UK cabinet resignations rattle GBP, igniting broad USD strength over last 24hrs. Weak European data today + bounce in USDCNH/sell off in gold spur more USD buying. Quiet calendar today with Bank of Canada tomorrow.
Summary
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USDCAD: Dollar/CAD is drifting higher this morning after a broad USD rally (led by Brexit related GBPUSD weakness) saw the market recover back above trend-line support in the 1.3090s yesterday. That broad USD rally continued in Asia overnight when USDCNH bounced strongly off support in the 6.60 area, and it has picked up steam since the release of the UK Industrial/Manufacturing Production figures and the German ZEW Survey – both of which came in weaker than expected. Gold prices have also fallen swiftly today in Europe after a poor NY close yesterday, and this is adding to the positive USD theme. August crude oil is up modestly after some Norwegian oil workers go on strike (more here: https://www.reuters.com/article/us-global-oil/brent-leads-crude-prices-higher-as-norway-oil-workers-prepare-to-strike-idUSKBN1K0029), but there isn’t a panicky nature to the bid. Canada just reported June Housing Starts above expectations (248.1k vs 210k) and May Building Permits above expectations (+4.7% MoM vs. +0.1%). While the last 24hrs has produced a nice bounce in USDCAD, we think the market will struggle today at technical resistance in the 1.3130s, especially if dip buyers return in EURUSD and AUDUSD. Markets are still unanimously looking for a 25bp hike from the Bank of Canada when it announces its latest monetary policy decision tomorrow.
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EURUSD: Euro/dollar is giving back most of its breakout gains from late last week this morning; currently sitting right within the 1.1690-1.1720 support zone. Broad USD demand continues to be the culprit since yesterday morning, with a plunge in GBPUSD getting things going, followed by a breakout rally higher in USDJPY. Weak European data this morning (UK Industrial Production and German ZEW) and now a USDCNH rally/gold sell off is adding to the negativity. Today’s North American calendar is light, with just the ECB’s Lautenschlager speaking at 1pmET. We think the momentum could swing higher once again in EURUSD should the market regain the 1.1730s. Note that Trump is now en-route to Europe for the NATO summit: https://www.nato.int/cps/en/natohq/news_156597.htm
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GBPUSD: Sterling crashed 150pts off its highs yesterday after the UK’s Foreign Secretary Boris Johnson resigned from Theresa May’s cabinet in the aftermath of the Brexit meeting at Chequers. This sent GBPUSD into a tailspin as rumors of a Tory party rebellion starting spreading. By mid day, rumors of a confidence vote to oust Theresa May emerged as well and GBPUSD was trading all the way back down at trend-line support in the 1.3180s. Pro-Brexit lawmaker Rees-Mogg saved the day again (just like he did the night before after the David Davis resignation) by saying no confidence motion is expected, and with that GBPUSD was able to regain the 1.3250s support level (preventing a bearish outside day pattern) into the NY close. The market rallied higher to retest a Fibo resistance level in the 1.3280s, but then fell back swiftly after the weaker than expected UK Industrial/Manufacturing Production figures for May were reported. The UK also reported May Trade Balance and GDP figures, which were reported in-line with estimates. With EURGBP failing to break out above the 0.8900 level yesterday, we think GBPUSD waffles around here for a bit, but ultimately regains its composure. A strong close above the 1.3280s would help. Markets are now eyeing the release of Theresa’s May Brexit White Paper on Thursday. More here: https://www.irishtimes.com/news/world/uk/brexit-timeline-key-dates-in-uk-s-divorce-with-eu-1.3559319
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AUDUSD: The Aussie has finally succumbed to broad USD buying this morning, after hanging in there relatively well yesterday. The overnight releases of Chinese June CPI (in-line with estimates) and the Australian NAB Survey (slightly weaker than consensus) were non events. AUDUSD traded lower in lock step with EURUSD during early European trading and the market is trying to find a bid now in the 0.7430s. Support today is 0.7425, then 0.7415. Copper is trading lower again today after bouncing higher yesterday. We think dip buyers return in AUDUSD so long as the 0.7415 level holds.
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USDJPY:Dollar/yen broke out to the upside yesterday, driven by a perfect combination of “risk-on” sentiment (strong equities/rising yields) and a broad USD rally that was instigated by a surprise UK cabinet resignation. Yesterday’s rally extended to trend-line resistance in the 110.90s. That level then gave way in Asia overnight and the market continued to rally in Europe in search of the next resistance level (which we would we argue is the 111.40-50 area). We’re seeing some selling here now just shy of this resistance as EURUSD bids come in and talk of a 111.50 barrier option make the rounds. We think we may see some consolidation today in the 111.10-30 area.
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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.