All eyes on EURUSD as Italian assets implode. USD broadly bid but turning as NY traders return from holiday. USDJPY feels brunt of "risk off", flight to quality bid in bonds.

Summary

• USDCAD: Dollar/CAD is enjoying yet another bid this morning as the EUR falls apart.  Crude oil is weaker too, but still within yesterday’s quiet NY range.  Longs reached a near term technical objective yesterday and took profits when the market tested trend-line resistance at 1.3025, but we’re now trading back above it.  We feel this will be the key level to watch today.  Stay above it and the market could push further to the 1.3070s.  Trade back below it and we may have a short-term top in the works.  Today’s economic calendar is light, with just US Consumer Confidence on the docket, leaving the focus on the broader USD and the Italian political situation.  The Bank of Canada meets tomorrow but markets are not expecting any change to interest rates.

• EURUSD: Things are going from bad to worse in Italy today as markets fear new elections will essentially become a vote about whether or not the country should stay in the Eurozone.  With that, Italian assets are imploding (MIB -3%, BTPs over Bunds now +300bp, Italian CDS blowing out, and 2yr yields skyrocketing over 100bp higher...the largest move on record).  Even German and French bank stocks are selling off as fears of contagion spread.  EURUSD resumed its plunge lower in the face of all this, taking out chart support in the 1.1580s and the 1.1550s.  We saw a brief bounce after Italy’s Five Star’s leader Di Maio said he never sought a euro exit, but the move is lacking momentum.  All eyes will be on Italian bonds today and whether or not EURUSD can regain the levels it broke overnight.  We would not be surprised to see some profit taking from EUR shorts today as fears of a 2011 style, euro-debit crisis hit a crescendo.

• GBPUSD: Sterling followed EURUSD lower overnight amid the rout in Italian assets earlier today.  Fibo support in the 1.3280s was taken out, which then gave traders a green light to dump the market further into the next trend-line support level (1.3210-20).  This level has held however, with GBPUSD managing to bounce 40-50pts higher.  We now sit in a bit of a holding pattern as NY trading gets underway.  EURGBP has seen follow-through selling today after yesterday’s bearish engulfing candle close.  A close back above the 1.3280s would be technically positive.

• AUDUSD: The Aussie is weaker in overnight trade, and it’s the sort of price action one might expect amidst the fall in EURUSD but buyers are trying to step in (for the 3^rd time now) at chart support in the 0.7510-20 area.  Copper attempted a break above 3.10 in early London trade (completely erasing yesterday’s losses when the UK and US markets were closed), and while the breakout failed, the market is still higher on the day.  We think AUDUSD has room to bounce strongly here if EURUSD recovers.

• USDJPY: Dollar/yen continued to get sold earlier as everybody flocked to the safety of US bonds amidst the panic in Europe.  US yields plunged lower in early European trade but are now recovering a bit, and this has allowed USDJPY to recover some losses as well.  The market bounced off trend-line support at 108.50 earlier and has just regained another support level (108.80) as NY trading gets underway.  We think USDJPY might finally bottom here near-term as the US bond move today has the earmarks of a blow-off top.  The BoJ’s Kuroda will be speaking at a conference at 8pmET tonight.

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

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

AUD/USD Daily Chart

July Copper Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

June US 10-yr Bond Futures Daily

Charts: TWS Workspace

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.

Interested in creating a custom foreign exchange trading plan? Contact Us or call EBC's trading desk directly at 1-888-729-9716.