GBP plunges after weak UK GDP. EUR continues lower after post ECB rout. USDCAD steady ahead of US GDP.

Summary

• USDCAD:Dollar/CAD bulls are showing renewed signs of confidence this morning after a broad, EUR led, USD rally yesterday took the market back above the 1.2870s into the NY close.  USDCAD extended further (as high as 1.2900) when European traders stepped in and kept selling EURUSD and AUDUSD, and we’ve pulled back a bit now as both those pairs recover, but the 1.2870s are still holding (which bodes well for USDCAD).  Next up is the first look at US GDP for Q1 2018 (8:30amET).  Markets are expecting +2.0% YoY.  As we said a couple days ago, we think USDCAD continues to have legs so long as the 1.2870s hold.  The next resistance target is 1.2910-1.2925, then 1.2950.  If the 1.2870s gave way, traders will eye support at 1.2860, 1.2840 and then 1.2820.  Continue to watch EURUSD and crude oil prices for direction.

• EURUSD:The Euro plummeted lower yesterday right after the massive option expiry and the conclusion of Mario Draghi’s press conference.  We felt the press conference offered nothing of substance for markets and so we’re weren’t surprised to see the pop higher initially (the so called sell the rumour, by the fact scenario), but EURUSD started giving up its gains as the press conference wound down as Draghi admitted they didn’t really discuss monetary policy much at all.  Cue uncertainty and the prospects of no rate normalization near term, and the market had the perfect excuse to keep dumping EURs when the option expiry passed.  The move lower has taken us all the way down to weekly horizontal support in the 1.2080s (the next support level we mentioned yesterday).  EURUSD has probed below it a few times early this morning as is trying to regain the level as we type.  Yesterday’s EUR move ruined the daily chart for EURJPY and so we’re seeing some follow-through selling on that cross, which isn’t helping EURUSD.  USDCNH continues to drift higher as well, which also doesn’t help EURUSD.  We think EURUSD takes its cue from the US GDP numbers up next, and bottoms possibly if it can regain the 1.2080s.  If not, we think the screws could be put to the longs again as the next major support level is 1.2040.  EUR futures traders added 3505 contracts in new positions yesterday (likely new shorts outnumbering longs liquidating).  We’ll know more next week.

• GBPUSD: Sterling is getting absolutely crushed this morning after a weaker than expected UK GDP print for Q1 2018.  The numbers were +1.2% YoY and +0.1% MoM vs. expectations of +1.4% and +0.3% respectively.  This comes on the heels of an awful NY close yesterday as GBPUSD failed miserably at 1.3990 trend-line resistance and followed EURUSD lower.  The move lower this morning has taken us all the way down into the 1.37s, where the market is desperately trying to find support.  We have the next support levels now coming in at the 1.2725-40 level.  Market chatter of more month ending buying in EURGBP is not helping the cause.  Nor are the UK’s interest rate markets, which are now pricing in just a 30% chance of rate hike in May vs. 80%+ a few weeks ago.  We think GBPUSD continues to probe lower until the market shows it can hold support.

• AUDUSD:The Aussie is holding up relatively well this morning considering the carnage in EUR and GBP, the bloodbath in copper today (-2%), and the weak overall AUDUSD chart structure.  Traders are clinging to horizontal chart support in the 0.7530s (which we don’t feel is a strong level) but it’s holding nonetheless.  Next up is US GDP at 8:30amET.

• USDJPY:The BOJ left monetary policy unchanged overnight (no change to interest rates or the yield curve control targets), which was expected by markets and so USDJPY hasn’t moved much.  The BOJ trimmed its CPI outlook and actually removed 2019 inflation targets from its statement (which is dovish).  We think this meeting was a non-event, but we still see USDJPY supported on dips given chart technicals, short USD positioning and upward trend for US yields.  Support today checks in 109.05-10.  Next resistance is 109.60.  US 10yr yields are backing up a bit at this hour though.

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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.

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