USDJPY higher. $NZD dragging down $AUD and $CAD. Week's main events still to come

Summary

• USD demand noted again overnight with US yields and USDJPY leading.  NZDUSD sales dragging AUD and CAD lower.  EUR quiet.  GBP choppy.  Traders not responding well to New Zealand PM’s call to review the act that governs the Reserve Bank of New Zealand.

• The main events of the week still to come: Bank of Canada tomorrow and ECB on Thursday.

• Australia CPI tonight, UK GDP tomorrow morning.

• Decision expected from Trump very soon regarding next Fed Chair – FOX News.  Latest odds here: https://www.predictit.org/Market/3306/Who-will-be-Senate-confirmed-Fed-Chair-on-February-4%2c-2018

• CME open interest changes 10/23: AUD -1199, GBP -406, CAD -3782, EUR -2648, JPY +126

Currency Calendar

Bank holidays and impactful report releases for select countries.

By The Numbers: Daily FX Snapshot

AUD/USD - Australian Dollar

The 0.7830 area proved to be formidable resistance for Aussie yesterday.  Market has given up the 78 handle in early London trade and is now searching for support.  AUDNZD sales weighing a bit now as the rally in the cross fails at 1.1250.  The monthly and weekly charts for AUDUSD continue to look weak technically and the net long position, while reduced in recent weeks, is still close to multi-year highs.  We’re calling it lower here again today with the market focused on Australian Q3 CPI at 8:30pmET tonight (expectations for +2% yoy).  AUDCAD holding up relatively well given recent CAD weakness.  The 0.9750-0.9800 level is now strong support for the cross.

USD/CAD - Canadian Dollar

CAD showing us a similar trading pattern to Aussie overnight as it doesn’t have much else to trade off until the Bank of Canada meeting tomorrow.  Dips in USDCAD have been shallow as the chart technicals continue to improve.  Intra-day support lies in the 1.2640s.  Resistance (as we mentioned yesterday) does not really kick until the mid 1.27s.  The options market is finally showing some signs of life again with 1mth risk reversals flipping positive again (slight premium for USDCAD calls over puts).  Flows from EURCAD continue to support the market this morning as the cross looks poised to break out to the upside on the weekly chart (as mentioned last Thursday).  GBP is facing some pressure on crosses this morning and so GBPCAD sits at last week’s high (1.6700), but it’s looking much better technically.  We note a possible inverted head & shoulders bottom here on the daily GBPCAD chart.

EUR/USD - European Central Bank Euro

Whole lot of nothing going on in Euro/dollar overnight with yesterday’s hold of the 1.1730s support area being seen as somewhat positive.  The big event is Thursday (ECB meeting) so it’s understandable that traders delay big decisions until then (open interest down 2 days in a row now).  EURJPY closed yesterday with a bearish engulfing candle, which is not great technically given how cross flows can knock EURUSD around, but it has successfully regained the 133.50 level in London trade.  EURGBP sales have stopped for the time being as well, with the cross recovering nicely from a dip below the 89 handle yesterday.  There continues to be a bearish tilt to chart technicals and market sentiment going into Thursday.  We get the German IFO survey  early tomorrow.  USDCNH (which we continue to watch given recent correlations) is maintaining its upward bias (bullish USD).  We’re calling it neutral to lower today for EURUSD unless the market can regain the 1.1780s.

GBP/USD - British Pound

Sterling has turned out to be range-bound for the second day in a row now, a scenario we alluded to on Friday after the market failed to break 1.3100 to the downside (see Friday’s commentary).  The UK’s Finance minister Hammond is out on the wires now talking about the broader UK economy (so far nothing news worthy but the market is testing the London low, 1.3160s).  This week’s feature will be UK Q3 GDP, out early tomorrow morning (market expects +1.5%).  Bank of England meets on Nov 2^nd with markets expecting a 25bp hike.  Hearing talk of a large (700mln GBP) option expiry in GBPJPY at 150.40 for tomorrow’s NY cut (could act as a magnet if we get good UK GDP).

USD/JPY - Japanese Yen

Dollar/yen has resumed its rally higher overnight as US yields recover from a late session dip in US stocks yesterday.  Sunday’s opening gap filled as expected and we probed a little lower to carve out new support at 113.10-20 going into today.  The charts are still bullish.  Resistance now 114.10-20 with still much talk about an option barrier at 114.50.  Market also talking about Japanese insurance companies, a bunch of which have announced plans to buy foreign bonds (bullish USDJPY).  Watch the 2.40 level in US 10 year treasuries (a break above could be the catalyst for significant USDJPY gains).  CADJPY looks comfortable in the 89.50-90.50 range for the time being.

Market Analysis Charts

AUD/USD Chart

USD/CAD Chart

EUR/USD Chart

GBP/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.

Interested in creating a custom foreign exchange trading plan?