ECB leaves rates unchanged. Mario Draghi's press conference now underway.

Summary

• USDCAD: Dollar/CAD is trading with upward tone this morning, as the funds (who are still positioned long the market) try to quickly repair the damage done to the charts after the Bank of Canada’s rate hike yesterday.  The 25bp increase in interest rates to 1.75% was largely expected by market participants, but the removal of “gradual approach” [to interest rate hikes] from the press release was not.  This caused the quick plunge in USDCAD down to chart support in the 1.2990-1.3010 region.  A surprise draw in the gasoline component of the EIA inventory data then saw crude oil prices rally in sympathy despite higher crude stocks, and this kept the pressure on USDCAD into the London close.  The BoC’s press conference then introduced more volatility for the markets, when Stephen Poloz and Carolyn Wilkins initially downplayed the significance of the hawkish change in language (USDCAD rebounded), but concluded that the economy no longer needed stimulus (USDCAD then fell back to its lows).  The market was looking precarious below at the 1.2980s going into afternoon trade yesterday, but then the US stock market began to plunge again.  This caused oil prices to retreat once again as well, and it was at that point that USDCAD traders staged an impressive rebound into the NY close.  This upward momentum appears to be returning this morning after a brief pullback in Asian trade last night, and it needs to continue (in our opinion), to improve the technical outlook for USDCAD here.  Regaining the 1.3070s in short order would do much to repair/renew the upward trend for USDCAD that we’ve witnessed this month.  Failure though will eventually focus traders on yesterday’s support levels we feel.  US Durable Goods for September were just reported +0.8% MoM vs -1.5% expected.  We think USDCAD longs and shorts duke it out today.  BoC rate hike odds for December have ticked up to 20% while January odds have nudged higher to 70%.

• EURUSD: Euro/dollar is trading with a quiet tone this morning as traders await further monetary policy clues from Mario Draghi’s press conference, which is currently underway.  The ECB kept interest rates unchanged today and made no changes to their outlook for the end of asset purchases (December 2018) and the first interest rate hike (“through the summer of 2019”).  Option traders are not pricing in much excitement for today, with overnight at-the-money straddles trading at around just 60pts (implied daily range).  The German IFO survey slightly missed expectations today, coming in at 102.8 vs 103.0 expected.  The BTP/Bund spread opened moderately higher today but has been falling gradually all morning (now +310bp).  USDCNH broke out to a new 52-week high in an odd move early this morning, but the market is completely reversing it now (which is supportive EURUSD).  We think the Euro could bounce here today if Mario Draghi instills a sense of calm about recent European developments.

• GBPUSD: Sterling is trading quietly above trend-line support in the 1.2870s this morning as traders are content to follow EURUSD.  Theresa May appears to have survived the no-confidence vote rumors, but this news is doing little to restore GBP sentiment as Brexit negotiations with the EU are still nowhere near where they need be at this point.  More here.  Brexit secretary Dominic Raab reiterated the UK’s objection to a separate customs treaty for Northern Ireland earlier today.  We wouldn’t be surprised to see a bounce here today, but we think the shorts remain in charge sub 1.3000.  EURGBP looks increasingly comfortable above trend-line support in the 0.8820s (which should be a drag on GBP).

• AUDUSD: The Aussie is regaining trend-line chart support in the 0.7080s this morning as December copper bounces affirmatively back above 2.75.  Yesterday price action soured when the US stock futures plunged below the 2700 mark.  The fact that the market could recover so quickly here is impressive in our opinion.  We’d be on the lookout for fund short covering.  Credit rating agency Fitch affirmed Australia’s AAA rating today with a stable outlook.

• USDJPY: Dollar/yen traders continue to battle it out around the 112.30 level, with yesterday’s range-bound price patterns getting disrupted late in the day by another swift sell off in US stock futures below 2690-2700.  This saw USDJPY break back below 112.30 to test support in the 111.90s, but buyers stepped in again in Asia.  We’re now trading right back up to the 112.30s ahead of the US cash open.  We see USDJPY continuing to trade at the whims of US stocks and the global equity tone here.  The S&P futures are up 17pts at this hour but are struggling to regain 2690.

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

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

December 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

December Copper Daily Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

December S&P 500 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.