• Financial Institutions
  • Corporations
  • Travelers
  • SOLUTIONS
  • Foreign Bank Note Exchange
  • International Drafts
  • International Wire Transfers
  • Global EFT
  • Foreign Check Clearing
  • Foreign Draft Issuance
  • INDUSTRIES
  • Travel
  • Technology Companies
  • Payroll
  • Healthcare
  • Nonprofit
  • Partnerships

US govt shuts down. Key vote at noonET. BOJ on deck tonight for JPY traders. NAFTA talks resume tomorrow.

CXI January 22nd, 2018

Summary

  • USDCAD: Dollar/CAD is starting the week with an offered tone as the broader USD trades lower.  The US government officially shut down late Friday and lawmakers failed to come together for a vote scheduled at 1am this morning, instead pushing it back to 12pm noon today.  This saw the broader USD gap lower to start trading against many currencies.  That gap filled going into 1am, and then the USD resumed its offered tone throughout early European trading.  Friday’s late day rally in USDCAD was positive technically, but trend-line resistance at 1.2500-1.2510 reasserted itself, and so we’re still in a bit of a trading range until this level gives way.  Trend-line support comes in today at 1.2430-1.2440.  EURCAD is looking a whole lot better technically after Wednesday’s Bank of Canada reversal lower.  Buyers are back in control here so long as 1.5240-1.5250 holds.  GBPCAD continues to rally (now working on its 11th up day in a row, but it’s been all GBP driven here).  Traders will be glued to the newswires this week as the 6th round of NAFTA talks resume tomorrow and will go until Jan 29.  The Canadian economic calendar is light to start the week, with Nov Wholesale Trade Sales out today.  We get Canadian Nov Retail Sales Thursday and Canadian Dec CPI on Friday.  For today however, we feel the US Senate vote at noon and the broader USD reaction will set the tone.  A move above resistance would invite a test of 1.2550, possibly higher.  A move below support today would invite further selling into the low 1.24s.  The latest read on speculative futures positioning from the CFTC shows the market steadily accumulated positions since the holidays, but it’s been even split between new longs and shorts, which left the net USD short (CAD long) position pretty much unchanged week-over-week going into Jan 16.  This net USD short position, however, it still well below where it was the last time the market was in the 1.24s (October).  This helps the USDCAD bear argument in our opinion.

  • AUDUSD: The Aussie didn’t have a great NY close on Friday, following the EUR lower as traders were optimistic about a resolution to the US government shutdown on Friday.  Since that did not occur, AUD is bid to start the week along with everything else.  The 0.8030s becomes the new line in the sand for resistance (Friday’s high) and near-term support is now 0.7970-0.7980 (Asia lows and trend-line support).  Copper is trying to recover here after Friday’s intra-day move lower, but it’s still running into chart resistance.  A firm NY close above 3.22-3.2250 here would invite buyers back in our opinion (which would be AUD supportive).  With another very quiet Australian data calendar this week and the Australia Day holiday on Friday, we feel AUDUSD will again trade off the broader tone in the USD and base metal prices.  The net AUD long position extended slightly in the week ending Jan 16th, largely on the back of short covering, but with the over 100 point rally higher in AUDUSD from Jan 9th to Jan 16th (reporting period for CFTC), it was not as much as we expected.  This helps the bullish argument for AUDUSD in our opinion as a sizable AUD short position continues to lose money and will eventually need to cut losses by buying AUDUSD.

