US yield rise continues to drive broad USD strength. Quiet calendar today. ECB tomorrow and BOJ early Friday.

Summary

• USDCAD:Dollar/CAD has resumed its march higher this morning after a lackluster trading session yesterday, and the driver again is US yields.  The yield on the US 10yr note traded above 3% in overnight trade and that prompted a resumption of USD buying across the board.  The move has so far taken USDCAD through the chunky resistance zone of 1.2840-1.2875, which now opens the door to an upward test of the 1.2895-1.2925 level.  EURCAD and GBPCAD are going along for the ride as well, but both cross face some overhead chart resistance about 10-15pts above current levels.  June crude oil is helping the cause this morning as well, trading with a softer tone after a bearish engulfing candle for yesterday’s trade and a larger than expected build in API inventories last night.  The weekly DOE inventory report is out later this morning at 10:30amET.  We think USDCAD continues to have legs here so long as the 1.2870s hold today.

• EURUSD: The Euro is trading with negative tone as we enter NY trading today, despite what was arguably a half decent close yesterday.  US yields resumed their move higher overnight, and more importantly USDCNH broke out to the upside again.  This could be a major negative development for EURUSD in the days ahead, especially considering the event risk on deck for tomorrow with the ECB meeting.  Should USDCNH make a run for its next major resistance level in the 6.35s, we could very easily see EURUSD trade much lower from here.  With EURUSD now trading below its trend-line support channel (1.2205-1.2230), the trend is down but the only thing seemingly keeping EURUSD from plunging here are some more option expiries (1.7bln between 1.2190-1.2220 today and 3bln+ at 1.2200 for tomorrow).  The ECB monetary policy announcement is out tomorrow at 7:45amET, followed by a press conference from Mario Draghi at 8:30amET.

• GBPUSD: With EURGBP still stuck in a trading range, GBPUSD continues to ebb and flow with the EURUSD for the moment.  The market closed right at overhead resistance yesterday (1.3970-85).  An attempt was made in Asian trade to burst above it, but when that move higher fizzled quickly, it gave sterling traders another excuse to keep selling.  When EURUSD selling and USDJPY buying picked up steam, so did the selling in GBPUSD.  While the tone is negative going in the NY open, yesterday’s lows haven’t broken yet and EURUSD is not yet falling apart (for reasons we postulated above).  The next major support level in GBPUSD is 1.3890.

• AUDUSD:The Aussie is entering NY trading this morning in rough shape.  The 0.7620s were tested to the upside yesterday during NY trading but the attempt failed miserably, and when you combine its lackluster NY close with the broad USD buying that ensued overnight, there was really nothing to hold this pair up.  The chart structure remains poor, with no real support until the low 0.75s.  USDCAD traders should take note of this given recent inverse correlations.

• USDJPY:So goes the US 10 year yield, so goes USDJPY of late.  The market bounced off support in the 108.70s yesterday after a swift sell off in stocks, and that led to decent NY close that traders could build upon when broad USD buying picked up steam overnight.  With US yields now trading above 3%, USDJPY is looking comfortable at its next resistance level in the 109.20s.  S&P futures are off their European lows, which is also helping the cause.  The next major resistance level is in the 109.50s.  The BOJ meets late Thursday/Friday morning.

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Market Analysis Charts

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EUR/USD Daily Chart

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AUD/USD Daily Chart

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USD/CNH Daily Chart

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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.

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