GBP resumes rally following joint statement from UK opposition to stop a "no-deal" Brexit.

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is slipping lower this morning after the market fell below chart support in the 1.3270s yesterday.  There wasn’t a positive, CAD specific, headline that we could point to when explaining the move lower, but we did note continued demand for commodity currencies throughout the NY session following Trump’s “two productive phone calls with China” comment from earlier in the day.  US stock futures also ended on session highs, which further eased US/China trade war fears heading into the overnight session; and this upbeat “risk-on” mood continued in Asia after China’s PBOC set the USDCNY fix at 7.0810 vs the Reuters estimate of 7.1055.  The early European session saw USDCAD traders battle it out at the next trend-line support level in the 1.3240s, but the sellers have been victorious.  This now puts the focus squarely on horizontal support at 1.3225 and a 1.3blnUSD option expiry at the 1.3200 strike this morning in our opinion, and we think the market could be vulnerable to some swift selling here should these levels break.  We’re also watching EURCAD this morning, which violently reversed its Friday’s bounce yesterday and formed a bearish engulfing candle pattern on the daily chart.  October crude oil prices are trading up 1% this morning, with some positive momentum following yesterday’s broad recovery in risk.  We think a rally back to channel resistance at the $56 level would be negative for USDCAD.  The American Petroleum Institute (API) reports its weekly oil inventory report at 4:30pmET this afternoon.

USDCAD DAILY

USDCAD HOURLY

EURCAD DAILY

EURUSD

Euro/dollar fell further to trend-line support in the 1.1090s after some gold selling came in after the London close yesterday, but it’s been able to hold this level so far in trading today as the precious metal hugs its own trend-line support level in the high 1530s.  Friday’s bullish outside day pattern now appears to be a distant memory for traders, who were reminded yesterday just how bad things are in Germany right now (another weak IFO print).  This morning’s confirmation of a German Q2 GDP contraction (-0.1%) and murmurings that new coalition talks may be stalled in Italy is not helping EUR sentiment in our opinion.  We think the market risks slipping lower to the 1.1080s or even lower should traders fail to stage a meaningful recovery in NY trade today.

EURUSD DAILY

EURUSD HOURLY

USDCNH DAILY

GBPUSD

Sterling continues to enjoy relative technical strength vis a vis the Euro, and this has been on display again today with a nice run-up off trend-line support at the 1.2210s in early European trade.  The Brexit headlines today are positive on the surface, with UK opposition leaders releasing a joint statement saying they agreed to act together to stop a “no-deal” Brexit.  More here from the BBC.  We think today’s GBPUSD move back above the 1.2240-50s increases the odds that traders test the upside at the 1.2290s (Friday’s highs) and we think the market could gallop all the way to the 1.2360s should this level give way.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The Australian dollar put in a strong NY close yesterday, and while the market didn’t close above the 0.6780s (which we were looking for to confirm a bullish outside reversal), it did score a bullish engulfing candle pattern on the daily chart.  The overnight price action has seen AUDUSD back and fill a little bit as European equities opened weaker, but we’re now seeing the market resume higher as US stock and copper futures gather upside momentum into NY trade.  We think a NY close above the 0.6780s will confirm a short-term bottoming pattern in AUDUSD.

AUDUSD DAILY

AUDUSD HOURLY

SEP COPPER DAILY

USDJPY

Dollar/yen came close to reaching the 106.50s during yesterday’s early Trump-driven ramp to risk assets, but the upside momentum petered out after that and we didn’t get the bullish daily reversal pattern we were watching for.  The price action since then has been muted to say the least as the Fed rate cut trade decides what it wants to do next (bonds, Eurodollars, and gold all trading steady at this hour).  We also have a 1.2blnUSD option expiry at the 106.00 strike this morning, which could keep the market anchored to current levels.

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

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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