  • EURUSD: The Euro is starting the week with a bid tone, but activity has been subdued.  EURUSD gapped up slightly to start, on the back of the successful German SPD vote (party will form coalition with Merkel) and the impasse with regard to the US government shutdown, but it has settled into a tight trading range now as NY trading gets underway.  Trend-line resistance comes in today at the 1.2260s.  Support checks in at 1.2210-1.2220.  This range needs to break before we get more directional, and traders will be watching the US Senate vote later today.  The focus this week will be the ECB monetary policy decision on Thursday, and what Mario Draghi says in his press conference afterwards.  As we mentioned Friday, we feel there is a risk of Draghi sounding dovish, but he’s going to have his work cut out for him as recent European data has been good.  On the data front, traders will be watching the German ZEW survey tomorrow, Euzozone manufacturing and services PMIs Wednesday, and the German IFO survey on Thursday.  The key items on the US data calendar come out later in the week: US Trade Balance on Thursday and Q4 Advance GDP/Dec Prelim Durable Goods on Friday.  The latest read on speculative futures positioning from the CFTC shows the market accumulating exposure for the 6th week in a row, with shorts adding a bit more than longs in the week ending Jan 16th.  This leaves the net EUR long position slightly off recent highs.  Option traders continue to report interest in longer term upside calls (post Italian elections), with 1 year risk reversals now trading at a 10yr high (EURUSD bullish).  USDCNH regained the 6.40s in overnight trade (which is slightly EURUSD negative). 

  • GBPUSD: Sterling didn’t have a great NY close on Friday, but it managed to hold important chart support at 1.3840-1.3850, keeping buyers in control.  GBPUSD had a bid tone in overnight trade as the broader USD come off and it sits range-bound to higher now like EURUSD awaiting the US Senate vote.  The positive German political news should have been supportive EURGBP, but it’s not so far in today’s trade and so that’s helping GBPUSD a bit here.  The chart technicals for EURGBP continue to look soft since last Wednesday’s breakdown.  GBPJPY has found buyers again too, after a corrective dip into the 153s on Friday.  So GBP continues to enjoy a bid across the board here.  On the data front, we get the UK employment report on Wednesday and Q4 Advance GDP on Friday.  BOE Governor Mark Carney is also expected to speak at a panel in Davos on Friday.  The latest read on speculative futures positioning from the CFTC shows traders largely sitting on their hands despite the 250 point rally higher from Jan 9th to Jan 16th.  Both GBP shorts and longs reduced exposure slightly, leaving the net GBP long positions more or less unchanged at +26k contracts.  We find this a bit perplexing and will monitor closely.

  • USDJPY: Dollar/yen managed to hold 110.50 in Friday’s trade and that level continues to hold to start the week.  Trend-line resistance checks in today at 110.85-110.90.  US yields are trading at yet another swing high (2.65 this morning), but it’s not helping USDJPY that much.  What’s more worrisome here is the latest read from the CFTC on speculative futures positioning going into Jan 16th.    It shows only some mild JPY short covering, despite the 2.5% plunge in USDJPY over the reporting period (Jan 9th to Jan 16th).  This means the entrenched net USD long (JPY short) position continues to take heat.  This helps the USDJPY bear argument as this position will eventually need to cut losses by selling USDJPY.  There’s been some broad JPY selling to note overnight, and that is helping USDJPY a little bit.  The big event of the week for JPY traders is the BOJ meeting tomorrow (overnight tonight our time).  We expect Governor Kuroda to remain very dovish and to try and dial back some of the QE taper speculation that hit USDJPY earlier this month.  We’re at a very important level in USDJPY on the charts.  Should he fail to make JPY shorts feel more comfortable, we see an attack of 110 as a possibility.     

Market Analysis Charts

USD/CAD Chart

AUD/USD Chart

EUR/USD Chart

GBP/USD Chart

USD/JPY Chart

USD/CNH Chart

EUR/GBP Chart

Charts: TWS Workspace


About the Author

Erik Bregar

Erik Bregar - Director, FX Trading

linkedin

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 1-888-728-4918.


About Exchange Bank of Canada
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.

Disclaimer: All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.

This publication has been prepared by Exchange Bank of Canada for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Exchange Bank of Canada, its affiliates or any of their employees incur any responsibility. Neither Exchange Bank of Canada nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Exchange Bank of Canada products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Exchange Bank of Canada.