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Hinted compromise from the Italians on budget deficit helps boots risk appetite to start week

CXI November 26th, 2018


  • USDCAD: Dollar/CAD has been offered to start the week, as positive budget headlines out of Italy boost risk sentiment, but that trade is unwinding a tad now and the market has been able to regain the important 1.3200 level on the charts.  This week features a fair deal of Fed speak, including a speech from chairman Powell on Wednesday.  We’ll get the 2nd look at Q3 GDP on that day as well.  Thursday brings the core PCE Price Index and the FOMC Minutes from the last Fed meeting.  Some Canadian data items will populate Friday’s calendar (Raw Material Prices and Q3 GDP), and then of course we’ll have the much anticipated headlines out the G20 summit in Argentina.  USDCAD remains in a rather precarious spot technically, but longs may find some solace with the fact the market has made four failed attempts to break below the 1.32s since Thursday’s session.  We think the 1.3200 level will remain the pivot for markets near term.  Longs need this level to hold, and to regain the 1.3230s for good measure.  Shorts will want to see the 1.32s finally break.  January crude oil is trading steady, despite increased Russian/Ukrainian tensions over the weekend. The GM headlines out of Oshawa aren’t having much of an effect either.

  • EURUSDThe Euro is bouncing this morning, after deputy PM Luigi Di Maio hinted at a willingness to reduce Italy’s deficit target in an effort to end the standoff with the EU.  More here.  This has put a bid under Italian assets (both stocks and bonds), and more importantly has caused the BTP/Bund yield spread to contract back below the +300 mark.  EURUSD has retraced half of Friday’s losses, but the market now appears to be getting capped by chart resistance in the 1.1370s.  The ECB’s Praet, Lautenschlager, Nowotny and Coeure were speaking earlier today, but there was nothing notable for market participants to chew on.  The German ZEW survey for November came in slightly weaker than expectations.  Mario Draghi takes the mic around 9amET before the EU Parliament.  We think the shorts may have more to sweat about should the market regain the 1.1370s.  We think EURUSD they also may be vulnerable to any dovish surprises from the Fed speak we have on deck for this week.  The European calendar brings an Italian bond auction (tomorrow), the German employment and CPI figures (Thursday), and then German Retail Sales, Eurozone CPI, and Italian Q3 GDP on Friday.

  • GBPUSD: Sterling is rising with EURUSD this morning, after the EU’s endorsement of Theresa May’s Brexit deal on Sunday saw very little fanfare from traders when the market re-opened.  The chatter here is that none of this matters unless Theresa May can get the UK Parliament to approve it.  More here.  We’re seeing a positive turn in GBPUSD technicals this morning nonetheless though, with the market now surpassing trend-line resistance in the 1.2840s.  We think a close above the 1.2860s will invite further buying.  The Bank of England’s governor Carney will be speaking at 1pmET today.

  • AUDUSD: The Aussie is bid this morning as well, but some selling has crept in now and has pulled AUDUSD back below the 0.7250 trend-line resistance level the market broke above earlier.  This week’s Australian calendar is rather uneventful, and so traders will likely focus on EURUSD and any dovish hints from the Fed speak on tap for the coming days.  We think the market likely consolidates between 0.7230 and 0.7250 here, as the upward momentum has stalled.

  • USDJPY: The positive tone to risk assets this morning has finally helped USDJPY regain the 113.10s, a level we said last week was important to confirm last Wednesday’s positive technical development on the charts.  The market has also survived two downward tests in European trade today, which tells us traders might want to extend these gains further.  The S&Ps are trading back above the 2655s, which helps USDJPY here in our opinion.  We would not be surprised to see USDJPY make a run of the 113.60s should equities continue their rally.

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


Market Analysis Charts

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Charts: TWS Workspace

About the Author

Erik Bregar

Erik Bregar - Director, FX Trading

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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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