US/Mexico trade deal ignites broad risk-on rally

Summary

• USDCAD: Dollar/CAD is extending losses this morning after yesterday’s US/Mexico trade deal announcement spurred a broad “risk-on” rally.  The S&P rallied to a new all-time high, the USD saw sales across the board, and even the CAD rallied in hopes there’s a light at the end of tunnel now for Canadian negotiations as well.  Chart support in the 1.2950s held in Asian trade overnight, but another wave of broad USD selling in Europe sees us below the level now.  October crude oil appears to be struggling with chart resistance in the 69.20s.  We think the 1.2950 level is the level to watch today in our opinion.  Expect further selling if we stay below and a bounce should we regain it.  Canada’s Freeland heads to Washington today for talks.  More here from Bloomberg: https://www.bloomberg.com/news/articles/2018-08-28/markets-bet-canada-will-stay-in-nafta-as-trump-raises-pressure.

• EURUSD: Euro/dollar is building upon yesterday’s “risk-on” gains, but we’re stalling now at 1.1700 temporarily where Fibo resistance and options expiries reside for today (900mlnEUR).  USDCNH is struggling to bounce and hold gains above the 6.80 level, which helps EURUSD.  Expect follow-though buying all the way up to 1.1750-60 perhaps, should the 1.1700 level hold.

• GBPUSD: UK traders returned from holiday today and sold sterling after an attempt to break yesterday’s NY highs failed in Asian trade overnight.   Buyers have stepped in, however, at horizontal chart support in the 1.2860s and we’ve since seen a strong bounce back up to the 1.29 handle on broad USD weakness.  We wouldn’t be surprised to see a test of upside resistance in the 1.2925-40 today, especially if EURUSD marches higher again.  We think this is the level to watch today for sterling.  Any rally above there will likely start putting the screws to the extended fund short position. 

• AUDUSD: The Aussie is trading with a flat tone again this morning as the overnight fade of yesterday’s gains was erased by traders who bought the dip into 0.7320s support.  Copper has popped above resistance in the 2.72s.  We think AUDUSD could very well drift higher to chart resistance in the 0.7370s today.  Watch EURUSD for clues.

• USDJPY: Dollar/yen is trading range-bound again this morning, taking its cue so far this week from the broader USD tone rather than the traditional equities/yield spread drivers.  We think USDJPY marks time again today with broad USD selling being offset by broad JPY selling.  Around 1blnUSD in options expire today between 110.90 and 110.95.

Tune in @EBCTradeDesk for more real-time market coverage.

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

October Crude Oil Daily Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

USD/CNH Daily Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

EUR/GBP Daily Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

September Copper Daily Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

EUR/JPY Daily Chart

Charts: TWS Workspace

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.

Interested in creating a custom foreign exchange trading plan? Contact Us or call EBC's trading desk directly at 1-888-729-9716.