USDJPY continues to lead broader USD lower, but reversal in the works. UofM survey on deck. Long weekend ahead of North American markets.

Summary

• USDCAD: Yesterday turned out to be disappointing for those hoping for a recovery in USDCAD, as the market failed hold the 1.2510-1.2520 area into the NY close.  Resumed USDJPY selling was the culprit as it dragged the broader USD lower towards the end of the day.  The weak NY close opened the door for further selling overnight back below Fibo and trend-line support (1.2470-1.2480).  We hit a low of 1.2450 in early European trading, but have since bounced strongly back above 1.2470-1.2480 as the USD bounces strongly against EUR, GBP, AUD and JPY.  EURCAD and GBPCAD are succumbing to selling today after testing trend-line channel resistance levels again overnight, but it’s not hurting USDCAD all that much at this hour.  Should USDCAD maintain its momentum here, we could very well see a retest of 1.2510-1.2520, possibly higher (1.2550).  That would also mark a bullish outside reversal higher (if achieved).  Today’s US data calendar is light, with just the University of Michigan sentiment survey at 10amET.

• AUDUSD: Dip buyers proved themselves yesterday in the Aussie, stepping in to buy the market when it pulled back to 0.7900-0.7905.  The broad USD selling that followed USDJPY moving back below 106.50 allowed AUDUSD to rally back above trend-line support at 0.7915, and that positive setup allowed gains to continue overnight.  AUDUSD finally tested the 0.7970s, broke above it briefly and then swiftly moved back below it.  AUDUSD is now back in sell mode ever since that negative intra-day pattern occurred (4am hour).  The large option expiry today at 0.7950 has grown to 2bln+ plus AUD notional, so this will likely be a magnet for the market until 10amET.  The RBA’s Lowe spoke in Australian parliament overnight, but he didn’t say anything that deviated from the dovish tone of recent RBA policy statements.  Support today rests at 0.7915-0.7920, then 0.7885-0.7900.

• EURUSD: The Euro looked like it was going to finally see some selling mid-day yesterday when USDJPY attempted to regain 106.80, but that all reversed course as USDJPY sold off again.  EURUSD was able to swiftly regain the 1.2470s, giving it the renewed momentum to attack the 1.25 handle again, which it did into the NY close.  This very positive NY close, in turn, gave traders in Asia an excuse to push the markets higher still, and they did so (in thinner than normal market conditions we might add because of the Lunar New Year holidays and numerous other Asian market closures).  USDJPY broke 106 to the downside and this added fuel to the rally.  Then USDJPY found a bid at weekly support in the 105.50s, EURUSD touched 1.2550 (a new swing high) about an hour later (but with not much momentum) and then EUR sellers stepped in en masse.  The 1.2470s is getting attacked now with downward momentum as USDJPY regains the 106 level.  There are a slew of options expiring at 10amET today (1.3bln EUR 1.2445-1.2470 and 2.5bln EUR 1.2500-1.2515).  All this might keep EURUSD heavy going into 10amET, but then we should truly see how the market wants to close out the week ahead of a long weekend.  Should the 1.2470s give way again, we don’t see buyers stepping in this time until the 1.2420s.  Should we close back towards the highs, that would bode well for EURUSD going to next week.  The momentum is negative as this hour however and EURJPY selling is not helping.  USDCNH held trend-line support at 6.27 overnight and bounced (another EURUSD negative).

• GBPUSD: Sterling continued higher in Asian trade overnight, after a stellar finish to the NY session yesterday. (market regaining 1.4060s gave GBPUSD renewed momentum + the EURUSD rally and the USDJPY selloff).  Everything has reversed course now as USDJPY found a bid at 105.50 and reversed higher and EURUSD reversed lower.  The GBPUSD high overnight in the 1.4130s also coincided with trend-line resistance.  The market now sits in a bit of a “no-man’s land” between 1.4010 (support) and 1.4060-70 (resistance).  UK Retail Sales for January missed expectations (coming in at just +1.5% YoY), and that is dampening the mood for GBP as well.  EURGBP is not providing much guidance today as it’s now stuck between two trend-lines (0.8870-0.8890).

• USDJPY: Dollar/yen continues to be the driver of FX markets and the broader USD this week, and the 300point+ decline continued overnight when 106 gave way.  Again, all this is happening, we feel, because of a broadly weaker USD, an entrenched USD long (JPY) short position that continues to lose money, a BOJ that has lost control of monetary policy, and more importantly because the chart technicals are allowing it.  As we’ve covered here before, when the market broke 108 to the downside and then 107.40, there was no support until the 104-105s.  Traders decided to stop the selling overnight at the 105.50s funny enough, which is the October 2016 highs.  It’s not great support, but it seems to be working for now.  With the USD now reversing higher against the EUR, GBP, AUD, CAD and everything else, this is giving USDJPY traders an excuse to extend the bounce further.  A NY close above 106.40-50 today would be mildly positive.  JPY futures traders added 5k contracts in new positions yesterday.  Today’s CFTC COT report (released later this afternoon) will tell us how futures traders were positioned going into the fall to 107.40 (Feb 13^th close).

Market Analysis Charts

USD/CAD Chart

AUD/USD Chart

EUR/USD Chart

GBP/USD Chart

USD/JPY Chart

USD/CNH Chart

EUR/JPY 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.

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