Brexit agreement in the UK "closer than it was yesterday". GBP gains leading broad USD selling this morning.
Summary
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USDCAD: Dollar/CAD is trading with a soft tone this morning as the broader USD moves lower in reaction to the latest Brexit headlines out of the UK. Trend-line chart resistance in the 1.3230s from last week continues to cap prices but the further plunge in oil prices (now down 11 days in a row) is helping to keep CAD on the defensive across the board. This week’s economic calendar is on the relatively light side, with US October CPI (tomorrow) and US October Retail Sales (Thursday) being the focal points in our opinion. The speculative funds trimmed longs and added to shorts during the week ending Nov 6th, bringing their net long USD (CAD short) position to its lowest point so far this year. We think improved chart technicals, positive November seasonals, and the reduced number of USD funds longs will continue to help USDCAD here. While an eventual bounce in crude oil prices may pressure the market this week, we think the USDCAD longs will remain in control so long as we stay above the 1.3180s.?
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EURUSD: Euro/dollar is bouncing this morning after an awful start to the week which saw chart support at 1.1300 break yesterday. Today’s optimism appears to be GBP driven, because there haven’t been any positive developments on the Italian budget front ahead of the EU’s revision deadline today; the German ZEW survey disappointed, and the BTP/Bund bond yield spread has edged higher to +310bp. Reports of intervention from Chinese state-owned banks in USDCNY overnight (Yuan buying) have knocked down the upward momentum in USDCNH today, and while we think this helps EURUSD here a little bit, we continue to watch GBPUSD as it appears to be the driver of price action right now. This week’s European economic calendar features German and Eurozone Q3 GDP figures (tomorrow), and Eurozone October CPI (Friday). The speculative fund community added to short positions for the third week in a row during the week ending Nov 6th. We think the shorts will remain in control sub 1.1320.
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GBPUSD: Sterling is leading the USD sell programs this morning as the latest flurry of Brexit headlines have been positive. According to a UK government source, a Brexit agreement amongst UK cabinet ministers is “closer than it was yesterday.” This headline has been enough to see GBPUSD close its Sunday opening gap on the charts in the 1.2950s, and EURGBP plunge back below the 0.8700 level. All eyes are now glued on Theresa May to see if she can revive hopes of a November Brexit summit with the EU. The UK reported higher than expected wage growth in today’s October employment report, and the UK reports October CPI tomorrow and October Retail Sales on Thursday, but traders continued to be focused on the barrage of Brexit headlines. Leveraged funds trimmed long positions in GBPUSD during the week ending Nov 6th, and amazingly the short position remained largely unchanged after a 300+ point bounce in the market. We think the 1.2950s will be the pivot for price action early this week. If we manage to stay above, traders will likely be on edge for positive Brexit headlines, whereas trading back below this level will be technically negative.
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AUDUSD: The Aussie in bouncing this morning as well, and while the latest GBPUSD rally is helping AUDUSD too, the bulk of today’s price gains came in Asian trading overnight after it was reported that Chinese vice-premier Liu He was going to visit the US for trade talks. The fall in USDCNH after the intervention headlines also helped in our opinion. AUDUSD now sits just shy of the 0.7210s (last week’s support turned resistance). Copper prices surged higher earlier today, but the price spike appears to be flow driven because the gains quickly unraveled. Australia’s economic calendar for the week started with a slightly weaker NAB Confidence survey for October. Tonight will see the release of the Westpac November Consumer Confidence survey and the Q3 Wage Price Index. The October employment report will be the feature this week, and it will be reported Wednesday night at 7:30pmET. We think AUDUSD may likely range trade here given the technicals for EURUSD, but we’d be on the lookout for another push higher should the 0.7230s give way. December through April also marks the best period of the year for Australian dollar appreciation, if we look at 20yr seasonal data.
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USDJPY: Dollar/yen is bouncing today, after yesterday’s tech driven equity sell-off has been cancelled out by some risk-on sentiment (positive China trade headlines) and broad based, GBPJPY driven, yen selling. Trend-line chart support in the 113.50s held overnight, but it appears horizontal resistance in the 114.10s is capping for now. This week’s Japanese economic calendar is uneventful. The funds added marginally to both long and short positions during the week ending Nov 6th, leaving the net long USD (short JPY) position largely in the same place it’s been for most of October. We think the market’s ability to hold gains, despite the immense volatility in equities over the last week, speaks volumes to the market’s technical strength here, but we think the longs need to hold the 113.50s in order for the rally to eventually continue.
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About the Author
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.