AUD surge leads broad USD weakness into NY trading. Continued calm in European bond yields helping EUR. Brexit negotiations in focus for GBP traders this week.

Summary

• USDCAD: Dollar/CAD is starting the week with a soft tone as a AUD-driven rally overnight inspired USD selling across the board.  July crude oil made new swing lows in the European AM and that’s helping USDCAD find a floor.  We also have some trend-line support in the 1.2910 area that’s holding things up at this hour.  This week’s economic calendar features US Factory Orders today, US Services ISM tomorrow, Cdn Building Permits and US Trade Balance on Wednesday, and then the Cdn Housing Starts and Cdn Employment reports on Friday.  The net long USD (CAD short) position at CME shrunk in the week ending May 29 as new USD shorts (CAD longs) entered on the move back up to 1.3000 ahead of the Bank of Canada announcement.  Technical resistance today rests at 1.2925, then 1.2960 while support today lies at 1.2910, then the 1.2880s.  We think USDCAD trades range-bound today with any profit taking in AUDUSD and EURUSD likely to help, while any bounce in crude oil would likely offset that.

• EURUSD: Euro/dollar is up strongly this morning, inspired by relative calm in Italian and Spanish politics over the weekend, an AUD rally in Asia and then by a follow-through rally in Italian and other European assets earlier today.  European stocks are trading higher, Italian 2yr bond yields are back at 0.70% and the 10yr BTP/Bund spread is trading back down to +210bp.  All this is inspiring EUR shorts to cover in our opinion, which is allowing EURUSD regain some upward momentum above the 1.17 handle.  We say short covering because this is what has been driving EURUSD weakness of late, according to CFTC COT data.  Friday’s report showed shorts piling in as EURUSD breached 1.15 to the downside.  From a technical perspective, Friday’s rejection of the downside following upbeat US payrolls and a EUR negative piece from Reuters proved pivotal.   Today’s adventure into chart resistance in the 1.1720-1.1740 level is the next test for EURUSD in our opinion.  Close above and the prospects of an even larger EURUSD recovery increases.  Close below and the market will likely start a range-bound trading pattern anchored around the high 1.16-1.17 level.  The European calendar this week is Germany-heavy, with construction and retail PMIs on Wednesday, factory orders on Thursday and Industrial Production/Trade Balance figures on Friday.  Draghi cancelled his speech with Trichet tomorrow.

• GBPUSD: Sterling is trading higher this morning as well, riding the coattails of positive technicals from Friday’s session and broad USD weakness to start the week.  A recovery in EURGBP this morning is making trade a little choppy but GBPUSD has managed to breach trend-line resistance in the 1.3360s and then bounce again off the level after a downward test in London.  This now opens the door to a test of the 1.3420s (the next trend-line resistance level).  Both longs and shorts added positions during the week ending May 29, but longs more so, therefore leaving the market “longer” than it was the week before...all this as GBPUSD made new lows.   While this week will be quiet on the UK data front, we’ll likely have Brexit headlines to deal with as negotiations resume this week.

• AUDUSD: The Aussie is riding high this morning after upbeat Australian data (reported last night) followed a technically positive NY close on Friday.  Australian Retail Sales was the headliner, beating by 0.1% for April, and there were a couple of other small releases that contribute to GDP that also beat (which got traders excited about the Q1 Australian GDP report – which will be out tonight following the RBA rate announcement).  While no changes are expected from the RBA, everyone as usual will be watching the tone of their statement.  Copper prices are trading higher this morning as well (+0.9%) and the net short AUD position at CME grew to 23k contracts in the week ending May 29.  All this is helping AUDUSD today as the market now takes out chart resistance in the 0.7650 area.  Next stop is the 0.7670-80 level in our opinion.  Watch how EURUSD and copper respond to overhead resistance today.

• USDJPY: Dollar/yen is leaking lower this morning as US yields come off their overnight highs, but broad JPY weakness today is helping support USDJPY amidst USD selling pressure elsewhere.  Near term support is 109.40, then 109.15.  Resistance is 109.55-65.  The tiny net long USD (net short JPY) position at CME grew in the week ending May 29 as longs added and shorts covered...all this as USDJPY plunged lower into the 108s.  There’s nothing major on the docket out of Japan this week, leaving traders to focus on US yields, US/North Korea rhetoric leading up to the June 12 summit, and the broader “risk-on, risk-off” dynamic.

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Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

July Copper Chart

USD/JPY Daily Chart

USD/JPY Hourly 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.

Interested in creating a custom foreign exchange trading plan? Contact Us or call EBC's trading desk directly at 1-888-729-9716.