AUD snaps back after weaker than expected CPI. EUR bid ahead of option expiry. USDJPY breaks out ahead of BOJ on Friday.

Summary

• USDCAD:Dollar/CAD is entering NY trading this morning with a neutral tone.  Last night’s weaker than expected CPI figure from Australia ignited some broad selling of the USD after AUDUSD couldn’t extend losses, and we’re seeing some more USD selling here against EUR as an option expiry looms large for today’s session around 1.2200.  Today’s North American calendar is light with just US Consumer Confidence at 10amET.  We think USDCAD takes a breather today after the tremendous run over the last four days, and perhaps drifts a little lower.  Chart resistance is chunky now between 1.2840 and 1.2875.  AUDUSD looks like it’s tired of going down.  What is more, EURUSD now has reason to pause and consolidate ahead of big ECB meeting on Thursday.  Chart support today for USDCAD lies at 1.2800, then 1.2775.

• EURUSD: Euro/dollar traders are struggling to keep the market bid this morning as yesterday’s NY close was negative (closed below the 1.2220-1.2245 trend-line support channel we noted).  Losses looked like they were going to extend further after Australia reported weaker than expected CPI for Q1, but then AUDUSD snapped back and so did EURUSD.  The market pulled back again as Europe got going and then we got the weaker than expected German IFO survey.  This headline could have easily taken us to new swing lows but EURUSD bounced higher yet again.  Now traders are talking about an 1bln EUR option expiry at 1.2200 for the NY cut, that will likely keep the market anchored until then.  Another thing helping EURUSD recover a little bit today is the failed breakout higher in USDCNH (Chinese Yuan).  After a quick pop higher into the 6.32s post Aussie CPI, the market is trading back below chart support in the 6.3070s.  We think EURUSD tries to regain its composure again today given the technical bounces we witnessed in overnight action, and given the quiet economic calendar ahead of the big ECB meeting on Thursday.  There’s also over 3bln EUR in options at the 1.2200 strike expiring on Thursday (after the ECB announcement), which will likely keep us bid until then.

• GBPUSD: There’s wasn’t much going on for sterling overnight which, given the move over the past five days, is likely a relief for longs.  GBPUSD has been content to follow EURUSD, and is now knocking on the door of chart resistance in the 1.3970-85 area.  EURGBP is stuck between 0.8740 and 0.8760, and is therefore not providing many clues.  The busiest day of the week this week for UK headlines will likely be Friday, where we’ll get Q1 GDP for the UK.  The Bank of England’s Mark Carney and Andy Haldane are also scheduled to make speeches.  The next chart support in GBPUSD lies in the 1.3890s.  Pound futures traders liquidated 4384 contracts in positions during yesterday’s trade.

• AUDUSD:It definitely felt like Australian CPI saved the Aussie last night.  The NY close was miserable for AUDUSD (market closing well below chart support in the 0.7620s) and the market should have plunged lower after the weaker than expected print, but it didn’t.  This could mark a short-term turning point for AUDUSD, and so we’ll be watching closely now if the 0.7620s can be regained.  If so, this would open the door for a corrective rally back to 0.7650-60.  Also helping the Aussie’s cause today is the 1.6% rally in copper prices.  May Copper has now blown back above the 3.1350 level and has fully retraced yesterday’s aluminum driven losses.

• USDJPY: Dollar/yen broke out definitively yesterday and the rise in US 10 yields was the perfect backdrop.  Chart resistance in the 107.70s was taken out, allowing the market to charge for the next level, which was the 108.40s.  Then that level gave way around the London close, prompting even more gains.  The NY close was technically positive as well (a close at the session highs) and this has allowed USDJPY to drift higher in overnight trade.  Some EURJPY and GBPJPY buying is helping the cause today, as are US yields which are up-ticking at this hour.  The chart structure now gets really interesting for USDJPY as resistance levels are few and far between.  This could make the market a little more sensitive the usual to Friday’s BOJ announcement on monetary policy.  Chart support in USDJPY today is 108.70, then 108.40.  Resistance lies in the 109.20s.

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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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