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• China’s President Xi is reportedly set to present President Trump with a set of terms.
• Markets anticipate Trump to respond negatively.
• USDCAD continues to struggle as oil prices make another run for $60 ahead of the OPEC meeting next week.
• EURUSD choppy in 1.1350-1.1400 range, with renewed slip in German bund yields not helping.
• AUDUSD still holding breakout gains, but struggling at 0.7000.
• Big Canadian data items out tomorrow: April GDP + Business Outlook Survey
Global markets started today’s trade in Asia on an upbeat note after the South China Morning Post reported that the US and China had agreed to a “truce” ahead of the G20 meeting this weekend, but an article released from the Wall Street Journal around 6amET this morning has thrown cold water on this idea. China’s President Xi is reportedly set to present President Trump with a set of terms that the US should meet before Beijing is ready to settle their trade confrontation, including the lifting of sanctions on Huawei, the lifting of all punitive tariffs and the dropping of demands that China buy even more US exports. More here from the WSJ. Our sense of the market’s reaction so far is that the Trump administration will say “no chance”. The S&P futures and US treasury yields have given back most of its overnight gains, gold and Eurodollar interest rate futures are bouncing off yesterday’s lows, and the commodity are getting sold (mind you, the latter is reversing as traders appear to re-position ahead of US data at 8:30amET). The US just announced its final read on Q1 2019 GDP at +3.1% QoQ, which slightly missed expectations of +3.2%. The rest of today’s NY session doesn’t feature any notable economic releases, and so we think traders will be focused on Trump’s response (if any) to the WSJ article. We think the 1.3130s will be pivotal for USDCAD price action today. Sellers will likely feel confident to keep the pressure on below this level whereas a move above it will likely give them a reason to pause. Tomorrow’s session will feature some big Canadian data releases (April GDP and the Business Outlook Survey), which will likely factor into the Bank of Canada’s next interest rate decision on July 10. We’re also anticipating headlines ahead of the OPEC meeting on July 1 and 2. August crude oil prices have resumed their march higher at the start of NY trade today as some commodity traders anticipate an deeper than expected extension to production cuts for the second half of 2019.
AUG CRUDE OIL DAILY
Euro/dollar continues to chop around between chart support in the 1.1350s and chart resistance at the 1.1400 level. Yesterday’s bounce felt like it was options-related more than anything else and today’s bounce seems to have been fueled by some better than expected regional CPI data out of Germany. The German bund yield has come under renewed pressure here (off 4bp from its session highs) and it looks like some sell stops are triggering in the gold futures market just shy of the 1400 level. While both these developments are mild EURUSD negatives, we think the market continues to hold this range for the time being.
AUG GOLD DAILY
Sterling is enjoying a bit of a bid this morning as Japan’s foreign ministry said the “TPP has no geographic boundaries” and that “Japan would be happy to negotiate a new trade deal with the UK after Brexit”. More here from the BBC. We wouldn’t get too overly excited about this just yet as a smooth Brexit is still a far-gone conclusion and recent flip flopping from Boris Johnson on the “no-deal” Brexit option is adding to anxiety in the Tory leadership race. Buyers appeared at chart support in the 1.2660s again this morning and the pivot for GBPUSD price action now appears to be the 1.2710s.
We were a little concerned yesterday that the breakout higher in AUDUSD might unravel prematurely due to copper and CNH prices not believing the CNBC Mnuchin story (which was eventually corrected by the way), and we’re frankly still a little concerned about it today. The positive-sounding article out of the South China Morning Post about the supposed US/China trade “truce” gave AUDUSD a boost in Asian trade overnight, but if you believe the WSJ story out this morning, tensions are still palpable ahead of the G20 this weekend. We think the market might need to dip here (shake out some impatient long positions) before it can breakout further. We still like the prospects of a AUDUSD rally to start the month of July given improving chart technicals and the entrenched fund short AUD position at CME.
SEP COPPER DAILY
Dollar/yen broke higher after the SCMP article last night, but has given back half of its gains back following the WSJ article this morning. We think a close above the 107.70s will formally halt the recent downward momentum and create a higher trading range (107.70-108.30s). Interest rate traders appear to be taking some chips off the “rate cut” table heading into the G20 this weekend, but we think the downtrend in rates is still intact for the time being.
US 10YR YIELD DAILY
Charts: TWS Workspace
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