USD broadly bid as US 10s approach 3%. BOC's Poloz speaking later today. Big week ahead of EUR.

Summary

• USDCAD: FX markets are focused on US 10 year yields this morning as they build upon gains from Friday and look poised to test the 3% level.  There is USD bid across the board as a result today and USDCAD is benefiting.  Chart resistance at 1.2750 gave way late in NY trade on Friday, and this has allowed the market to drift higher as the week gets started.  The next trend-line resistance level (1.2795) is currently capping and support today lies in the 1.2770s, then 1.2740-50.  June crude oil is mildly weaker this morning (which is not surprising given the broad USD strength).  EURCAD and GBPCAD are a tad weaker to start the week after reversals higher on Friday.  The Bank of Canada’s Stephen Poloz was on the wires over the weekend, and his tone threw more cold water on the prospects of a near term rate hike: https://www.bloomberg.com/news/articles/2018-04-22/poloz-says-canadian-inflation-spike-doesn-t-violate-2-target.  He’ll be speaking again today at 3:30pmET, this time in front of the Standing Committee on Finance at the House of Commons.  We think USDCAD takes its cue from the broader USD today, and possibly from Stephen Poloz later.  A move through chart resistance will invite a further rally to the 1.2850s, while weakness here will likely prompt a test of the support levels we mentioned.

• EURUSD: Euro/dollar is technically falling apart as the week gets started.  The breakdown started early Friday and snowballed when wire headlines crossed about the ECB apparently having no talks about rate hikes post QE.  Chart support at 1.2280-90 then gave way and prices cascaded lower.  Two attempts were made to regain this level (once on Friday and again overnight) but both have failed and traders are now putting the screws to the entrenched EUR long position as US 10s approach 3%.  EURUSD is now trading between two trend-line support levels (1.2220-1.2245).  EURJPY is trading with a steady tone in the low 132s.  USDCNH, while probing higher earlier, looks like it might struggle here with chart resistance in the 6.3050-6.3100 level.  We think EURUSD regains some of its composure in NY trading today as bond traders fade some of the fanfare surrounding the psychological 3% level.  It’s going to be a big week for EURUSD, with traders focused on the ECB’s latest monetary policy decision on Thursday.

• GBPUSD: Sterling continues to get hammered; trading lower now for the 5^th day in a row as a broad USD buying wave pressures prices.  Chart support at 1.3990-1.4000 gave way in early European trade and this has allowed traders to push the market lower yet again.  The next trend-line support level is currently holding prices (1.3950s), but the buying has been mild so far.  EURGBP’s ability to hold the 0.8750s, after repeated attempts lower, is not helping GBP.  Nor is the speculative net long position at CME which, as of April 17^th , hit a new swing high at the worst possible time.  See our Twitter note over the weekend on GBP positioning.  While it seems likely some of these GBP longs have bailed since Tuesday, we’d wager a number of them are still underwater hoping for a swing higher this week, and this doesn’t help the market’s prospects at this juncture.  All this being said, we think GBPUSD might bounce a little today if EURUSD bounces.  It’s going to be a quiet week ahead for UK data, with just Q1 GDP on Friday.

• AUDUSD:The Aussie is predictably lower in overnight trade, following EURUSD lower during this yield driven rally in USD.  The market has broken chart support at 0.7650, but the momentum lower is waning at this hour and so we wouldn’t be surprised to see traders try to regain the level.  Resistance is 0.7660, then 0.7690.  The next chart support is in the 0.7620s.  Copper has just made a swift move lower at this hour so we need to pay attention to that.  AUDUSD traders may get some excitement tonight with the release of Q1 CPI for Australia (9:30pmET).  Until then, expect AUD to trade at the whims of the broader USD and copper prices.

• USDJPY: With US 10 years yields approaching 3%, it’s not surprising to see USDJPY finally break out of the 107.00-107.50 range it’s been stuck in for the last two weeks.  The next trend-line resistance level is 108.40-50.  The BOJ’s next monetary policy decision comes out on Friday.  Futures market positioning is now mildly short USD (long JPY) after the March rollover, leaving the market in much better shape compared to the last time it was trading in the 108s.  The S&Ps and Nikkei futures are starting the week steady after pullbacks on Thursday and Friday last week.

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

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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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