Oil rally, positive NAFTA comments from Trump & bullish APIs report boosts CAD

Summary

• USDCAD: Dollar/CAD is trading with a slight bid tone this morning but this comes after the market fell apart yesterday.  Early gains back above the 1.3150s were short lived when crude oil prices exploded higher.  There was much debate over this oil move, but we felt it had more to do with all the media coverage on the hurricanes and an emerging Gulf of Mexico weather pattern that could potentially create a storm that threatens Texas oil rigs.  USDCAD sellers were back in control when the 1.3150s gave way to the downside and then we saw the floor fall out late in the day on a combination of some positive NAFTA comments from Trump and a bullish API oil inventory report.  The market re-tested yesterday’s NY low in overnight trade (1.3050…which just so happens to be trend-line support), and so far we have bounced.  We think this bodes well for a slight recovery in USDCAD today, but we would expect sellers to re-emerge at 1.3090-1.3115 (resistance).   Should the 1.3050s give way however, expect pressure into 1.3010.  US PPI was just reported lighter than expectations (+2.8% YoY and -0.1% MoM for August).  Next up are the EIA oil inventory figures at 10:30amET (800k barrel draw expected), followed by the Fed’s Beige Book at 2pmET.  October crude oil is eyeing a re-test of the overnight highs (trend-line resistance) in the 70.10 area.  OPEC’s monthly report (released earlier today) forecasts slightly lower demand into 2019.  More here.

• EURUSD: Euro/dollar has been trading in a choppy, narrow range since holding the 1.1550-60s support level during NY trade yesterday.  The BTP/Bund spread remains steady in the +230s.  USDCNH is trading marginally higher today, but still hasn’t broken out decisively from its bullish triangular consolidation (which concerns us a bit as the odds of a reversal lower now increase).  Eurozone July Industrial Production missed estimates today (-0.8% YoY vs -0.5%), but the data wasn’t market moving.  It appears the market will want to coast here ahead of the ECB meeting tomorrow morning at 7:45amET.  Traders aren’t expected any changes to 2019 interest rate guidance but there’s chatter making the rounds that they’ll lower economic growth projections.  Mario Draghi has managed to knock the Euro lower with dovish tones during each of the last five ECB meetings, which is another interesting statistic.  Support today is 1.1550-60.  Resistance is 1.1620.  Tomorrow features a 1.4blnEUR option expiry at the 1.1600 strike.

• GBPUSD: Sterling managed to recover some ground yesterday after the double whammy of GBP selling waves hit, but two attempts to trade back above the 1.3030s resistance level have failed since late NY trade, which means sellers are in still in control near term.  EURGBP appears stuck at the 0.8900 support level for now, but the level continues to hold.  Former Brexit secretary David Davis was out with comments earlier about how Theresa May’s Chequers proposal won’t fly, but the PMs spokesman James Slack just reiterated that it’s the only credible Brexit plan right now.  The Bank of England latest interest rate decision comes out at 7amET tomorrow morning.  No change is expected.

• AUDUSD: The Aussie managed to close well above the 0.7100 level in late NY trade yesterday, edged on by what appears to have been a CAD/oil driven, USD sell wave in the final half hour. This closing pattern, along with a successful retest of the 0.7100 level overnight, repairs the technicals for AUDUSD a little bit here today.  We wouldn’t be surprised to see some short covering here now ahead of the Australian jobs report tonight (9:30pmET).  Gains in December copper today are helping the cause for AUD, but sellers continue to re-emerge on rallies sub 2.70. 

• USDJPY: A strong rally in US stocks and US yields yesterday helped USDJPY extend gains to last week’s highs.  We've just broken back below support in the 111.40s however after the weak US PPI data, which hurts the upward momentum for today.  The EURJPY cross is looking a little tired here too and might weigh things down a bit heading into the ECB meeting tomorrow.  Yesterday’s 3yr note auction went well we hear.  Today features a US 10yr note auction (results around 1pmET).  Regaining the 111.40-50s would bode well for a move to the 112.00-112.10 area.

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

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

October Crude Oil Daily Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

USD/CNH Daily Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

EUR/GBP Daily Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

December Copper Daily Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

EUR/JPY Daily 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.