FX majors range trade while EM FX lags. GBP bounces on positive Brexit headlines. Canadian Housing Starts and US PPI both miss expectations.
Summary
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USDCAD: Dollar/CAD is mildly bid this morning as the market managed to regain trend-line support in the 1.3010s overnight. Yesterday afternoon’s drop from the 1.3070s was largely attributed to some positive headlines about Canada re-joining US/Mexico NAFTA negotiations as early as next week. Today’s calendar features Canadian July Housing Starts (just released +206.3k vs. +219 expected), US July PPI (just released at flat vs. +0.2% MoM), and a speech from the Fed’s Evans at 9:30am. We think USDCAD trades with a range-bound to higher tone today, but we are wary of the market’s inability to rally despite the $2 plunge in crude oil yesterday. Chart resistance today checks in at 1.3070-80. Tomorrow features the key event risks of the week: US July CPI and the Canadian employment report for July.
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EURUSD: Euro/dollar continues to struggle with downward sloping trend-line resistance, which today comes in at the 1.1610s. Some selling in EURJPY and some buying in USDCNH around the 2-3am hour saw EURUSD come off this resistance level, and we now sit just below the 1.1600 figure with a quiet tone going into NY trade. A slew of option expiries below the market today (3blnEUR+ between 1.1500 and 1.1550) might keep things heavy early on. We think EURUSD trades with a range-bound tone today as well. Support today is 1.1550-60. The continued rout in TRY and RUB today is hurting ZAR, MXN and some other EM currencies a bit, but this USD buying has not really spilled over to the majors.
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GBPUSD: Sterling made a new swing low overnight (probing below 1.2850 in the European AM), but the market has reversed higher following reports that EU member states are willing to consider a Brexit deal that would allow the UK to remain in the single market while opting out of free movement of people. More here: https://www.express.co.uk/news/politics/1001116/brexit-news-latest-live-update-theresa-may-michel-barnier-european-union. While GBPUSD has formed a doji (indecision) daily candle and EURGBP has backed off the 90 handle as a result of the headlines, we think we’ll need to see more follow-through before shorts begin to get worried (GBPUSD above 1.2950 and EURGBP below 0.8960). Tomorrow’s calendar is heavy on the UK data front: Q2 prelim GDP, June Manufacturing/Industrial production, and the June trade balance.
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AUDUSD: The Aussie is trading with an slightly offered tone today, following EURUSD lower for the most part. Traders are completely ignoring the 2% rise in copper prices today. With AUDUSD now rejecting the mid 74 handle for the third time this week, we think the market confines itself to a range here, at least until the release of the RBA’s quarterly Monetary Policy Statement (out tonight at 9:30pmET).
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USDJPY: Dollar/yen is bid this morning, as the market bounced strongly off support in the 110.70s overnight and quickly regained the key 111.00 level it lost in Asian trade today. A slew of option expiries today (3blnUSD+ between 111.00 and 111.30) appears to be behind this bid as well, considering overall FX news flow has been light today. US yields are trading steady ahead of a US 30yr bond auction (results to be reported at 1pmET). With today’s technical reversal of recent USDJPY downward momentum, we think the market has room here to drift back up to the 111.50s, but USDJPY is seeing some selling here following some negative North Korea headlines: N.KOREA SAYS IF TRUMP ADMINISTRATION ADHERES TO OLD SCENARIOS IT CANNOT EXPECT ANY PROGRESS ON DENUCLEARIZATION -KCNA CITING FOREIGN MINISTRY.
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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.