• Financial Institutions
  • Corporations
  • Travelers
  • SOLUTIONS
  • Foreign Bank Note Exchange
  • International Drafts
  • International Wire Transfers
  • Global EFT
  • Foreign Check Clearing
  • Foreign Draft Issuance
  • INDUSTRIES
  • Travel
  • Technology Companies
  • Payroll
  • Healthcare
  • Nonprofit
  • Partnerships

Bank of England holds rates steady. Optimism for a smooth Brexit lifts GBPUSD from kneejerk lows.

CXI February 7th, 2019

Summary

  • USDCAD: Dollar/CAD indeed wrestled with the 1.3180-90s early yesterday.  The market fell back below it briefly following some stronger than expected Canadian Building Permits data and some bullish EIA oil inventory figures, but broad USD buying into the London close (led by EURUSD and AUDUSD selling we’d argue) helped rescue USDCAD back above the level.  This set the stage for the continued technical strength we’ve witnessed since then, and we now sit in the 1.3250s which we said was possible yesterday.  March crude oil is unwinding yesterday’s post EIA rally by trading down 1% at this hour, which is USDCAD supportive.  Next up are some speeches from the Fed’s Kaplan and Clarida around the 9:15-9:30 hour.  Other than that though, we should have a rather uneventful session today when it comes to headlines.  Tomorrow brings the release of the Canadian January employment figures out tomorrow, which should provide the next major inflection point for USDCAD.  Until then, we think the market tests the next resistance level in the 1.3270s and possibly fades.

  • EURUSD: Euro/dollar can’t seem to catch a break here, after yesterday’s attempt to bounce off the 1.1390-1.1400 support zone failed miserably into the London close.  The move below support yesterday afternoon inviting more selling into the NY close, which then spilled over into overnight trade as the market sought out the next major trend-line level (1.1340s).  Germany reported another awful economic number this morning (-0.4% MoM decline in Industrial Production for December vs expectations of +0.8%).  The European Commission slashed its 2019 GDP growth forecast from 1.9% to 1.3% as well today, citing particular concerns about Germany, France, and of course Italy.  These two fundamental developments were the catalysts for further EURUSD selling as Italian bonds sold off and the BTP/Bund spread blew out to +280bp.  Chart support in the 1.1340s has fallen but traders are trying to buy the dip here.  We think the 1.1340s will be today’s pivot.  Stay below and the sellers will remain in charge, but trade back above and we might see some short covering.

  • GBPUSD: The Bank of England just announced its latest decision on monetary policy, and it was a unanimous 0-0-9 vote to keep interest rates unchanged and keep its asset purchase target steady at 435bln GBP (as expected).  However, the central bank revised lower its GDP and inflation forecasts for the next two years, and this was enough to see GBPUSD kneejerk lower into the 1.2850s support level (after losing prior support in the 1.2920s.).  Buyers have swooped in now at the lows however as governor Mark Carney speaks about Brexit at his press conference.  While they admit that Brexit uncertainty has “intensified”, the BoE is still playing up the optimistic mantra of “limited and gradual hikes will be needed” should Brexit proceed smoothly.  GBPUSD has shot up back above the 1.2920s as we write, and we think a bullish technical pattern may now be in the works should we close at these levels today (inverted daily hammer).  It’s being reported that Theresa May didn’t achieve any progress with European Commission President Juncker when they met today in Brussels.  Juncker reiterated that the EU will not reopen the withdrawal agreement, but is willing to work on a “political declaration” with the UK before the end of February.  The EU’s Brexit negotiator, Barnier, will meet with UK Brexit secretary, Barclay, on Monday.  Theresa’s May government is saying they are planning on tabling another Brexit motion before Parliament on Feb 14th.

  • AUDUSD: The Aussie is trading on the defensive this morning following yesterday’s inability to bounce off chart support in the 0.7120s.  This level gave way amidst the broad USD buying that swept over markets into the London close and we’ve since dribbled lower to test the next support level in the 0.7090s.  EURUSD weakness is certainly not helping here in our opinion, nor are the lingering effects of yesterday’s swift, RBA-driven move down through the 0.7170s.  We think market momentum will continue to favor the sellers here in the near term.

  • USDJPY: Dollar/yen indeed took another shot at the upside yesterday after the 109.60s held, but chart resistance in the low 110s capped yet again (like it did on Monday).  The S&P futures are trading in the red this morning following equity selling in Europe due to poor earnings a weak economic data out of Germany.  India’s central bank surprised markets with a rate cut, which is adding fuel to fears of a global slowdown.  USDJPY continues to hold support in the 109.60s however, and so we think we range trade here for the time being.

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

 

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

March Crude Oil Daily Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

USD/CNH Daily Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

EUR/GBP Daily Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

March Copper Daily Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

March S&P Daily Chart

Charts: TWS Workspace


About the Author

Erik Bregar

Erik Bregar - Director, FX Trading

linkedin twitter

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.


About Exchange Bank of Canada
Exchange Bank of Canada (EBC) is a Schedule 1 bank based in Toronto, Canada. EBC specializes in foreign exchange services and international payments providing a wide range of services to financial institutions and corporations, including banknote foreign currency exchange, travelers' cheques, foreign currency cheque clearing, foreign currency bank drafts, Global EFT and international wire transfers through the use of EBC's innovative EBCFX web-based FX software www.ebcfx.com.

Disclaimer: All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.
This publication has been prepared by Exchange Bank of Canada for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Exchange Bank of Canada, its affiliates or any of their employees incur any responsibility. Neither Exchange Bank of Canada nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Exchange Bank of Canada products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Exchange Bank of Canada.