Bearish oil inventory data has USDCAD knocking on resistance levels once again
Summary
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USDCAD: Dollar/CAD ended the day strongly yesterday, led by broad based USD strength, another precipitous decline in oil prices following bearish EIA inventory data, and some hawkish sounding FOMC minutes. The market closed above trend-line resistance in the 1.3010-15 region, which allowed for further gains in overnight trade. Resistance in the 1.3050s appears to be capping price so far today, but we seem to be finding buyers on dips in Europe. Crude oil is extending losses this morning as commodity traders scramble to find support. The US Philly Fed survey for October was just reported +22.2 vs +20 expected. We think USDCAD could continue higher today if we break above the 1.3050s, but we could very well range as well as USD longs and crude oil shorts look a little tired here, plus traders have some big Canadian data points out tomorrow to think about (Retail Sales and CPI).
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EURUSD: Euro/dollar is bouncing mildly this morning after traders clawed the market back above trend-line support at the 1.1500 level. Yesterday’s action was anything but pretty as traders had to deal with negative developments from Brexit, then from the EU (European commission set to reject Italian budget, according to Speigel), then from widening BTP/Bund spreads, and then of course from the Fed’s minutes (US rates still set to rise at a gradual pace). The PBOC’s decision to fix USDCNY higher today could have made things a lot worse for EURUSD here in our opinion as USDCNH now looks poised to make new highs, but a sharp bounce in GBPUSD this morning (more below) and a 1.2bln option expiry at 1.1500 seems to be saving the EUR for the time being. Next support is 1.1460. Resistance is now 1.1525. We think EURUSD shorts remain in control sub 1.1560-80.
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GBPUSD: Brexit continues to be the dominant driver for GBPUSD, with yesterday’s lack of progress in Brussels spreading fears that EU leaders are increasingly preparing for a “no-deal” outcome. GBPUSD held support at the 1.3100-1.3110 area during North American trade yesterday, but then we gapped lower at the start of Asian trade, which we think set the market up for a bounce going into Europe. The talk behind the sharp bounce this morning was that Theresa May is now considering the idea of extending the “transition period” as a way to reengage EU negotiators, but we think traders used that as an excuse to fill yesterday’s 5pm chart gap. We now have support turned resistance, however, at the 1.3120s along with further market chatter that Theresa May really doesn’t want to accept this option and that it would be political suicide for her. The UK reported September Retail Sales today below expectations (-0.8% MoM vs -0.4%), but the market shrugged it off. We think GBPUSD chops around here until the technical horizon gets a little clearer. A break below the 1.3080s would invite selling to the 1.3030s. A close back above 1.3130 would invite buying back up to the 1.3200 level.
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AUDUSD: The Aussie is enjoying a bid this morning, after traders looked passed the miss on headline Australian job gains last month (+5.6k vs +15k expected) and instead focused on the impressive drop in the unemployment rate (5.0% vs 5.3% expected). AUDUSD has regained most of the losses from NY trade yesterday, but we’re still trading within the 0.7100-0.7160 range. Traders appear to be ignoring copper’s 1.3% decline this morning. We think the entrenched fund short position will become vulnerable should the market break out of this range to the upside.
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USDJPY: Dollar/yen rallied strongly yesterday after a brief pullback around the US cash equity open. The market managed to break above chart resistance in the 112.30s as US stocks roared back into the green for the day. While it appeared fund longs used this move as another chance to get out (further liquidation of 2269 contracts at CME yesterday), we think they can breath easier today with USDJPY now trading above 112.30. Tomorrow’s 1.1blnUSD option expiry at 112.50 might keep us bid as well. Continue to watch US stocks for direction.
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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.