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2018-10-11 08:15

US stocks plunge, but risk-off sentiment does not help USD broadly

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD is trading comfortably above the 1.30 mark today, with the market’s regain of the 1.2960s yesterday sowing the seeds for a strong rally that picked up steam when crude oil starting selling off.  Crude’s decline appeared to be a combination of “risk off” (watching US stocks implode) and Hurricane Michael related (US oil supply not threatened, but demand destruction noted in the south).  One would have thought that the “risk off” flows that absolutely crushed US stocks yesterday would have benefited the USD more broadly, but it didn’t.  Case in point this morning, where we have global equity markets in the red again, the S&Ps off another 25pts, and yet the USD is trading lower.  A peculiar market response to say the least, or perhaps a foreshadowing of the Fed being forced to reign in its rate hiking cycle?  Trump called the Fed “crazy” last night, when referring to monetary policy being too tight.  Traders now await US CPI data for September, which if it comes in slightly weaker than expected like yesterday’s PPI read, may justify the broad USD weakness we’re seeing today.  Expectations are for +2.4% YoY and +0.2% MoM on the headline figure, and +2.3% YoY and +0.2% MoM on core CPI.  With USDCAD now breaching trend-line chart resistance in the 1.3030-40s, we think the market has legs to extend to the 1.3080s, but the 1.3030-40s now need to hold and we’ll need to see some broad USD buying to help with that.  EURCAD exploded higher yesterday, which helped USDCAD as well.

  • EURUSD: Euro/dollar trades 50pts higher this morning; completely shrugging off yesterday’s “risk off” event in stocks.  We think this is noteworthy because when a market doesn’t respond to a traditional driver of price, it means something is changing.  Chart resistance in the 1.1540-50s has also been surpassed, which is not great for those new fund short positions that entered last week.  USDCNH and emerging market FX is also trading broadly stronger today.  So we ask again, is the market worried that the Fed will be forced to change course?  Will the US CPI figure today disappoint?  We have some horizontal chart resistance at the 1.1580 level ahead of the 8:30am figures.  Over 1.6blnEUR in options expire at the 1.1600 strike today.  We think the market looks vulnerable to short covering here.  The next major resistance level after 1.1580 is 1.1675.

  • GBPUSD: Sterling has had a choppy overnight session.  The market extended yesterday’s NY session gains into Asia on some more positive Brexit enthusiasm, then traded lower again at the start of European trading today after representatives from Ireland, the UK and the EU confirm there hasn’t yet been a breakthrough on the Irish border deal.  The market is rallying higher again now into resistance again at the 1.3230s.  Support is 1.3190.  A break of either of those two will determine the vibe for the rest of the week, but we feel the path of least resistance (pain trade) is higher.  The funds are still net short GBPUSD.

  • AUDUSD: The Aussie is bouncing strongly this morning as traders look at broad USD selling today as comforting reason to buy.  Yesterday’s late day, “risk-off” driven selloff in AUDUSD halted at trend-line support in the 0.7050s.  Resistance today is once again 0.7100.  A close above would be bullish.  It would also cancel out yesterday’s bearish reversal pattern.  Copper also has some upward momentum to it this morning as the market reverses higher from earlier losses.

  • USDJPY: Dollar/yen was the obvious victim of yesterday’s stock market plunge, falling through support in the 112.50-60s.  We’ve been warning about a reversal lower in USDJPY since last Thursday, and this intensified on Monday with the break below 113.50-60.  That being said, with USDJPY now down five days in a row, we think USDJPY finds support here at 112.10-20, or slightly below here at the 111.90s.

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

 

Market Analysis Charts

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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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Posted By Isabella Guevara at 08:15 AM