Yield spike sparks broad USD rally after NY option cut. Carney adds to GBPs woes with dovish comments. Canadian Retail Sales & CPI on deck.

Summary

• USDCAD: Dollar/CAD is entering NY trading this morning with a soft tone after failing to capitalize on some broad based USD gains in early European trade.  The 1.2660 resistance level was breached to the upside, but only briefly and the market is now trading back below it as traders await Canadian Retail Sales and CPI data out at 8:30amET.  Market chatter suggests yesterday’s sharp move higher in the broader USD was yield driven, and so we have our eye on US 10s this morning, but we would argue more of yesterday’s move was technically driven.  When support levels gave way in EURUSD and AUDUSD, it ignited a rush of USD buying across the board, and when Mark Carney gave the market some dovish comments that questioned the BOE’s rate hike narrative for May, it was just icing on the cake for those already long.  The technical picture for USDCAD has improved because of yesterday’s rally, but offers in the 1.2660s have to give way in a meaningful fashion before gains to the 1.27s become a reality.  Support today lies at 1.2640, then 1.2625.

• EURUSD: Euro/dollar continues to struggle after yesterday’s breach of the 1.2360s to the downside.  The market had the technical setup to rally into the 1.24s earlier this week but couldn’t do it and it took four downward attempts of this 1.2360 levels to have some longs finally bail.  Two attempts were made to regain this level (one in the afternoon yesterday and the other early this morning) but both failed and so this has given traders a reason to keep selling into the NY open today.  We’ve traded through support in the 1.2320s (this now becomes resistance) and the market is now testing the 1.2280-1.2290s support zone.  The EURJPY chart failed another breakout attempt above the 132.70s earlier today, and so that’s not helping the cause.  USDCNH is also firmly bid after yesterday’s inverted hammer candle (bullish candle).  We think EURUSD finds sellers on rallies now as the technical picture has turned a little sour.

• GBPUSD: It’s been an absolute disaster for GBPUSD longs this week.  We’ve had three negative headlines (weaker than expected wage growth, CPI, Retail Sales) and then we got some dovish comments from the BOE’s Mark Carney when he spoke with the BBC yesterday.  The headline the market reacted to was this: “I don't want to get too focused on the precise timing of the next hike”, and with that the market plunged 125 pts in short order.  Trading activity so far today has been relatively quieter compared to yesterday, but there’s still a negative tone as the market now grapples with what to do with the 1.4050-1.4060 support level.  We’re currently trading back below it after an attempt higher about an hour ago (which is not so great).  We think this is the key level today for sterling.  If we stay above it and we could bounce, but if we don’t we could drop another 50 pts easily.  Next support level is 1.4000-1.4010.

• AUDUSD:The Aussie chart took significant damage yesterday during the broad USD rally that ensued after the NY option cut.  The daily candle closed as a bearish reversal, which is as negative as it gets, giving traders an excuse to keep selling the pair in overnight trade.  The market is now testing the 0.7680-0.7700 support zone as we head into NY trade today.  We think AUDUSD could bounce here, especially if EURUSD does, but we would not be surprised to see sellers emerge at 0.7725-0.7740 (the support levels that broke yesterday). Copper is trading more or less flat today after a bout of profit taking yesterday.

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Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

EUR/CAD Daily Chart

EUR/USD Daily Chart

GBP/USD Daily Chart

AUD/USD 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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