Markets on edge as Chinese trade delegation set to arrive in Washington today

Summary

• USDCAD: Dollar/CAD is trading with a mixed tone this morning as USD-positive “risk-off” flows compete with technical selling from upside breakout failures in USDCAD and EURCAD.  The broader markets are on edge as the Chinese trade delegation arrives in Washington today for talks.  The S&P futures are trading down 20pts; bonds, the yen and the dollar are bid, but USDCAD and EURCAD traders have so far failed in their attempts to breach chart resistance at 1.3500 and 1.5100 respectively during London trade.  The US PPI numbers for April, the US and Canadian Trade Balance figures for March, and some opening remarks from Jerome Powell at a conference in Washington are all up next at 8:30amET.  We think USDCAD continues to consolidate here ahead of the April Canadian employment report out tomorrow morning.

• EURUSD: Euro/dollar continues to show a choppy trading pattern here this morning as traders await the 8:30amET headlines out of the US.  A slew of options expiries will be in play again this morning too (3blnEUR between the 1.1175 and 1.1200 strikes), which means traders will likely hug current price levels.  German bund yields continue to trade with a heavy tone.  The BTP/Bund spread is poking its head back above +270bp again this morning.  Finally, and more importantly for EUR traders, dollar/yuan has broken above key chart resistance in the 6.82 level as nerves escalate ahead of US/China trade talks today.

• GBPUSD: Sterling is dribbling lower this morning as Labour party leader Jeremy Corbyn said Theresa’s May government hasn’t made any meaningful offers when it comes to Brexit talks.  GBPUSD now sits below the psychological 1.3000 level and EURGBP traders appear to be eyeing chart resistance and a sizable upside option strike in the 0.8640s.

• AUDUSD: The Aussie is trading lower this morning after chart support at the 0.6995 level gave way in late NY trade yesterday.  China reported its April CPI figures last night in-line with expectations last night (+2.5% YoY), and so this wasn’t a market mover.  July copper prices continue to leak lower today as traders angst about the looming China tariff increase that is supposed to go into effect tomorrow.  The Reserve Bank of Australia releases its quarterly Monetary Policy Statement tonight at 9:30pmET.  We think any move back above the 0.6980 level today in AUDUSD will alleviate some of the selling pressure we’ve seen since Tuesday night.

• USDJPY: Dollar/yen has fallen below the psychological 110.00 level in overnight trade as traders follow the S&P futures lower.  We still see a risk that the market continues lower here should broader risk sentiment deteriorate further today.  All eyes will now be on US/China trade headlines as Chinese Vice Premier Liu He and his delegation arrive in Washington.     

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

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About the Author

Erik Bregar - Director, Head of FX Strategy

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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