Risk bid in quiet start to the week. Powell speaks at Jackson Hole on Friday.

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD is dribbling lower to start the week as risk assets continue their “Germany is going to spend more during a recession” rally from Friday.  Bond traders also appear to be tempering their rate cutting bets a little bit ahead of the annual Jackson Hole Economic Policy Symposium, where Fed chairman Powell is expected to make a speech on Friday.  Traders will likely be focused on this week’s lineup of Canadian data items before that though, with June Manufacturing Shipments out tomorrow, July CPI on Wednesday, June Wholesale Sales on Thursday and June Retail Sales early on Friday.  We saw the funds cover USDCAD short positions during the week ending August 13.  We think the market continues with the directionless tone we talked about last Monday, and wouldn’t get too excited either way until we close above the 1.3330s or below the 1.3200 level.  Near term levels to watch within that range are 1.3270-80 on the upside and 1.3240-50 on the downside.  September crude oil continues to hold the $55 level this morning, despite an arguably bearish OPEC Oil Market Report on Friday.  We think a push back above the 55.70s could propel a move to the mid $56 level and put a drag on USDCAD, all else being equal.

USDCAD DAILY

USDCAD HOURLY

SEP CRUDE OIL DAILY

EURUSD

The euro caught on bid during NY trade on Friday after Spiegel reported that Germany was “ready for deficit spending” should recession hit.  More here from Bloomberg.  Markets broadly celebrated this potential for further stimulus and it gave EURUSD, in particular, a chance to regain trend-line support at the 1.1100 level.  The NY close however (slightly below 1.1100) was far from convincing to scare EUR shorts in our opinion and when we combine this with comments out of the Bundesbank this morning about it seeing a risk that Germany entering a recession, it’s not surprising to still see EURUSD on the defensive here.  December gold prices are also slumping back below the mid-1520s this morning as the Fed rate cut trade prepares for Powell once again.  There was little change to EURUSD net short fund positioning during the week ending August 13, as about an equal amount of position liquidation by long and shorts was picked up by corporate hedgers.  This week’s European economic calendar started off with some weaker than expected Eurozone CPI growth for the month of July (-0.5% vs -0.4% expected).  The next major data item will be the preliminary August PMI prints out of Germany on Thursday.  The German bund yield also popped higher after Friday’s report from Speigel, and while it opened higher to start the week, it too is struggling with EURUSD as NY trade gets underway today.

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

So it appears Friday’s roaring pound rally didn’t have any fundamental basis behind it, as this morning a spokesperson for Boris Johnson confirmed that “no-Brexit” efforts have been “significantly stepped up”.  Johnson himself confirmed this morning that the UK will be ready to leave the EU “with or without a deal”.  With that, we’ve seen GBPUSD give back half of its gains from Friday and we’ve seen EURGBP take another leg higher after the Speigel report bounce.  Fund position liquidation was the theme in the pound futures market during the week ending August 13, with shorts covering more than longs, and this now leaves the fund net short GBPUSD position off the extremes we saw the week before.  We think downward-sloping trend-line resistance (currently in the 1.2130-50s) will be the pivot for price action this week heading into Jerome Powell’s speech on Friday.  Staying below this level should keep the pressure on whereas a NY close above the level could give the extended fund short position something to think about.

GBPUSD DAILY

GBPUSD HOURLY

EURGBP DAILY

AUDUSD

It’s been a very quiet start to the week for the Aussie as traders continue to battle it out at familiar trend-line resistance in the 0.6780s.  The off-shore Chinese yuan opened the week quietly and it continues to hover around the 7.05-7.06 mark as market participants await the next major US/China trade war headline.  Weekend reports suggest we’ll get something from President Trump today regarding Huawei, and we’re not sure yet whether Wilbur Ross’s announced 90-day delay on the Huawei ban is the extent of it all.  The broader USD isn’t moving all that much here as NY trade gets underway and so it appears AUDUSD is following suit.  The RBA will release the Minutes from its last policy meeting tonight at 9:30pmET.  Other than that, there’s not much on the Australian economic calendar this week.  September copper prices have finally broke above the 2.60 level this morning as the industrial metal follows the S&P futures higher, and we think this could help AUDUSD here should the broader USD develop an offered tone over the course of NY trade today.  The funds scurried into new short AUDUSD positions during the week ending August 13, extending their net short position to a 7-week high.

AUDUSD DAILY

AUDUSD HOURLY

SEP COPPER DAILY

USDJPY

Dollar/yen is inching higher with the S&P futures and bond yields this morning, as it appears the German government is willing to spend more and everybody is thinking Jerome Powell might disappoint the markets again this Friday.  The funds extended their new net short position in USDJPY during the week ending August 13, which means they effectively sold the “US softening its stance on China” rally last week.  While we think the P&L on these new short positions could be back to break-even at this point, we don’t think they start asking questions until USDJPY breaks back above the 106.90-107.00 level.  Still nothing from the BOJ regarding JGB yields, which implies they’re obviously comfortable with this “new normal”.  The Japanese government benchmark reached a new low yield of -0.25% on Friday, but is now trading at -0.227 as global yields continue Friday’s bounce off the Speigel report.

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

Charts: TWS Workspace

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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