The Fed just capitulated

SUMMARY

ANALYSIS

USDCAD

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AUG CRUDE OIL DAILY

EURUSD

Euro/dollar knee jerked higher following the Fed announcement yesterday, and while the market stalled at 1.1250 trend-line resistance heading into the NY close, it blew past this level when gold prices surged higher above the 1360 mark in Asian trade last night.  It appears buy stop orders exacerbated the move higher in the August futures and we’re seeing a little selling now in both gold and EURUSD following the much weaker than expected US Philly Fed numbers for June (+0.3 vs +10.4 expected).  It’s remarkable to see Powell and Draghi both turn on the dovish jets in the span of just a few days here and traders are now joking that it’s a race to the bottom in terms of global rates and central bank credibility at the same time.  Chart support in EURUSD today sits in the 1.1270s while resistance lies in  the 1.1320s.

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AUG GOLD DAILY

GBPUSD

Sterling is pulling back from its highs above the 1.27 after the Bank of England lowered its Q2 GDP forecast during its unanimous decision to hold UK interest rates steady at 0.75% this morning.  The BOE is still running with the line that “gradual” monetary policy tightening will be warranted if the Brexit process go smoothly, but this is a huge ‘”if” we would argue.  We think this mildly softer economic outlook is leading some GBPUSD longs to take profits here after the gift given to them by the Fed announcement yesterday.  Chart support today checks in at the 1.2670s, while resistance is in 1.2700-1.2710 area.  The UK reported its May Retail Sales data this morning, and it fell in-line with expectations of -0.5% MoM.

GBPUSD DAILY

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EURGBP DAILY

AUDUSD

The Aussie is surging higher with most of the major currencies today as the USD trade rushes to re-position post Fed meeting.  The bond guys got it right (didn’t pare their bets that the Fed would deliver), whereas the USD trade appeared to get it wrong (by virtue of bidding the USD up on the back of good US Retail Sales, decent Industrial Production data, and the upward revision to the Atlanta Fed Q2 GDP indicator...all things the Fed looked through yesterday).  Like EURUSD, AUDUSD struggled to hold gains post Fed as it too had chart resistance to deal with (0.6890s), but like EURUSD as well, it too broke above this level in Asian trade overnight when gold broke higher.  We think AUDUSD may cool off a bit at chart resistance in the 0.6930s, but we think Monday’s Trump-inspired, bullish outside day reversal on the charts may have forged a short term bottom here for the pair. 

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USDJPY

Dollar/yen has had a tumultuous 24hrs of trade.  It fell lower with US yields and the broader USD following the Fed meeting, and it collapsed in Asian trade overnight after gold prices broke out.  The Bank of Japan meeting turned out to be a non-event for market participants, as governor Kuroda kept all monetary policy measures on hold (-0.1% policy rate, JGB target yield of 0% +/- 20bp, rates to remain low through the spring of 2020).  While Kuroda reiterated his concern about downside risks for overseas economies (nothing new), he did say it was “appropriate to think flexibly” with regard to JGB yields, and with that we saw the benchmark 10yr JGB yield trade to -0.17bp (or where it was in 2016).  Traders have come in and bought the market following the weaker than expected US Philly Fed report out at 8:30amET this morning.  We think the market needs to regain chart support in the 107.70s quickly in order to avoid a rout which could see the market spill below the 107s.

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US 10-YR YIELD DAILY

Charts: TWS Workspace

About the Author

Erik Bregar - Director, Head of FX Strategy

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.

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