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• Questions still on everyone’s mind following last week’s sudden capitulation from the Fed.
• EURUSD extends gains following Friday’s break above 1.1340s. Funds continue to cover shorts.
• GBP and AUD traders add to shorts as charts start to bottom.
• Fed chairman Powell speaking tomorrow before CFR.
• Friday to feature Canadian April GDP, Business Outlook Survey, G20 and pre-OPEC meeting chatter.
• USDCAD remains on the defensive sub 1.3210s.
Dollar/CAD is starting the week with an offered tone as spillover EURUSD buying from Friday's technical break-out leads the USD lower. While one could argue that today’s 5-year low print in the German IFO index was not a bad as expected and the fact that the EU is delaying disciplinary proceedings against Italy are mild positives for the common currency, we think the latest break higher in EURUSD is the result of residual USD selling from last week’s surprise “throwing in the towel” move from the US Federal Reserve. Something is not right in global money markets. World-wide treasury yield curves and the Eurodollar futures curve have been reflecting this concern for a while, but the Fed continues desperately to talk up the US economy and ignore what the bond markets are saying. Last week’s rush to signal cuts proves to us that the Fed, and the USD trade for that matter, is indeed behind the curve and so we think traders are repositioning here big time for something quite negative on the horizon…and no, we don’t think this has anything to do with the US/China trade war. Today’s North American calendar is a quiet one, but things could get interesting tomorrow as Fed chairman Jerome Powell will be delivering a speech at the Council on Foreign Relations titled “Monetary Policy Strategy, Tools and Communication Practices”. Wednesday will bring the US Durable Goods Orders for May and Thursday will feature the final read on US Q1 GDP. Finally, Friday’s session will be the big one as it will feature G20 and pre-OPEC meeting headlines, the US PCE price index, and two big pieces of Canadian data (April GDP and the Business Outlook Survey) which should factor into the Bank of Canada’s next interest rate decision on July 10. We think USDCAD continues to struggle here so long as it stays below the 1.3210s, and we think any move back above it will probably draw attention to Friday’s large option expiry at the 1.3280 strike (1.bln+ right now).
AUG CRUDE OIL DAILY
Euro/dollar has moved higher to trend-line resistance just shy of the 1.1400 level and this comes after the market broke out above the 1.1340s on Friday. The leveraged funds at CME aggressively cut short positions into the Fed meeting last week, if we look at the latest COT report that was released Friday afternoon, and we think there’s a whole lot less of these now given the 200pt rally we’ve seen in EURUSD since last Tuesday’s low. President Trump is tweeting this morning that the Fed “doesn’t know what it is doing” and we are inclined to agree. The Fed has been predicting higher inflation for a while now but it is not materializing. It said last week the US economy is doing well, yet suddenly signaled rate cuts to come citing mysterious “cross-currents”. We think the Fed either has no idea what the Eurodollar curve is saying and is just playing along, or it knows something we don’t know, doesn’t want to say it and instead is conveniently blaming it on the US/China trade war. We think EURUSD could pull back a tad here after over 2blnEUR in options, at current levels, expire at 10amET.
AUG GOLD DAILY
Sterling is consolidating Friday’s gains to start the week and so far this is leading chart support in the 1.2730s to give way. The next support level lies in the 1.2675-1.2700 area in our opinion. The funds continued to pile into new GBPUSD short positions during the week ending June 18, but this trade isn’t working out so well after the dovish cave from the Fed last week and so we think GBPUSD will be supported on dips. Bank of England governor Carney will be making a speech on Wednesday morning and we’ll get the UK’s Q1 GDP figures on Friday. Tory front-runner Boris Johnson has refused to take part in a televised leadership debate this week and we suspect this is because of ongoing questions he is facing regarding a domestic dispute he had with girlfriend Carrie Symonds where the police had to be called.
The Aussie is pulling back with EURUSD during early NY trade, as it too faces overhead chart resistance in the 0.6960s. RBA Governor made a peculiar remark in a speech last night when he said it was legitimate to ask how effective monetary easing would be globally if everyone is easing. This saw AUDUSD brake though Friday’s chart resistance level in the 0.6930s. We think the market may cool off a bit here as traders get drawn to Wednesday’s large option expiry in the 0.6910 area, but we think the funds (who added to their net short position during the week ending June 18) need to start thinking about higher prices. The market put in a bullish outside reversal on June 18 while holding trend-line support and has now managed to attack a key downward sloping trend-line resistance level for the third time this month. We think a move above the 0.6960s could spark a significant short covering rally that could take us above the 70 handle.
Dollar/yen has a very quiet start to the week as traders try to figure out what the bond market is going to do next following last week’s communication from the Fed. Both the US 10yr treasury futures and the December Eurodollar interest rate futures have yet to take out their Thursday highs and so that leads us to believe USDJPY will sit tight here for the time being. A slew of option expiries around current levels for today, tomorrow and Wednesday support this idea. The funds continued to purge long positions in USDJPY during the week ending June 18, bringing their net long position down to the lowest it has been in a long time, and while we think this helps the prospects of a USDJPY recovery, we think we’d need to see a more pronounced topping pattern in the bond markets first before getting more positive on the pair.
DEC 3-MONTH EURODOLLARS DAILY
Charts: TWS Workspace
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