EURUSD trades lower as the negative European headlines continue to mount

Summary

• USDCAD: Dollar/CAD is hovering around chart support in the 1.3280s this morning after yesterday’s breakout attempt above the 1.3310-20s failed.  We blame it on a yet another snap back in March crude oil prices after the commodity bounced off support in the 53.20s.  The S&P futures are clawing back overnight losses this morning as traders digest the headlines surrounding the conclusion of US/China trade talks today.  While both sides didn’t really say much in their official communiques, the tone remained positive and China’s Xi Jinping said talks with the US would continue next week in Washington.  Crude oil prices are staying bid amidst this positive “risk-on” tone to markets, plus there appears to be some added support from headlines surrounding the partial shut-down of Saudi Arabia's largest off-shore oil field.  More here.  Therefore, USDCAD remains under a bit of pressure this morning.  Today’s North American calendar features the US Industrial Production figures for January at 9:15amET, following by the Michigan Consumer Sentiment survey, a speech from the Fed’s Bostic, and a speech from President Trump (all at 10amET).  We think the 1.3280s will be today’s pivot ahead of the long weekend.  Canadian markets will be closed on Monday for the Family Day holiday while US markets will be observing President’s Day.

• EURUSD: Euro/dollar is bucking the broadly lower USD trend this morning, as a combination of Spain’s snap election announcement (April 28th), and negative EU comments from Italy’s Borghi send Spanish and Italian bond prices lower.  See here and here for more details.  This has caused the BTP/Bund spread to rebound strongly back towards +280bp today, and any uptick in this widely followed interest rate spread has traditionally been EURUSD negative.  We also posit that today’s 23.3bln Fed SOMA redemption (the 2nd largest to date) is exacerbating the move lower as the US Fed is taking a sizable amount of USD liquidity out of the market.  More here on SOMA.  Familiar trend-line support in EURUSD is being put to the test yet again now as NY trading gets underway.  We think this support (now the 1.1260s) will be the pivot for price action to close the week.  Stay above and we might get some short covering, but move below and we could possibly tumble much lower.  BREAKING: ECB’s Coeure: Slowdown Clearly Stronger And Broader Than Expected, ECB’s Coeure: New TLTRO Possible, Currently Discussing It.  EURUSD has now broken support and is struggling to regain it.

• GBPUSD: Sterling is meandering between support in the 1.2770s and resistance in the 1.2850s this morning as traders digest some positive and negative news.  UK Retail Sales for January was the positive headline this morning, coming in at +1.0% MoM vs +0.2% expected.  However, negative Brexit headlines continue to weigh following another humiliating defeat (although non-binding) for Theresa May in the House of Commons yesterday.  More here.  This is now leading to more anxiety as this doesn’t help the UK’s negotiating position with the EU.  Eight UK ministers are now threatening to quit if Theresa May doesn’t officially take the “no-deal” Brexit option off the table.  UK Brexit minister Barclay is expected to continue talks with the EU’s Barnier in Brussels next week, but one has to wonder at what point will something actually get done.  The clock continues to tick down (42 days to go until Brexit) and GBPUSD continues to tick down with it.

• AUDUSD: There’s not a whole lot going on in the Aussie today as North American traders prepare for a long weekend.  Sellers came in during Asia as USDCNH and the broader USD ticked higher, but buyers returned when USDCNH turned lower with the uptick in the S&P futures.  Traders continue to wrestle with yesterday’s familiar trend-line pivot level, which now comes in just above 0.7100.

• USDJPY: Dollar/yen is trying to claw back overnight losses this morning, after yesterday’s negative NY close on the charts.  The slip below trend-line support in the 110.50s invited more selling down to the next support level in the 110.30s during Asia.  Buyers swooped in here though after the S&Ps and the Chinese yuan reacted positively to the latest US/China trade headlines out of Beijing.   A move back above the 110.50s would do much to invite positive momentum back into the market.

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

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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.

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