US reports +3.5% GDP growth for Q3, beating estimates, but price indexes miss.
Summary
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USDCAD: Dollar/CAD is up strongly today after traders managed to push the market back above the 1.3070 level yesterday. This upward sloping trend-line level held into the NY close and formed the base for renewed buying in Asia when the PBOC increased the USDCNY fix ever so slightly above 6.95 for the first time in 10yrs. This made for a bearish headline we feel and intensified the “risk off” tone to global equities after Google and Amazon reported disappointing quarterly results after the US close. The S&Ps and the Nikkei weakened further, USDCNH shot up into the 6.97s, JPY demand came in, and the USD caught a broad bid, especially against commodity currencies. USDCAD vaulted to the next resistance level around 1.3110. Then we saw more EURUSD and GBPUSD sales come in during London trade as Italy and Brexit sentiment continues to sour. Another slew of weak European earnings results added to the woes for US stock futures. Crude oil extended losses to down 1% for the session. USDCAD has now risen up to the next trend-line resistance level in the 1.3140s ahead of a Friday NY session which features the first look at US GDP for the 3rd quarter. It’s amazing what a difference 48hrs makes in markets, with the fund longs now firmly back in control after the scary depths of the hawkish Bank of Canada decision earlier this week. We think USDCAD could extend gains here towards the 1.32s should the 1.3140s hold and AUDUSD take out the 0.7020s. The US just reported Q3 GDP at +3.5% vs +3.3% expected, but the GDP price indexes missed estimates, which appears to be concerning USD longs here a little bit (puts a slight dent in the Fed’s rate hiking narrative).
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EURUSD: Euro/dollar is bleeding lower again this morning as the global “risk off” mood to markets today lifts the USD broadly. We think all the Mario Draghi bashing out of Italy today isn’t helping. The ECB president concluded yesterday’s post meeting press conference with a reminder that Italy is on it’s own effectively. DRAGHI: NOT ECB'S JOB TO MEDIATE IN ITALY BUDGET STANDOFF. He also commented that the Italian bond selloff will hurt the capital of the nation’s banks. Today we got comments from Italy’s Bagnai that it was improper for Draghi to issue warnings over Italian banks; from Italy’s Borghi that Draghi should stop talking about Italy leaving the Euro and that the ECB talking points about possible problems at Italian bank could cause more problems; and from Italy’s Di Maio that Draghi’s comments are “poisoning the climate” for Italy. The BTP/Bund yield spread trades steady around the +317bp mark. S&P is set to update markets on its credit rating for Italy later today. We think a downgrade with outlook stable (like the Moody’s decision) is the best possible outcome. A downgrade with outlook negative will likely see the market fall apart when it reopens on Sunday night. The next major chart level is 1.1300 (Aug 15th low), followed by 1.1250. USDCNH has pulled off its highs yet again as the PBOC reminded markets that it’s set to intervene if the Yuan drops below 7.00. It also warned Yuan short sellers saying China has fought them before and that they’re very familiar with them.
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GBPUSD: Sterling has traded down to the next support level we talked about yesterday on Twitter (1.2780s), with traders largely following EURUSD again this morning. It looks like some shorts are covering here as the US GDP figures come out. Yesterday’s depressing headline about Brexit talks being on hold, because Theresa May’s team cannot agree on the path forward, is certainly not helpful for GBP sentiment at the moment. We think the fund short position remains in charge here, and postulate that the position has increased in size once again as the shorts, who covered on the lead up to the EU summit, re-enter.
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AUDUSD: The Aussie is not having a good morning today (-0.7%), after yesterday’s late day sell off in US stocks put an end to the mid-day short covering rally in AUDUSD and dragged the market back below support in the 0.7080s. Add to this the pop higher in USDCNH overnight and the risk off mood that is gripping global equities and commodity prices this morning, and you have a fund short position that feels emboldened here. Trend-line support in the 0.7020s is holding up prices for now, as is, what looks like, a mixed US GDP report for Q3.
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USDJPY: Dollar/yen is trading down today, as one might expect with the global risk-off mood to equities this morning, but buyers at 111.90 held the line once again and stock futures have shot up 10pts here, focusing on the headline beat in the US GDP report it seems. The USDJPY charts have turned into a mess this week, as traders duke it out in the 112 handle. We think this muddies the technical outlook into next week, but we think the fund long position will hang in there so long as we stay above 111.50-111.90.
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About the Author
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.