEC’s latest decision was largely priced into markets.  This week’s North American calendar features the May Trade Balance data for both the US and Canada (tomorrow), the US Non-Manufacturing ISM for June (tomorrow), the Independence Day holiday in the US (Thursday) and the June employment reports for both the US and Canada (Friday).  The leveraged funds abandoned USDCAD long positions en masse during the week ending June 25 as the market reacted swiftly to the Fed’s uber dovish capitulation on the interest rate outlook, leaving the market’s net USDCAD long position at its lowest point since November 2018.  We think USDCAD trades with a range-bound to upward tone heading into Friday’s big data items, with the 1.3160-80s acting as formidable chart resistance until then. 
 

 

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

AUG CRUDE OIL DAILY

AUG CRUDE OIL DAILY

 


 

EURUSD

Euro/dollar is trading well off Friday’s closing levels this morning after a combination of bearish news items sent the market lower yesterday.  First we got weaker than expected June Manufacturing PMI data out of China, Korea, Germany, Italy, Spain and France, which put pressure on the EUR early.  Then we got a surprising beat on the US Manufacturing ISM (which prompted broad USD buying).  Finally, Washington threatened to slap tariffs on $4bln of EU goods amid their ongoing dispute over aircraft subsidies, and this has killed the mild optimism following the G20 and caused yet another rush into European bonds (German bund yields trading a new lows again today around -0.36%, French 10s plunging below 0%, Spanish 10s at new lows (0.31%) and Italian 10s plunging further to 1.86%...now yielding less than US 10s!).  Bloomberg came out with a story early this morning saying ECB officials see no rush for a July interest rate cut, and with that we’ve seen EURUSD extend higher after bouncing off chart support in the 1.1280s.  More here.  The leveraged funds mildly pared long positions during the week ending June 25, leaving their net short EURUSD position largely unchanged from the prior week’s 19-week low.  We think yesterday’s swift move lower below the 1.1330-60 trend-line support channel has now disrupted the market’s upward momentum following the Fed meeting, and we think this will now confine EURUSD to some range trading unfortunately.  Over 1blnEUR in options expire at 1.1295-1.1300 strikes this morning.  German reported weaker than expected Retail Sales data for the month of May today (-0.6% vs +0.5%).

 

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

AUG GOLD DAILY

AUG GOLD DAILY

 


 

GBPUSD

Sterling is bouncing with the Euro this morning despite the UK reporting a dreadful Construction PMI for June earlier this morning (43.1 vs 49.3 expected).  Trend-line support in the low 1.26s has held and the market now looks poised to regain the 1.2640 support level that it lost in Asia trade and re-lost at the start of European trade today.  The Bank of England’s governor Carney will be speaking shortly now after 10amET.  The funds extended their net short GBPUSD position during the week ending June 25, and are now the most short they’ve been since January.  We continue to believe the poor timing of these new shorts over the last two weeks will support GBPUSD on dips, but we still think last Tuesday’s bearish outside day has relegated traders back into range-trade mode.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

 


 

AUDUSD

 The Reserve Bank of Australia (RBA) gave the bond market what it wanted yet again last night, and that was another 25bp rate cut down to 1.00%.  The central bank said it cut to support employment growth and to provide greater confidence on inflation, but we think this was another display of central banks being forced to cut when they don’t want to.  The RBA said the outlook for the global economy remains reasonable; they said house prices were stabilizing in Sydney and Melbourne, but more importantly they signaled that “the Board will continue to monitor developments in the labor market closely and adjust monetary policy IF NEEDED to support sustainable growth in the economy and the achievement of the inflation target over time”.  The new “if-needed” language is being interpreted by traders as “the RBA is done with rate cuts for now”, and with that we’ve seen AUDUSD regain all of its losses following the strong US Manufacturing ISM from yesterday.  We think a close above the 0.7000 level will repair yesterday’s bearish outside day on the charts and get traders focused on the upside once again.  The funds added marginally to their net short AUDUSD position during the week ending June 25, and we think this entrenched positioning (that is now starting to incur losses) will add fuel to the next market rally.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY

 


 

USDJPY

Dollar/yen gapped higher with US equities and US yields following the G20 on the weekend, but the optimism has quickly faded as the “truce” lacked detail, the market really wasn’t expecting anything negative to come out of the meeting, US/China trade uncertainty still remains...plus we have actual negatives to chew on now following poor global June manufacturing PMIs and a renewed tariff threat on Europe so far this week.  The think USDJPY fills its Sunday chart gap (107.90-108.10) this week and we think global interest rates will remain under pressure here, which will put the Fed under an immense amount of pressure to actually begin a new rate cutting cycle later this month.  The net long USDJPY fund position at CME now stands at a mere 10k contracts as of June 25 as longs continued to liquidate for the 5th week in a row.  We think this flushing of long positions, however, will help USDJPY find buyers on any dips to the 107.50 area.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR YIELD DAILY

US 10YR YIELD DAILY

Charts: TWS Workspace


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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Posted By Mandee Myers at 08:15 AM
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