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2018-06-27 08:15

Chinese yuan weakness (USDCNH rally) continues to lead broad USD strength today. Trump softening stance on Chinese investments. BoC's Poloz speaks later today.

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD is bid again this morning as the USD rallies broadly, but the market continues to hug a trend-line level in the low 1.33s that has acted as both support and resistance over the last 48hrs.  The continued devaluation in the Chinese yuan (rally in USDCNH) seems to be driver behind the broad USD move, with the pair now trading above the 6.60s for the first time since December 2017.  Balancing this out for USDCAD traders is a breakout higher in crude oil prices that doesn’t show any signs of stopping today.  August crude oil surged back above $69 level yesterday as the US State Dept said it would take a hard-line approach on Iran sanctions by mandating current buyers of Iranian oil cut off purchases completely by early November.  Headlines have just crossed saying the Trump administration has decided against harsh measures on Chinese investments, and a large “risk-on” bid has appeared (USD down, US equities/US yields higher, JPY lower).   *TRUMP DECIDES AGAINST HARSHEST MEASURES ON CHINA INVESTMENTS.  *TRUMP WON'T INVOKE NATIONAL EMERGENCY LAW ON CHINA: OFFICIALS.  *CHINA MUST ADDRESS TECHNOLOGY THEFT, U.S. OFFICIALS SAY.  This sudden, positive, change in the US/China trade war rhetoric has seen USDCAD trade swiftly back below 1.3310 trend-line level, and so we expect a softer tone here now.  Today’s North American calendar features US Durable Goods for May (just released -0.6% vs. -1.0% expected), the weekly DOE inventory data at 10:30amET, two more Fed speeches (Quarles and Rosengren), and the Bank of Canada’s Steven Poloz, who will be speaking at 2:15pmET at the Victoria Chamber of Commerce: https://www.bankofcanada.ca/2018/06/speech-stephen-s-poloz-27-june-2018/

  • EURUSD: Euro/dollar was trading with a weak tone in overnight trade, following the CNH lower.  Trend-line support in the 1.1630s was taken out going into the NY open but this has now reversed course following the trade headlines from the Trump administration.  Today features massive option expiries (1.7bln 1.1640-50, 3.5bln 1.1610-20, 3bln 1.1590-1.1600) and so we think this EURUSD bounce loses momentum here, or at least until 10amET (expiry time).  The technical structure for EURUSD would improve should the pair be able to close today’s trading back above the 1.1640s in our opinion.  A short term top in USDCNH would also help, considering the inverse correlation of late.  Failing this, expect further pressure into the 1.1590s.

  • GBPUSD: Sterling is leading losses today in the major currencies as the broad USD rally this week and the repeated technical failures on the GBPUSD chart since late Monday continue to weigh.  The downward sloping trend-line level in the 1.3230s gave way to the downside early yesterday and has acted as resistance twice since then.  Another support level has just given way (1.3190s), which doesn’t bode well for the pairing going into the EU summit tomorrow.  The BoE’s Mark Carney spoke earlier today about financial risks to the system following the release of the Financial Stability Report, but we would argue none of this is really new news.  More here: https://www.telegraph.co.uk/business/2018/06/27/mark-carney-takes-swipe-eu-bank-england-warns-brexit-risks/ and here: https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2018/june-2018.pdf?la=en&hash=9D057C7302B80EF57D634020F50C6F46D782904C.  Given the break below the 1.3190s, we think GBPUSD now risks retesting the June lows.  Watch out for potential Brexit related headlines from the EU summit tomorrow and Friday.

  • AUDUSD: The Aussie is clinging to chart support in the 0.7370-80s this morning and the trade headlines from the Trump administration over the last hour is helping that cause, but the momentum seems to be waning.  Copper prices bounced strongly off support in the 2.96s during London trade, and this is helping AUD outperform EUR and CAD.  Gold prices made a new low overnight but have since bounced, and this is helping the tone for AUD a little bit too.  We feel the 0.7370-80s need to continue to hold for any chance of upward momentum to return.

  • USDJPY:Dollar/yen rallied above trend-line resistance in 109.80s yesterday, which was a positive technical development.  We saw a pullback in overnight trade to test the level and the market held successfully, and we’ve now resumed the move higher following the trade headlines from the Trump administration.  There’s a decent sized option expiry today in the 110.00-110.10 level (1.8bln), and so like EURUSD, we think the upward momentum may stall here near-term.  Should S&P futures rally back above the 2740s and US 10yr yields bounce, we think USDJPY could extend to the next chart resistance level, which is the 110.50-60s.

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

 

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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.

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Posted By Rachel Butler at 08:15 AM