Slightly hotter than expected US CPI figures adds to "risk-on" tone for the broader markets

Summary

• USDCAD: Dollar/CAD had a rough NY session yesterday; falling even further as crude oil prices made a run for the $54 level and US stocks charged to new highs for the year.  Headlines that the Trump administration might now delay the March 1st tariff deadline with China seems to be overarching theme driving equities over the last 24hrs, and comments his morning from Treasury Secretary Mnuchin about talks in China going “so far so good” appears to be added to the overall “risk-on” sentiment we’re seeing in markets.  All this, along with a technically poor NY close, saw USDCAD slip further in Asian trade overnight.  Trend-line support in the 1.3210s was broken as Europe came in, but a pullback in the S&Ps appears to have invited some broad USD buying back in, allowing USDCAD to recoup support.  The US CPI figures for January were just released and they beat expectations (+1.6% YoY vs +1.5%).  Core CPI (ex food and energy) also beat the consensus, coming in at +2.2% YoY vs +2.1% expected.  This is leading to some knee jerk USD buying here across the board, but we think the market will attempt to fade this move given overhead resistance in USDCAD, an ever weakening chart structure for EURCAD, and March crude oil’s ability hold trend-line chart support in the 53.50s this morning.  The EIA reports its weekly oil inventory report today at 10:30amET, and the consensus is looking for a build of 2.668M barrels.  

• EURUSD: Euro/dollar is dialing back some of yesterday’s gains this morning, as traders struggled with trend-line resistance in the 1.1330s during late NY and Asian trade overnight.  Yesterday’s rally was a bit of a head scratcher given the lack of EUR-positive headlines, but we would chalk it up to a strong “risk-on” mood to equities which can drive broad USD weakness at times.  Given the lack of major resistance nearby in EURUSD, we surmised that it was simply easier for USD sellers to push this market higher as opposed to other USD pairs.  The Eurozone Industrial Production figures for December were out this morning and they missed expectations, coming in at -0.9% MoM vs -0.4%, but this didn’t have much effect on the markets.  Sterling saw an odd spike higher around the 7am hour (more below), which got the EURUSD algorithms excited momentarily, but all this is unravelling now as the market continues to search for buyers.  The upbeat inflation figures reported out of the US just now is keeping the pressure on EURUSD here.

• GBPUSD: Everybody’s trying to figure out what drove GBPUSD over 50pts higher in just minutes before 7amET this morning, and the more we sniff around it appears to have been someone executing a large order in the GBP futures market (either intentionally or by mistake).  The market shot up from chart support in the 1.2880s to test trend-line resistance at the 1.2950s in a heart-beat.  Resistance capped prices and we have now quickly retraced 2/3rds of the move.  The UK reported a slightly weaker than expected CPI figure for January earlier this morning (-0.8% MoM vs -0.7%), but it had very little impact on prices.  The upbeat US CPI figures is causing GBPUSD to downtick a little further here.  We wouldn’t be surprised to see the market give back 100% of is 7amET pop higher. 

• AUDUSD: The Aussie continues to ride on the coattails of the upward momentum in the Chinese yuan and global equities so far this week.  The AUDUSD market got some extra help last night following a 100pt surge higher in NZDUSD, as Kiwi traders reacted to a less dovish than expected hold on interest rates from the Reserve Bank of New Zealand.  Trend-line chart resistance in the 0.7110s gave way, leading to further gains into European trading overnight, but the next trend-line level capped prices (0.7130s) and drew some selling from market participants afterwards.  The release of the stronger than expected US CPI figures is now seeing the 0.7110 level give way to the downside (which is not technically positive).

• USDJPY: Dollar/yen indeed found support on dips yesterday during NY trade.  That momentum continued in overnight trade with Japan’s Nikkei and the S&P futures extending gains, which allowed USDJPY to break above chart resistance in the 110.50s.  The slightly hotter than expected US inflations figures, just out, is now adding some fuel to the fire for buyers.  We think USDJPY longs remain in charge here for the time being.  The next major resistance level resides in the 111.10-20s.

Tune in @EBCTradeDesk for more real-time market coverage.

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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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