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2017-11-21 08:15

EURUSD lower again on German political uncertainty. USDJPY & AUDUSD recover. USDCAD traders watching improving techs, but cross sales now weighing.

Source: EBC Trading Desk

Summary

  • CENTRAL BANK SPEAK:  RBA's Lowe says "there is not a strong case for a near term adjustment in monetary policy" and "if the economy continues to improve as expected, it is more likely that the next move in interest rates will be up"  Fed's Yellen speaking at NYU Stern Business School at 6pmET.

  • CME OPEN INTEREST CHANGES 11/20: AUD -57, GBP +3044, CAD +1024, EUR -2021, JPY -8592

  • AUDUSD: The Aussie is enjoying a bit of pop this morning on the slightly hawkish comments from the RBA's Lowe at 4amET this morning.  While the rally stalled at resistance in the 0.7580s, today's daily candle is so far shaping up to be a bullish engulfing candle.  Traders are also talking about a large option expiry at the 0.7600 level tomorrow ($500mln AUD), which could act as a near-term magnet.  While the trend in AUDUSD is still lower, we will now watch how traders respond at chart resistance.  A break above 0.7580 would be technically positive but there is still a lot of wood to chop between 0.7600-0.7630.  AUDNZD flows have been supportive for the fourth day in a row.

  • USDCAD: Dollar/CAD continued to make progress yesterday, reaffirming our near-term view of a range-bound to higher market.  Broad USD buying and weaker oil prices certainly helped.  We now sit above the upper bound of our downward sloping, trend-line extension channel from the spring (which is positive).  We also test the line itself early this morning (1.2792) and bounced off it, which is positive as well.  The only thing a bit negative about today's action so far is how USDCAD swiftly pulled back when it looked above 1.2830 earlier.  This coincided with heavy selling in EURCAD and GBPCAD.  So today feels like it will be choppy.  The 2yr US/CA yield spread, at 29bp, continues to support (it continues to sit close to its October wides whereas USDCAD does not).  Traders are also talking about a massive option expiry today at 1.2750 ($1.5bln USD).

  • EURUSD: The political drama in Germany continues as Merkel says she prefers a new election while President Steinmeier says he does not.  The uncertainty weighed on EUR for the rest of NY session yesterday and the offered tone has continued into today.  With support in the 1.1750s now giving way, we look to see how the market responds to support in the 1.1720s.  A break below there invites a test of 1.1690.  EURGBP broke down through 0.8875 yesterday, tested the level from below again earlier today, and failed again (which is negative for EURUSD).  Amazing how things change in just a few short days.  Longs will argue this is a dip to be bought (and they continue to do this if we look at futures positioning and options activity), whereas shorts will argue relative monetary policy outlooks ( Fed vs ECB ) and the US/GE yield spread (at 200bp) favors the USD.  We feel EURUSD continues to range trade here until the chart technicals become more clear.

  • USDJPY: Dollar/yen staged a pretty remarkable recovery yesterday, helped no less by yet another strong rebound in US stocks and US yields.  We've regained the 112.50 level which is positive but strong resistance still lies in the 112.90-113.00 area.  Futures open interest was down a sizable 8.5k contracts yesterday.  We would not be surprised to see more of this (USDJPY selling) as recent longs look for an opportunity to get out.

Market Analysis Charts

AUD/USD Chart

USD/CAD Chart

EUR/USD Chart

USD/JPY Chart

Charts: TWS Workspace


About the Author

Erik Bregar

Erik Bregar - Trader


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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