BoC's Poloz causes some late day volatilty in USDCAD. GBP trades to new swings lows on Brexit pessimism. EURUSD trying to bounce but yuan weakness and German political uncertainty still cloud outlook.

Summary

• USDCAD: Dollar/CAD is trading lower this morning on the back of yesterday’s failed breakout higher and a recovery in EURUSD this morning.  The catalyst for the break higher late yesterday was the speech from Stephen Poloz in Victoria.  While the Boc Governor was pleased that the markets understood the central bank recent policy decision (which was more hawkish than expected), he mentioned risks stemming from escalating tariff battles, the impact of tougher lending standards on mortgage renewals and the housing market, and that “we expect these issues to figure prominently in our upcoming deliberations”.  This saw USDCAD regain 1.3310 and spike higher all the way to resistance in the 1.3370s (Friday’s highs), but the move quickly fizzed as Poloz sounded more optimistic in his press conference following the speech; citing continued robust investment growth despite NAFTA uncertainty and reiterating the BoC focus on hard data as opposed to political rhetoric.  The reversal lower in USDCAD paused for most of Asian trading overnight but continued this morning as EURUSD has regained trend-line support in the 1.1560s.  With the market now once again back below the key 1.3310 level, we think we may finally see a meaningful pullback here, but we’d need to see EURUSD bounce further.  The next chart support level is 1.3240.  Today’s North American calendar is light with just the third look at US Q1 GDP and a couple more Fed speeches (Bullard and Bostic).  Tomorrow brings the US PCE inflation gauge for May, Canadian GDP for April, the Chicago PMI and the Bank of Canada Business Outlook Survey.  August crude oil is trading slightly off the May highs after a larger than expected draw reported in the DOE weekly inventory data yesterday.

• EURUSD: Euro/dollar had a rough session yesterday; sliding through chart support in the 1.1630s and then the 1.1590s.  The pop higher, following some positive comments from the Trump administration on Chinese investments, as short lived and the market appeared to focus on continued weakness in the Chinese yuan and Angela Merkel’s almost insurmountable task of coming up with a migration agreement at EU summit today and tomorrow.  Merkel confirmed that this morning when she addressed parliament in Germany and EURUSD continued lower, but the market has now reversed back above trend-line support in the 1.1560s.  Some horizontal resistance in the 1.1580-90 area is capping the trade for now and so we think EURUSD coasts here near term until market participants have more catalysts to trade off of.  Continue to watch USDCNH.  Over 1.6blnEUR in options expire today between 1.1580 and 1.1590.

• GBPUSD: Sterling continues to drop; retesting the June lows in late NY trading yesterday and now breaking below the level is early European trading today.  Some less than encouraging comments from Ireland’s PM Varadkar on the Irish border issue is not helping sentiment, nor is market chatter that Theresa May will get nothing accomplished (on the Brexit front) at the EU summit today and tomorrow.  More here: https://www.express.co.uk/news/politics/980747/Brexit-news-Theresa-May-EU-summit-Margot-Parker-UK-fail-achieve-breakthrough.  With GBPUSD now breaking below chart support in the 1.3120-30s, and EURGBP breaking out today, we think GBP will remain on the defensive.  The next chart support levels are 1.3030 and 1.2970.  Note BoE member Haldane is speaking at 9:30amET today.

• AUDUSD: The Aussie broke support in the 0.7370-80s yesterday and with that AUDUSD spilled lower and resumed its downward trend.  The late day spike higher in USDCAD didn’t help the closing pattern, but some horizontal chart support in the 0.7330s and some EURUSD strength this morning is helping to stem the selling.  Copper has broken chart support at the 2.96 level, which should be a concern for AUD traders.

• USDJPY:The early momentum higher in USDJPY yesterday fizzled out as US equity futures reversed overnight gains for most of the NY trading day yesterday.  US yields fell for the entire session as well, and with that USDJPY has receded back towards the 110 level.  Option expiries will likely contain the action again today, with 2.8bln rolling off between 110.00 and 110.20.

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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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