Risk-on tone to equities countering renewed Turkish lira selling to start week

Summary

• USDCAD: Dollar/CAD is bid this morning, reversing half of Friday’s Jackson Hole related losses, with today’s primary drivers being a technical reversal in Asian trade overnight and a resumption in broad USD buying following renewed Turkish lira selling after Turkish markets returned from a week long holiday (USDTRY trading up ~4%).  USDCAD is struggling however to regain and hold chart support in the 1.3030s, with a broad “risk-on” tone to equities and commodities starting to take shape going into the NY open.  This week’s calendar is relatively quiet when it comes to North American data, with the 2nd look at US Q2 GDP out on Wednesday, US PCE and Canadian June/Q2 GDP out Thursday, and then the Chicago PMI on Friday heading into the long weekend.  The net long USD (CAD short) position at CME remained largely unchanged during the week ending Aug 21 as both longs and short added slightly on the pullback from the 1.3150s.  The Bank of Canada’s Stephen Poloz gave us some headlines late Friday and into Saturday, but we would argue the comments are mixed on net (downplayed recent CPI spike but doesn’t want to be behind the curve on rates).  More here from Bloomberg: https://www.bloomberg.com/news/articles/2018-08-27/poloz-plays-down-inflation-emphasizes-gradual-rate-increases.  We think USDCAD chops here around current levels for the time being.  Be on the lookout for potential NAFTA headlines this week following market chatter on the weekend about US and Mexico being close to a deal.

• EURUSD: Euro/dollar is trading flat at this hour after a little bit of volatility in overnight trade.  The market opened strongly in Asia, but the break above Friday’s high in the 1.1630s failed, and so traders had an excuse to sell and look for support.  Buyers were found at 1.16 even however, a new trend-line level we can draw given Friday’s price action, and we have since bounced a little bit.  The better than expected German IFO survey for August (released at 4am) appears to be helping.  Budget worries in Italy are still apparent, and so BTPs/Bunds are trading back up to the +280bp level again today.  The funds increased their new net short position ever so slightly in the week ending Aug 21 as shorts added.  This week’s calendar features the German employment and CPI reports for August + Italian 5 and 10yr bond auctions (Thursday), and German Retail Sales for July/Eurozone CPI for August (Friday).  USDCNH is trading steady.  We think EURUSD will continue to attract buyers above 1.1600.  Over 2.4blnEUR in options expire at the 1.1625 strike this morning.

• GBPUSD: Liquidity is at a premium today for sterling as UK traders are out for a banking holiday.  Downward sloping trend-line resistance in the 1.2850s (which capped the trade on Friday), continued to cap early on today, but the level has just given way going into NY trading.  Pound futures traders aggressively piled into new positions for the third week in a row ending Aug 21, but new shorts continue to outpace new longs, making the net fund short much more elevated (this comes after the mid-August bottom).  We think GBPUSD has room to rally here again now, perhaps as high as the 1.2920s near term (next resistance level).

• AUDUSD: The Aussie is trading more or less flat at this hour as well, taking its overnight queue from EURUSD and copper prices.  Friday’s close was pretty decent technically, considering the damage done to the chart on Thursday.  A close above the 0.7330s today would do much to improve the technical structure further.  The net short position at CME decreased slightly during the week ending Aug 21 as some shorts covered.  Australia’s new PM Morrison is getting straight down to business, focusing near term efforts on the drought: https://www.voanews.com/a/new-australia-pm/4545581.html.  This week’s calendar is light, with just Australian Building Permits out Wednesday night ET.

• USDJPY: Dollar/yen is starting the week with a softer tone as traders digest Friday’s reject of the 111.40-50 level following Jackson Hole and today’s broad offering of USD going into the NY open.  The funds remained net long USDJPY during the week ending Aug 21, but trimmed the position as longs liquidated and shorts added.  This week’s calendar features Japanese Retail Trade figures on Wednesday night ET, with Tokyo CPI and the July employment report on Thursday night ET.  We think USDJPY might be a little directionless here as the “risk-on” tone to equities/yields going into the NY open is not having much effect.  Chart support today checks in at the 110.70s.

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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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