US Housing Starts, US Philly Fed, Canadian Manufacturing Shipments all beat expectations

SUMMARY

• USDCAD trying to recover after planned Trump auto tariff delay sees broad USD selling yesterday.
• EURUSD back on the defensive after two failed attempts to get above 1.1220s.  Strong US data this morning not helping.
• GBPUSD continues to be plagued by Brexit uncertainty.  EURGBP continues march higher after yesterday’s breakout.
• Australia reports mixed employment report for April.  AUDUSD recovers, but now weighed down by EURUSD selling.
• USDJPY traders eyeing Sunday gap fill, after S&Ps get back above 2840s.
• Bank of Canada’s Stephen Poloz to speak at 11:15amET.

ANALYSIS

USDCAD

Dollar/CAD had a rough session yesterday and it all started with weaker than expected economic data out of the US.  While Canada’s somewhat soft CPI figures for April saw the market knee jerk higher at the start of NY trade, much weaker than expected US Retail Sales and Industrial Production numbers for April then saw USDCAD reverse lower.  Talk from the Whitehouse about President Trump planning to delay tariffs on auto imports then led to a wave of “risk-on” which saw the USD get broadly sold.  Chart support in the 1.3450-60s quickly came under attack, and the subsequent oil market rally that followed a less bearish than expected EIA inventory report invited more selling.  The NY close yesterday below the 1.3440s wasn’t good technically for USDCAD longs, and we think this is part of reason why we’ve seen the market extend south in overnight trade today.  Reports are making the rounds over the last 12hrs that Canada, Mexico and the US are close to clinching a deal on steel tariffs, a while we think this is adding to some of the negative USDCAD momentum, we think broad USD risk-on/risk-off flows are the more dominant factor right now for the market.  Canada just reported its Manufacturing Shipments data for the month of March and they beat expectations (+2.1% MoM vs +1.5%).  We think yesterday’s price action has now muddied the technical outlook for USDCAD heading into week’s end, and we would not be surprised to see the market range trade here for a bit.  The Bank of Canada’s Stephen Poloz will be holding a press conference this morning at 11:15amET following the release of the central bank’s annual Financial System Review.  More here.

USDCAD DAILY

USDCAD HOURLY

JUN CRUDE OIL DAILY

EURUSD

Euro/dollar benefitted handsomely yesterday from speculation that the Trump administration was planning to delay tariffs on European auto imports.  The market shot up to chart resistance in the 1.1220s, but then stalled.  Another attempt was made by traders to get above this level in early European trade today but this has failed.  Therefore, we’re seeing some selling re-enter here since the 5amET hour.  The US has just reported its Housing Starts figures for the month of April and its Philly Fed survey for May, and both reports beat expectations (+1235k starts vs +1209 expected, and 16.6 vs 9.0 expected for the Philadelphia business outlook).  We think this positive US data will put EURUSD back on the defensive today.

EURUSD DAILY

EURUSD HOURLY

USDCNH DAILY

GBPUSD

Sterling can’t catch a break today as the EURGBP cross continues its march higher following yesterday’s breakout above the 0.8680s.  Brexit uncertainty continues to cause GBP to underperform its G7 peers, and it doesn’t look like its going to get any better today as Theresa May is expected to face further pressure from the 1922 Committee to quit as soon as possible.  Chart support in the 1.2820s has now given way, which in our opinion now opens up the door for a retest of the February 2019 lows in the 1.2770s.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

Australia reported its April employment report last night, and while the headline job gain beat expectations (+28.4k vs +14k), more than all of it was part-time jobs and the unemployment rate rose as well (5.2% vs 5.1% expected).  This saw AUDUSD drop quickly below the 0.69 handle, but cooler heads seemed to prevail and the market was actually able to recover a bit when EURUSD traders made an attempt to get above the 1.1220s.  Since this EUR rally attempt failed however, we’ve since seen that market come off again and so too has AUDUSD.  Chart resistance today for the Aussie lies in the 0.6930s.  We think a close above this level would form a bullish reversal candle for today, and could lead to some fund short covering heading into next week.  Conversely, failure to get above this level will likely keep the pressure on here.

AUDUSD DAILY

AUDUSD HOURLY

JUL COPPER DAILY

USDJPY

Dollar/yen is enjoying a bid this morning as the S&P futures creep back above trend-line resistance in the 2840s.  One could argue that today’s equity market optimism is a bit odd considering the signing of Trump’s new executive order last night which now effectively bars China’s Huawei from the US.  China’s commerce ministry was also out earlier today with some more tough talk, saying that China will never make concessions on important matters of principle and that China will have to take necessary countermeasures should the US continue with its bullying, maximum pressure, tactics on trade.  We think USDJPY traders may finally try to fill the Sunday opening gap today, which resides at 109.85-95.  Over 1.2blnUSD in options will be expiring at 10amET at the 110.00 strike as well.

USDJPY DAILY

USDJPY HOURLY

S&P 500 DAILY

Charts: TWS Workspace

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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