EUR recovers as Italy auctions off bonds without a hitch. USDCAD weaker into BoC rate decision as 1.3025 resistance caps. USDJPY higher as US yields and global risk sentiment recovers.

Summary

• USDCAD: Dollar/CAD is weaker this morning as EURUSD recovers in European trade.  Yesterday’s failure to close above 1.3025 (a key level we mentioned) also proved pivotal, and so USDCAD has come off here looking for support in the mid-high 1.29s.  Today’s economic calendar features the US ADP Employment Report (just reported +178k, below estimates of +190k), followed by the 2^nd read on US GDP (just reported +2.2% vs. +2.3% expected/initial read).  Then of course we’ll get the Bank of Canada interest rate decision at 10amET.  No change is expected by traders and it’s also important to note there will be no press conference following this announcement.  Later today, markets will be eyeing the Fed’s Beige Book at 2pm.  With a sense of relative calm returning to Italy today and a recovery in EUR and the broader “risk-on” tone, we think USDCAD may leak lower still.  Chart support today checks in at 1.2955-65, then the 1.2930s.  We’re not expecting any fireworks out of the BoC, especially considering there’s no press conference this time around.  July crude oil is trading back above the 67 handle but the move is lacking momentum.

• EURUSD: Euro/dollar is up strongly this morning as markets breathe a sigh of relief following two Italian bond auctions (5 and 10yr) that went relatively well today.  Italy had to pay a higher yield to investors but the bid to cover ratios were half decent and so Italian bond yields have fallen and the MIB stock index is recovering as well.  The EURUSD market teased traders with new lows late yesterday following rumors of new elections on July 29, but shorts now seem to be covering (a scenario we alluded to yesterday, but took a little longer than we thought to pan out).  EURUSD has blasted back above chart support in the 1.1580s with traders now focused on downward sloping trend-line resistance in the 1.1660s.  The German employment figures reported earlier were in-line to slightly above expectations (-11k on headline, 5.2% unemployment rate).  Germany just reported CPI for May and it came in above forecast (+2.2% YoY vs. +1.8% expected).  We think EURUSD faces a potentially large trading range today, drifting higher for the moment but at some point today settling back down a bit.  Continue to watch Italian bonds.

• GBPUSD: Sterling is struggling to rally higher with EURUSD today as the 61.8% Fibo retracement of the June to April rally is proving formidable resistance once again (1.3280s).  A strong rally in EURGBP today is not helping either, but this is not surprising considering the typical month end flows that we see in this pairing.  A close above the 1.3280s would invite a rebound to the 1.3330s.

• AUDUSD: The Aussie is rallying strongly this morning as well, but this was after shaking out longs that were hoping chart support in the low 75s would hold yesterday.  AUDUSD puked below the 75 handle in Asia last night following some weaker 2^nd tier data out of Australia (Building Approvals), but then quickly recovered and then some when EURUSD found its bearings.  AUDUSD now looks poised to form a bullish outside day on the charts if things hold up here.  This would ignite a rally back up to the 0.7580s and really give the net short position (at CME) something to think about.  Chart support today lies at 0.7525-40.

• USDJPY: Dollar/yen is bid this morning following a improvement is risk temperament across all markets today.  US 10s are trading 8bp higher after plunging yesterday in the global flight to quality bid.  Yen crosses are being sold broadly as well, with EURJPY recovering 1% and GBPJPY up 0.5%.  The S&Ps is trading back near opening levels yesterday.  With USDJPY now back above chart support levels in the 108.50-75 range, we think the market can drift higher a bit here into the low 109s.

Tune in @EBCTradeDesk for more real-time market coverage.

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

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.