• Financial Institutions
  • Corporations
  • Travelers
  • Foreign Bank Note Exchange
  • International Drafts
  • International Wire Transfers
  • Global EFT
  • Compensation De Chèques En Devises Étrangères
  • Traites Bancaires En Devises Étrangères
  • Travel
  • Technology Companies
  • Payroll
  • Healthcare
  • Nonprofit
  • Partnerships

USD slammed lower on Mnuchin comments. CAD benefits from Trump NAFTA soundbite. GBP surge continues.

CXI January 24th, 2018


  • USDCAD: It’s a sea of red for the broader USD this morning as US Treasury Secretary Mnuchin said “Obviously a weaker dollar is good for us as it relates to trade and opportunities”, when speaking in Davos earlier today.  Combine this with more tough talk from US Commerce Secretary Wilbur Ross (saying more tariffs are in the offing), and Trump’s surprise comments yesterday that NAFTA talks are going “pretty well”, and we have all we need to explain the USDCAD bloodbath we’re walking into this morning.  Trump’s surprise NAFTA comment yesterday put the 1.2430 support level to the test, and while the market bounced higher for a couple of hours, it failed miserably going into the NY close, giving traders their queue to keep selling, and the overnight comments from Mnuchin was icing on the cake.  USDCAD now sits on trend-line extension support from earlier this year (1.2330s).  This is really the last line of defense, technically speaking, and is the key level to watch today in our opinion.  A firm push below the 1.2330s would open the market to much lower prices, short term, in our opinion.  There’s some trader talk this morning about 680mln in option expiries today between 1.2340-50, which might contain price action going into 10am.

  • AUDUSD: The Aussie staged in impressive recovery in NY trading yesterday, closing back above the 0.7980s (which we said was important to keep the rally intact).  Given the plunge in base metal prices yesterday (that never really recovered), this was a very bullish display from traders in our opinion.  Naturally, AUDUSD continued higher overnight on the Mnuchin comments and we’re now testing the September 2017 highs around 0.8060.  Similar to EURUSD and GBPUSD, the market has entered a “no-man’s” land of resistance, which opens up the door for yet further gains.  There’s some light resistance at 0.8100, then 0.8160 (May 2015 highs), but that’s about it.  Support today checks in at 0.8030-0.8040 (Friday’s highs).  Bulls are still in control so long as this level holds.

  • EURUSD: The Euro punched through resistance in the 1.2270s yesterday (resolving its short-term range to start the week), and this paved the way for the higher prices we’re seeing this morning.  The USD-negative Mnuchin comments and the upbeat Eurozone PMIs, reported overnight, are nice backdrops, but we would note EURUSD is lagging most of the majors today.  We feel this is natural given how long the market is already positioned ahead of the ECB tomorrow, and as we highlighted on Friday, we feel there is a risk that Mario Draghi tries to cool off this EUR party a little bit when he speaks tomorrow.  EURGBP is off hard again today as its chart deteriorates further and EURJPY is testing trend-line support in the low 135s as we write (all a little EURUSD negative).  USDCNH has plunged to new lows however, and given recent correlations, that’s helping EURUSD.  Technically speaking, EURUSD has breached trend-line resistance in the 1.2310-1.2320 region.  It now needs to hold this level (as new support) for bulls to remain in control.  The ECB decision will be announced at 7:45amET tomorrow morning, followed by a press conference from Mario Draghi at 8:30amET.

  • GBPUSD:  It’s nothing but blue skies for sterling this morning as the GBPUSD surge higher continues on the back of Mnuchin’s negative USD comments.  Again, this should come as no surprise to our readers as there’s simply no meaningful resistance on the charts while we continue to trade in the extremely wide Brexit day range (see weekly chart).  The UK reported a stellar employment report overnight (+102k jobs 3M/3M in Nov vs -10k expected) and that’s just adding fuel to the rally.  We feel GBPUSD is a run-away train that shouldn’t be messed with here from the short side.  With the lack of levels to look at in GBPUSD, we’d look to other GBP crosses for clues.  Support in EURGBP, however, still looks a ways off (sub 0.77) and GBPJPY keeps finding buyers on dips, which continues to bode well for GBPUSD.  Intra-day support today lies at 1.4100-1.4120.

  • USDJPY: Dollar/yen is falling apart too amidst the Mnuchin comments overnight.  Yesterday’s NY close was miserable, as no attempt was made to defend the important 110.50 support level (neckline of daily head and shoulders topping pattern).  With that, it was easy for traders to push USDJPY lower overnight.  Physiological support at 110 gave way easily too with traders now focused on horizontal support at 109.40-50.  Next support is 108.85-109.  There’s some trader talk of a $2bln option expiry tomorrow at 110, but we feel the market needs to bounce a bit more here before that comes into play.  Equities are a mixed bag today with the S&Ps up, and the Nikkei and DAX lagging.  US yields are higher again after yesterday’s pullback, but none of this is helping USDJPY (which is very negative in our opinion).  We feel USDJPY continues to be dominated by overextended USD long (JPY short) positioning and BOJ taper speculation, instead of the traditional yield spread differential/risk-on, risk-off dynamic.  While we have to wait for the next update from CFTC, we’d have to imagine some of the entrenched USD longs (JPY shorts) are finally throwing in the towel here, which would exacerbate USDJPY losses.  

Market Analysis Charts







GBP/USD Weekly Chart

Charts: TWS Workspace

About the Author

Erik Bregar

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 1-888-728-4918.

About Exchange Bank of Canada
Exchange Bank of Canada (EBC) is a Schedule 1 bank based in Toronto, Canada. EBC specializes in foreign exchange services and international payments providing a wide range of services to financial institutions and corporations, including banknote foreign currency exchange, travelers' cheques, foreign currency cheque clearing, foreign currency bank drafts, Global EFT and international wire transfers through the use of EBC's innovative EBCFX web-based FX software www.ebcfx.com.

Disclaimer: All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.

This publication has been prepared by Exchange Bank of Canada for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Exchange Bank of Canada, its affiliates or any of their employees incur any responsibility. Neither Exchange Bank of Canada nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Exchange Bank of Canada products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Exchange Bank of Canada.