$USD quiet to start week. Busy calendar this week for econ data/central bank speak

Summary

• USD starts the week mixed as markets digest recent moves and a busy calendar ahead this week for economic headlines and central bank speak.  GBP leading with traders expecting a rate hike from the Bank of England on Thursday.  EUR holding up well despite weak technicals and negative news.  Fed in focus with FOMC this week and an expected announcement for the next Fed chair.  USDJPY tracking US yields as usual.  CAD traders watching oil prices for the first time in a while. 

• Friday’s COT Report (Positioning as of 10/24): The AUD net long position continued to fall ahead of Australian CPI last Tuesday, but this time the change was led by new short positions.  The GBP position is now more or less flat after two weeks of range bound trading.  EUR longs continued to liquidate ahead of the ECB meeting while shorts added for the first time in over a month.  Both CAD longs and shorts added ahead of the Bank of Canada last week, which left the net long position still near 5yr highs going into the meeting.  The net JPY short position continues to grow larger as the price for JPY trends lower.  Longs are starting to average back into positions as well, albeit at a slower pace.  Open interest in JPY has shot up over the last month, +75k contracts.  Overall, the aggregate USD short position has now fallen for three weeks in a row.

• Busy economic calendar ahead this week.  Today we get some more inflation data (US PCE and German CPI).  Tomorrow sees China’s manufacturing PMI, Eurozone Q3 GDP and Oct CPI, Canadian Aug GDP, and US Consumer Confidence.  Wednesday starts with New Zealand’s employment report and then we get manufacturing PMIs from the UK, Canada and the US (ISM).  On Thursday, Australia will release its trade balance figures and we’ll get manufacturing PMIs out of France, Italy and Germany.  Germany will also release its employment report.  Finally on Friday, the market awaits UK services PMI, US and Cdn trade data, the US and Canadian employment reports and the US Services ISM.

• It will be a busy week for central bank speak as well.  The Bank of Japan meets tomorrow with no changes expected, but the BOJ’s Kuroda will speak at a press conference around 2:30amET.  Canada’s Stephen Poloz will testify at the Finance Committee after the close of NY trading.  Wednesday will see speeches from the BOJ’s Nakaso, BOE’s Jon Cunliffe and Canada’s Stephen Poloz again (this time to the Senate).  Then we have the US FOMC meeting (no changes expected).  The Bank of England meets on Thursday with markets expecting a 25bp hike in rates.  We’ll also get Fed speak from Potter, Powell, Dudley and Bostic on Thursday.  Fed’s Kashkari speaks on Friday.

• Trump expected to announce new Fed Chair this week before his trip to Asia.  Markets expecting Jerome Powell will get the nod, especially after headlines on Friday.  PredictIt odds here: https://www.predictit.org/Market/3306/Who-will-be-Senate-confirmed-Fed-Chair-on-February-4%2c-2018

• CME open interest changes 10/27: AUD -3588, GBP +4428, CAD -5532, EUR -2969, JPY -5063

Currency Calendar

Bank holidays and impactful report releases for select countries.

By The Numbers: Daily FX Snapshot

USD/CAD - Canadian Dollar

It’s been a very quiet start to the week for Dollar/CAD as the market digests last week’s massive run to the 1.29s, Friday’s technical failure on the charts, a potential strengthening of the crude oil correlation and this week’s busy calendar ahead.  It looks like CAD longs (USD shorts) finally started to bail last week as the market broke above 1.2800 (open interest down over 11k since Wed).  The market finally found resistance in the low 1.29s, just shy of the 50% Fibo retracement of the May to September move.  Headlines suggesting Jerome Powell will be the next Fed Chair took the wind out the USDCAD rally, as did the rally in oil for a change.  The CAD/crude oil correlation has been weak for a while now and so Friday’s action merits attention.  We’re calling it range-bound today as the market falls back below our blue trend-line, and back below the upper bound of our trend-line extensions from the spring.  Resistance 1.2850-80.  Support 1.2770s.  Cross flows are mildly supportive USDCAD this morning.   EURCAD is trying desperately to hold its weekly triangular breakout to the upside, but Friday’s action did more damage to the chart.  GBPCAD, while off its recent high as well, is being supported by a broad GBP bid as the market awaits the Bank of England later this week.

EUR/USD - European Central Bank Euro

Euro/dollar is holding up relatively well considering the technical damage done to the daily chart after Thursday’s dovish taper and Friday’s declaration of independence from Catalonia.  With both of these event risks sort of out of the way now, the market now seems focused on the Fed (FOMC meeting this week, who will be the next Fed chair, what will the Fed do in December).  With Jerome Powell seemingly about to get the nod, we anticipate a EURUSD market that could be vulnerable to dovish Fed headlines if economic data comes in weaker than expected before December.  Technically speaking, the daily chart is still in a bit of downtrend with the 1.1660-70s capping, but weekly support around the 1.16 level is holding for now.  We’re calling it range-bound here today as well as option expiries likely exert influence into month end.  Cross flows will likely weigh further this week with both the EURJPY and EURGBP charts looking poor.  USDCNH looks stalled.  US/GE yield spreads a bit narrower after Friday’s rally in US treasuries, now testing +2.00 from the upside.

USD/JPY - Japanese Yen

Dollar/yen, like other pairings this morning, has also been content to trade very quietly ahead of a busy week ahead.  BOJ overnight and the FOMC are the immediate focus.  Friday’s reversal lower in US yields on the Powell headlines has done some damage to the USDJPY chart, but the bulls are still in control so long as we stay in the 113s.

Market Analysis Charts

USD/CAD Chart

EUR/USD Chart

USD/JPY Chart

Charts: TWS Workspace

About the Author

Erik Bregar - Trader

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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