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USDCAD chart mixed after yesterday's snapback. EUR extends gains while GBP and AUD lag. Canadian jobs report in focus for tomorrow.

CXI June 7th, 2018

Summary

  • USDCAD: It’s been a volatile 48hrs for USDCAD traders.  The negative momentum we saw early yesterday intensified after the 8am hour but halted on a dime at chart support in the 1.2860-70s just as the slew of economic numbers at 8:30amET were released.  Both the Canadian and US trade figures beat expectations (smaller deficits), but the Canadian Building Permit numbers were weak, and so that allowed USDCAD to bounce.  A Washington Post article then started circulating about the US considering further tariffs on Canada (in retaliation for Canada’s recent response), which saw USDCAD tick back up to the 1.29 handle.  The weekly crude oil inventory data subsequently surprised to the upside, which knocked July crude $1 lower and USDCAD higher still.  Then we got the bombshell out of NEC Director Larry Kudlow about the ABC article from the prior evening being “patently false” (in other words, no tariff exemptions are being contemplated for Canada) and USDCAD busted through resistance in the 1.2925-35 level.  All this made for a complete round-trip on the charts and a technically positive close for USDCAD, but we think the market is a bit tired here.  The overnight range has been tight, the calendar is light today, and there’s a lot to think about for tomorrow (Canadian employment report and housing starts for May).  With USDCAD’s chart now mixed, the action overnight instead has been on the crosses, with both EURCAD and GBPCAD breaking higher as EURUSD and GBPUSD rallied.  This is reversing course a bit now as NY trading gets underway.  We think USDCAD does a whole lot of nothing today ahead of the Canadian numbers tomorrow.  Support 1.2925-35.  Resistance 1.2985.  The Bank of Canada reports its twice a year Financial System Review today at 10:30amET.  More here: https://www.bankofcanada.ca/2018/06/releases-june-issue-fsr-070618/

  • EURUSD: Euro/dollar extended gains overnight and has reached the technical objective we alluded to yesterday (1.1800-1.1820).  We’re now seeing some profit taking as NY traders walk in and as GBPUSD gets smacked lower.  ECB speakers have now entered the blackout period (no public commentary allowed) ahead of the ECB meeting next Thursday.  With the Bloomberg piece on Tuesday about June being a “live” meeting and the ECB speak yesterday, markets are now all of sudden giddy about the end of QE and the prospect for rate hike (July 2019 rate hike odds shot up to 70% yesterday).  We think this mood will persist into next week and then all eyes will be on Mario Draghi to see if the markets got it right.  The market’s technical structure continues to improve at this juncture, with very little in terms of technical resistance should the 1.1840s give way to the upside.  EURJPY continues to roar higher (now up 7 days in a row).  Should the cross close above 130.10, there’s not much resistance on its chart for another 100pts.  We think EURUSD remains in good shape here so long as the market stay above support in the 1.1790-1.1800 area.

  • GBPUSD: We finally saw some Brexit related headlines yesterday and the rumor was Theresa May was quarrelling with her chief Brexit negotiator David Davis over her Irish border plan and the lack of a time-line.  There were also rumors Davis might quit.  It didn’t rattle GBPUSD funny enough and GBPUSD regained the 1.3410s and extended higher with EURUSD into early London trade.  We’re now hearing talk that May has folded to Davis’ demands and with that we’re seeing sterling come off 50-60pts.  GBPUSD has traded back below the 1.3410 level but it’s trying to regain it as we type.  Since GBPUSD rejected trend-line resistance in the 1.3460s ahead of this morning headlines, and because the market is threatening 1.3410 to the downside again, we think GBPUSD now settles into a bit of a range.  Of significant note this morning though is the breakout higher in EURGBP.  Should this hold, it could be a drag on GBPUSD over the next few weeks.

  • AUDUSD: The Aussie is trading slightly weaker this morning after a slightly smaller than expected April trade surplus announced last night for Australia.  The market down ticked to the 0.7650 support level and has been stuck there ever since.  AUDUSD traders continue to ignore the copper rally today (up another 1%) and even the rally in EURUSD overnight, which is again disconcerting given recent correlations.  It appears the souring international trade rhetoric continues to be a drag on commodity currencies (ie. CAD, MXN, AUD).  We think the technicals for AUDUSD are still positive so long as the 0.7620s hold.  We would also note speculators at CME are still net short AUD.

  • USDJPY: Dollar/yen had an up and down session yesterday, but still managed to close at its daily highs with US yields and US stocks.  We’ve seen a pullback back to support in the 109.80s now, as market participants reposition ahead of 2bln+USD in option expiries at the 110 strike today.  We think the chart for USDJPY remains constructive so long as we stay above the 109.80s.

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

 

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

EUR/CAD Daily Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

EUR/JPY Daily Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

EUR/GBP Hourly Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

July Copper

USD/JPY Chart

Charts: TWS Workspace


About the Author

Erik Bregar

Erik Bregar - Director, FX Trading

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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.


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