$USD range-bound ahead of FOMC. $GBP bid ahead of BOE. $CAD sees liquidations.

Summary

• Range-bound trading overnight leaves the USD in familiar territory going into NY trading today.  AUD still capped by technical resistance, GBP holds yesterday’s gains as traders are still optimistic about a BOE rate hike on Thursday, EUR and CAD are stuck in the mud, USDJPY the laggard yesterday as US yields back up further but the market found a bid overnight after the BOJ announced no change to monetary policy.

• Trump is expected to announce Jerome Powell as the next Fed Chair on Thursday.  Combine this dovish news with headlines yesterday that the Trump tax cuts may be phased-in over a longer period of time, and traders are lacking the enthusiasm to push the USD higher.  

• November is upon us.  20yr seasonal trading patterns suggest it will be good month for USD across the board: AUD -0.3%, GBP -0.7%, EUR -0.2%, CAD -0.5%, JPY -1.4%.

• CME open interest changes 10/30: AUD +1079, GBP -3378, CAD -3319, EUR -771, JPY -4596.  Note CAD traders liquidating positions for the third day in a row.  JPY traders unloading after the failure in the 114s.

• Eurozone CPI came in at +0.9%, slightly weaker than expected.  Eurozone Q3 GDP came in at +2.5%, slightly higher than expected.  EURUSD yawns.

• On deck for today: Cdn Aug GDP at 8:30amET (+3.5% expected).  US consumer confidence at 9am (121 expected).  Stephen Poloz to testify to Finance Committee at 2:30pm.  New Zealand employment report at 5:45pm.  Bunch of PMIs and Fed FOMC for tomorrow.

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By The Numbers: Daily FX Snapshot

USD/CAD - Canadian Dollar

Literally nothing going on Dollar/CAD in the last 24hrs as the market stays in a 25pt range.  The same technical levels we mentioned yesterday apply again today more or less.  Resistance 1.2850-80.  Support 1.2770s.  We continue to note the purge in open positions at CME, now down almost 15k contracts in three days (market likely a lot less short USD now).  EURCAD regained the 1.49 handle yesterday but is still looking battered and bruised.  GBPCAD looks set to resume its upward march with the market eyeing the 1.70 level again.  Above this level, there is not much meaningful resistance for 5 big figures!  There’s also the opening gap from June 9^th (mid 1.73s to mid 1.74s) which has yet to be filled.  With the BOE taking center stage later this week, we see GBP as being the near term driver for the cross.  Cdn Aug GDP on deck for today.  Watch for Poloz headlines this afternoon.  FOMC tomorrow.  Dual jobs reports on Friday.

GBP/USD - British Pound

Sterling traders are enthusiastic for a 25bp rate hike from the Bank of England on Thursday as recent data has been positive (UK Q3 GDP, CPI) and, more importantly, the market continues to bounce off technical support in the 1.31 area (multi-channel and Fibo support).  Lack of negative Brexit headlines has certainly helped too.  Technically speaking, the market looks positioned for further gains so long as the 1.3170-1.3200 area holds.  Potential upside targets (resistance levels) should the BOE announcement come across hawkish: 1.33, 1.3350, 1.34 (see chart).  Option traders are expecting sizable movement on Thursday too as they bid up volatility (prices) for at-the-money straddles.  GBP is also maintaining its bid this week against EUR and JPY.  GBP positioning has been a mixed bag over the last two weeks (odds are the market is still net flat).

USD/JPY - Japanese Yen

Dollar/yen took a bit of a hit yesterday as US yields traded decisively back below 2.40, but the market’s ability to hold the 113 level after three attempts lower in the last 12hrs has helped the technical chart structure.  The BOJ, in leaving its extremely accommodate monetary policy in place last night, is also a positive headwind.  Unfortunately though, we’re now trading in a range again (call it 113-113.50).  JPY traders will be watching the Fed very closely over the next 48hrs (FOMC and Fed Chair announcement) and its impact on US yields.  While the USDJPY bull trend is still in place, another test of the 113 might not be as successful.  If that level breaks, the low 112s will become fair game.  JPY traders (likely USD longs) are also starting to liquidate (open interest down almost 10k in the last two days as the rally failed again in the low 114s.).  EURJPY flows, while supportive today, could turn negative again as the chart there continues to deteriorate.  GBPJPY flows are more supportive with the broad GBP bid this week.  A rally back above 150 with force will do much to help USDJPY. 

Market Analysis Charts

USD/CAD Chart

GBP/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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