Theresa May now looking likely to survive today's no-confidence motion
Summary
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USDCAD: Dollar/CAD is coming into NY trade this morning with an offered tone as gains in the Euro and Pound lead broad USD selling at this hour. January crude oil prices are trading up 2% today, following a larger than expected draw in the weekly API inventory report last night and some positive developments on the US/China trade front (Canada releases Huawai’s Meng on bail + Trump signals he would intervene in the case if it could lead to a deal with China). The US CPI figures for November were just released exactly in-line with expectations of +2.2% YoY on headline and +2.2% YoY on core CPI. Next up is the weekly EIA oil inventory report at 10:30amET. We think USDCAD continues to consolidate and leak lower here so long as we stay below the 1.3380s, but we would not be surprised to see buyers quickly emerge should EUR, GBP or oil selling emerge and take us back above this level. The next support levels come in at the 1.3350s, then the 1.3320s.
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EURUSD: The Euro is rallying this morning as Bloomberg has just reported that Italy is said to propose a 2.0% deficit target to the EU when PM Conte meets with Jean Claude Juncker shortly (10amET). Traders are celebrating this as there is a good chance that the EU approves this and Italy can move on. Italian assets are shooting higher too, with the Italian MIB stock index now trading up 2%, the 10-yr BTP bond yield now back below 3% and the BTP/Bund spread now down to a three-month low of +273bp. In a laughable turn of events here though, Prime Minister Conte’s office has just said that it “DOES NOT CONFIRM 2% DEFICIT TARGET”, and with that the celebratory flows we mentioned above are evaporating. EURUSD spiked to trend-line resistance in the 1.1360s on the Bloomberg headlines but has since pulled back. Support in the 1.1320s held prices earlier today. We would tread very carefully today as we have the Conte/Juncker meeting ahead plus potential GBPUSD volatility.
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GBPUSD: Sterling fell apart again yesterday, after Tory MPs successfully triggered a vote of no confidence against Theresa May. The secret ballot vote is now scheduled for 1-3pmET today, with the results expected to be announced at 4pmET. Fortunately though, Theresa May is winning the war of public opinion heading into this, if we look at the 158 MPs that have already publicly voiced their support for her. This is exactly the vote tally Theresa May needs in order to win today’s no-confidence motion and secure no further such motions against her for at least a year. GBPUSD traders are rallying the market here understandably, but we would be continue to be cautious. The fact the vote will be secret (anonymous) means MPs could say one thing in public and vote another way in actuality. The vote itself also distracts from the fact that Theresa May's Brexit draft is nowhere close to being passed by Parliament; there haven’t been any concessions won from Europe this week; the EU’s Tusk says the council will be discussing no-deal Brexit scenarios at the EU summit tomorrow, and we’re getting closer and closer to the Christmas break for UK Parliament (Dec 20-Jan 7). Chart support is 1.2480-1.2500. Resistance is 1.2625, then 1.2675-1.2700.
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AUDUSD: The Aussie is struggling this morning after traders made another attempt to break the market above the 0.7230s overnight, but failed. This has seen some selling come back in, and what’s a little troublesome too is the fact that the market could not benefit at all from the rally in the S&Ps, EURUSD and GBPUSD earlier today. Trend-line support in the 0.7210s has been regained however, which should halt the downward momentum for now. Copper prices are trading flat this morning.
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USDJPY: Dollar/yen continued higher yesterday, and closed in the trend-line resistance zone of 113.35-55. The upper end of this channel is capping prices so far today as global markets digest the latest updates on the US/China trade relations, which appear to be taking a turn for the better following the release of Huawai’s Meng on bail. While we think the upward bias in USDJPY remains intact, we think the market takes a little breather here and possibly looks for buyers again in the low 113s.
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Exchange Bank of Canada (EBC) is a Schedule 1 bank based in Toronto, Canada. EBC specializes in foreign exchange services and international payments providing a wide range of services to financial institutions and corporations, including banknote foreign currency exchange, travelers' cheques, foreign currency cheque clearing, foreign currency bank drafts, Global EFT and international wire transfers through the use of EBC's innovative EBCFX web-based FX software www.ebcfx.com.