Calm remarks from China's MOFCOM sparks risk-on bid

SUMMARY

ANALYSIS

USDCAD

Some calm comments from China’s ministry of commerce is igniting a broad “risk-on” bid to global markets this morning.  Spokesperson Gao Feng told reporters that Beijing hopes the US and China can cancel planned additional tariffs to avoid escalating the current trade war.  He reiterated that China is willing to resolve this dispute with a calm attitude and that it hopes the US will show sincerity and meet China half-way, and that the most important thing is both sides continue to create the necessary conditions for negotiations ahead of planned talks in September.  There’s not a whole lot of new “news” here in our opinion, or detail for that matter, but we think we’re seeing a “risk-on” bid this morning because markets are yearning for any sort of positive headline on the US/China trade war front.  The S&P futures have rallied back above the 2900 resistance level, October crude oil prices are re-testing yesterday’s trend-line resistance highs in the 56.40s, and USDCAD has fallen back below yesterday’s fiercely contested price pivot at 1.3305.  The US has just reported its first revision to Q2 GDP and the numbers met expectations of +2.0% versus +2.1% for the initial reading and versus +3.1% for Q1.  USDCAD has reversed higher in the last hour though, but we think this has to do more with some dovish comments from Christine Lagarde that are knocking EURUSD lower here.

USDCAD DAILY

USDCAD HOURLY

OCT CRUDE OIL DAILY

EURUSD

The price action for EURUSD continues to look depressing this morning after multiple attempts from traders to regain the 1.1080s failed in NY trade yesterday.  Today’s weaker than expected August CPI read out of Germany ( +1.0% YoY vs +1.2% expected) isn’t helping EUR sentiment here in our opinion, nor is the EIONA money market curve in Europe (which continues to price in ECB rate cuts of 10-20bp by the end of the year).  The German 10yr bund yield is bouncing a tad off its lows from yesterday amid today’s “risk-on” rally but there’s not a whole lot of momentum behind it.  ECB president-to-be Christine Lagarde has just said the central bank “hasn’t hit its lower bound on interest rates”.  Cue the EURUSD sellers.

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

Sterling has seen a calm, albeit choppy, price pattern ever since the Queen confirmed Boris Johnson’s request to prorogue UK parliament from Sep 9th until October 14th.  Like we said yesterday, we still don’t see what all the fuss is about.  Giving these un-effective lawmakers a few extra days of debate won’t make a difference -- it’ll all be decided at the 11th hour near the end of October in our opinion, and it appears GBP traders have calmed down for the time being (which is so weird to say).  The UK opposition parties, on the other hand, are still flipping out because they claim they now have less time to block a “no-deal” Brexit via legislation.  Expect them to table emergency motions next week when the UK parliament returns from its summer recess on September 3rd as they’ll only be able to sit in the House of Commons for 4 business days.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

The bottoming process for the Australian dollar now definitely appears to be on hold.  The EURUSD couldn’t rally yesterday and so nor did AUDUSD.  Today’s “risk-on” tone to global markets has helped the Aussie rise over the last few hours, but we’re simply retracing last night’s losses from the weaker than expected Q2 Australian CAPEX report (-0.5% vs +0.4% QoQ) and now EURUSD is rolling over once again.  We think AUDUSD now adopts a more range-bound tone between 0.6700 and 0.6750-60.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

Dollar/yen is crawling higher this morning as US yields bounce higher off the China MOFCOM comments.  The benchmark JGB yield traded to a new low this morning of -0.289%.  We think USDJPY has some positive momentum here and could challenge last week’s trend-line resistance zone in the 106.50-70s should the global “risk-on” wave continue into the long weekend.

USDJPY DAILY

USDJPY HOURLY

US 10YR YIELD DAILY

Charts: Reuters Eikon

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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