Significant beat on US Q4 GDP propels USD higher into NY trade

Summary

• USDCAD: Dollar/CAD is trading bid this morning as the S&P futures and crude oil prices drift lower.  China’s weaker than expected Manufacturing PMI for February made the rounds in overnight trade, with another print below 50 now further spreading concerns about Chinese growth.  This is creating a mild “risk-off” mood this morning that is depressing commodity currencies like AUD and CAD.  The US has just reported Q4 GDP this morning at +2.6% QoQ vs expectations of +2.3% and Canada just reported Industrial Product Prices for January at -0.3% vs +0.1%.  This combination of better than expected US and weaker than expected Canadian data is now seeing USDCAD vault higher into a key trend-line resistance zone (1.3200-1.3225).

• EURUSD: Euro/dollar is breaking higher this morning; something we alluded to yesterday as being a possibility should the 1.1370s hold.  While we can’t point to a specific headline for the overnight move higher today, we would note a number of positive influences.  First, and probably more importantly, trend-line resistance at the 1.1400 level has given way.  Second, the BTP/Bund yield spread has resumed its contraction today, falling down to +260bp (Italian bonds are rallying).  The EURGBP cross has reclaimed chart support in the 0.8550s on demand which is now commonly seen at month end.  Both Italy and Germany reported in-line MoM CPI figures for the month of February this morning and while they weren’t great numbers, they weren’t bad either.  Lastly, with the Fed’s semi-annual testimony before Congress now out of the way and confirmation that we’re going to have “patient” monetary policy out of the US for the foreseeable future, we think the market is starting to test the resolve of entrenched fund short positions here.  We think the 1.1400 level will act as today’s pivot for price action.  Should buyers hold the level after a downside test, we think EURUSD could make a run for 1.1450 at some point heading into next week’s ECB meeting.  The stronger than expected US Q4 GDP figures just released however is now forcing a test of the 1.1400 level rather quickly and it’s not going well.   

• GBPUSD: Sterling is trading quietly offered this morning as the Brexit headlines slow down a bit and EURGBP finds its usual month-end buyers.  Chart support today lies in the 1.3270s.  Futures traders added another 5,486 contracts in new positions during yesterday’s rally.

• AUDUSD: The Aussie had a rough session yesterday, falling all the way back down to chart support in the 0.7140s after EURUSD rejected the 1.1400 level for a second time.  An attempt was made to bounce the market higher in Asian trade overnight, but the weaker than expected Chinese Manufacturing PMI derailed this, and the stronger than expected US GDP figures for Q4 are now adding insult to injury this morning.  The next support level comes in at 0.7100-0.7115 today.

• USDJPY: Dollar/yen buyers are all of a sudden back in charge following yesterday’s dramatic reversal higher.  Some swift selling in the US bond market (sharp rise in US yields) appeared to be driver, and helped USDJPY quickly reclaim the 110.60-70 level it lost the day before.  Overnight price action saw traders test this level again (this time as support) and buyers showed up.  The stronger than expected US Q4 GDP figures is now leading to some broad USD buying, which is helping USDJPY target Monday’s highs once again.  We think a daily close above the 111.10s will invite further buyers and a chase for the 112 level.

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About the Author

Erik Bregar - Director, FX Trading

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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