Trump/Powell meeting brought out some dovish rumors yesterday

SUMMARY

ANALYSIS

USDCAD

Dollar/CAD resumed lower in NY trade yesterday after President Trump tweeted about a meeting he had with Fed chairman Powell.  He tweeted: 

“Just finished a very good & cordial meeting at the White House with Jay Powell of the Federal Reserve. Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc.”  

We think the fact that “negative interest” and “easing” were discussed, along with this being an impromptu meeting (Trump summoned Powell) at the President’s personal quarters within the White House, was enough to the get wheels churning in the minds of the rate cutting doves.  A well-known FX blog speculated that Trump may have wanted to prepare Powell for something on China (prepare him for Trump blowing up the China trade deal or gauge Powell’s reaction to the thought of going down that route).  US 10yr yields fell further to the 1.80% level in response, taking the broader USD and USDCAD down with it.  

We got a bit more clarity from President Trump in the Asian session last night when he tweeted: “At my meeting with Jay Powell this morning, I protested fact that our Fed Rate is set too high relative to the interest rates of other competitor countries. In fact, our rates should be lower than all others (we are the U.S.). Too strong a Dollar hurting manufacturers & growth!”.  US yields and the broader USD then found a bid.  Perhaps the rumor mill had gotten a little tired by that point?

We saw some volatility in AUDUSD surrounding the release of the RBA Minutes in the overnight session.  This led to some wobbles for USDCAD, but for the most part we’d argue this market has been under pressure ever since slipping back below the 1.3220s.  We just got a dump of 2nd tier economic data out of the US and Canada, with USDCAD falling a quick 20pts during the 10mins leading up to the 8:30amET release (was the Canadian data leaked?):

US Housing Starts (Oct) 1.314M vs 1.32M exp (MISS)

US Building Permits (Oct) 1.461M vs 1.385M exp (BEAT)

Canadian Manufacturing Sales (Sep) -0.2% MoM vs -0.6% exp (BEAT)

The USDCAD market is now bouncing off chart support in the 1.3180-90s.  Next up is the Fed Williams, who is now giving some remarks at the SIFMA annual meeting.  After that, we’ll get a speech from the Bank of Canada’s Wilkins at 1:15pmET at the International Finance Club of Montreal.

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DEC CRUDE OIL DAILY

EURUSD

Euro/dollar has traded very quietly in the overnight session, but much like gold prices it continues to hold half its US-yield driven move higher from yesterday.  Another 1.4blnEUR in options expire at the 1.1055 strike this morning, which doesn't seem to be influencing spot prices for now.  All eyes are now on remarks from Fed member Williams.  After this, we think the attention will quickly turn to pound sterling and the televised UK election debate, which will be occurring at 3pmET.

EURUSD DAILY

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DEC GOLD DAILY

GBPUSD

It’s debate day in the UK, with Boris Johnson and Jeremy Corbyn expected to go head-to-head in the first televised debate of the 2019 UK election campaign, hosted by ITV at 3pmET.  See here for a preview from CNN.  Sterling has pulled back so far today, which could simply be GBP longs taking some chips off the table here in the event PM Johnson doesn’t do well.  Expect the UK election polls to update quickly after the debate.  We’ll post a live link @EBCTradeDesk on Twitter later today.

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EURGBP DAILY

AUDUSD

The Australian dollar had a rough go at it in early Asian trade last night, and we think this first started with a NY close back below 0.6815.  This put the sellers back in charge  in our opinion, and made the market susceptible to the dovish sounding RBA Minutes that came out later.  Full release here from the RBA.   Widely followed RBA watcher, Terry McCrann from the Herald Sun, however then released an article that challenged the market’s dovish reaction to these headlines, saying some have “misinterpreted” the minutes of the meeting.  See here.  We can’t say we’re all that surprised to see AUDUSD now all the way back above the 0.6815 level again, because we’ve seen McCrann move this market before.  We now sit just shy of chart resistance in the 0.6830s, above which not much else resides until the 0.6870s.

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USDCNH DAILY

USDJPY

Dollar/yen managed to hold the 108.50s during Asian trade last night, which we think is giving the fund longs a sigh of relief here.  BOJ governor Kuroda denied saying the Japanese central bank had unlimited tools to easy policy (we don’t know why he said this, but it wasn’t market moving).  Large option expiries are in play today for USDJPY, with 1blnUSD going off the board at strikes in the 108.50s and the 108.90s, and so we think the market could become a bit more fluid after 10amET.  US 10yr yields bounced off the 1.80% level yesterday, rallied a bit to 1.83% in early European trade today, but have receded again back to the 1.80% handle into the NY open.  A break below this level would not be good, technically-speaking, in our opinion.  We think traders need to be an guard for something negative on the US/China trade or UK election front, or something dovish out of the Fed.

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

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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