General Inquiries: 1-888-223-3934 | Trading Desk: 1-888-729-9716
Privacy Policy Contact us User Login


2019-11-14 08:15

Markets in risk-off mode again after weak overnight data.

Source: EBC Trading Desk

 

Interested in creating a custom foreign exchange trading plan? Contact us or call EBC's trading desk directly at 1-888-729-9716.

Get real-time market coverage on twitter at @EBCTradeDesk or sign up here.


 

SUMMARY

WSJ article says: “US-China Trade Talks Hit Snag Over Farm Purchases”.
Japan Q3 GDP disappoints.  Australia shocks market with -19k job loss for October. 
Chinese Industrial Output and Retail Sales data for October misses expectations.
Germany narrowly avoids Q3 recession.  EURUSD spike higher fizzles out.
Oil prices bid on OPEC cut extension talk, bullish API report from last night.  EIA at 11amET.
Ton of Fed-speak on tap today.  Evans, Clarida, Powell, Daly, Williams, Bullard and Kaplan.
Bank of Canada’s Stephen Poloz speaks at 10pmET tonight.
 

ANALYSIS

USDCAD

Dollar/CAD is creeping higher this morning as some mild “risk-off” flows sweep across markets once again.  It all started with a negative sounding US/China trade article from the WSJ late yesterday afternoon titled “US-China Trade Talks Hit Snag Over Farm Purchases”.  More here.  There is no new “news” here again in our opinion (as seems to be the case with much of the US/China trade headlines lately), but you can’t tell that it to the trading algorithms.  If it sounds bad…”risk-off”.  If it sounds good…”risk-on”.  The mild “risk-off” move we saw late yesterday helped USDCAD recover right at 1.3250 heading into the NY close, which was agonizingly not decidedly bullish or bearish in the context of how pivotal we described this level to be yesterday.    

Economic data out of Asia last night then provided more clarity and direction because it was negative for the most part.  Japan reported weaker than expected Q3 GDP growth, the Australian employment report missed expectations big time, and a couple of Chinese data points missed as well (October Industrial Output and Retail Sales).  EURUSD saw a brief pop higher when Germany reported +0.1% GDP growth for Q3 this morning (avoiding expectations of -0.1%, which would have technically been a recession), but this “sigh of relief” bid to EUR quickly disappeared when US and German bond yields continued their “post-Trump speech” move lower.       

December crude oil futures are trading +0.9% higher this morning after some OPEC delegates hinted yesterday at extending the current level of oil production cuts to the end of 2020 (versus the spring 2020 which is currently agreed).  Last night’s weekly API report was also on the mildly bullish side (showing an unexpected draw of 0.5M barrels vs expectations for a build of 1.5M).  OPEC just released its monthly Oil Market Report for November, and while it kept its 2019 and 2020 oil demand forecasts unchanged at 980k bpd and 1.08M bpd respectively, it said it now sees a 70k bpd reduction to surplus supply in 2020 if OPEC keeps overall production at current levels (also mildly bullish).  The EIA reports its weekly oil inventory report at 11amET today, and the expectation here is for a build of 1.649M barrels.

USDCAD now sits nervously at yesterday’s NY highs at 1.3270, with traders wondering where the next thrust of broad USD buying will come from.  If the market is going to firmly break higher here and shift to a new positive trend, it needs to do so quickly in our opinion…otherwise we think recent buyers could bail.  Today’s North American session features a ton of Fed-speak.  Fed members Evans and Clarida are currently speaking.  Jerome Powell will be back at it again on capital hill at 10amET, this time before the House Budget Committee.  Finally, the Fed’s Daly, Williams, Bullard and Kaplan are expected to speak over the lunch hour.  Tonight’s Asian session will feature a speech from Bank of Canada governor Stephen Poloz at the Federal Reserve Bank of San Francisco at 10pmET.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

DEC CRUDE OIL DAILY

DEC CRUDE OIL DAILY

EURUSD

Euro/dollar traders are fighting to regain the psychological 1.1000 level this morning after the further decline in global bond yields during London trade today overshadowed Germany’s narrow avoidance of recession for Q3.  We can’t say there’s any fundamental merit to the slight bounce we’ve seen since the start of NY trade today, but we do think recent fund shorts might be compelled to take profits on a move back above 1.1005 (that would confirm a reject of the 1.09 handle).  December gold prices have confidently breached the 1468 chart resistance level to the upside this morning, which tells us to be on guard for some more “risk-off” flows (which could be EURUSD positive if the flows are fierce).

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

DEC GOLD DAILY

DEC GOLD DAILY

 

GBPUSD

It’s more of the same for sterling today, as GBPUSD remains stuck in the 1.2820s-1.2870s price range we talked about yesterday.  The UK general election campaign raged on today, but there haven't been any meaningful shifts in the polls.  See here for some of the latest headlines from the UK’s Metro.  Traders are unsurprisingly brushing off this morning’s weaker than expected UK Retail Sales data for October (-0.1% MoM vs +0.2%).

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

 


 

AUDUSD

It’s gone from bad to worse for the Australian dollar over the last 24hrs, and we think it all started with yesterday’s “risk-off” driven move below chart support in the 0.6830s.  We think this sowed the seeds for further technical selling into Asian trade last night, and when Australia reported a much weaker than expected employment report for October, this was the straw that broke the camels back.  Australia shockingly lost 19k jobs last month (versus expectations for a 15k gain) and the unemployment rate ticked higher to 5.3% (mind you, this data point was as expected).  Some weak Chinese data then added insult to injury.  China reported October Industrial Output +4.7% vs +5.4% expected and October Retail Sales +7.2% vs +7.9% expected.  If we combine all these negatives with falling global bond yields today (which validate the “risk-off” tone), we now suddenly see AUDUSD grasping for support in the 0.6770s.  It’s been remarkable how negatively the market has shifted, ever since slipping back below the pivotal 0.6895 level we warned about on Nov 8th.

 

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY

 


 

USDJPY

By now we think we can safely say the upside breakout that the fund longs were hoping for (since last Friday) in USDJPY has failed.  The US/China trade headlines have taken a turn for the worse.  US 10yr yields failed to ultimately break above the 1.95% level on a closing basis.  We honestly think the entire 30bp rally in yields since the start of the month has been based on unsubstantiated, optimistic, hogwash on the US/China trade front, and we think this is the one of the major reasons why the US money markets are letting the Fed breath a sign of relief for the time being.  Jerome Powell can continue to communicate all he wants that the economy is in a good place and that rates are now on hold, but we think the bond market and the “Fed rate cut trade” will ultimately force his hand very quickly when the next shoe drops.  Japan reported weaker than expected Q3 GDP growth last night (+0.1% QoQ vs +0.2% expected).

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon


About the Author

Erik Bregar

Erik Bregar - Director, Head of FX Strategy

linkedin twitter

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.

 

 

About Exchange Bank of Canada
Exchange Bank of Canada, EBC – Canada’s Foreign Exchange Bank, is the only Schedule 1 Canadian bank specializing in foreign currency exchange and international payments for financial institutions and corporations. EBC provides innovative foreign exchange management and integrated international payment solutions tailored to meet business needs on a global scale. Leveraging industry leading technology and a client-focused team of experts EBC delivers comprehensive, cost-effective and trusted payment processes and foreign exchange currency solutions to create financial and operational efficiencies. To learn more, visit: www.ebcfx.com.

Disclaimer: All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.
This publication has been prepared by Exchange Bank of Canada for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Exchange Bank of Canada, its affiliates or any of their employees incur any responsibility. Neither Exchange Bank of Canada nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Exchange Bank of Canada products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Exchange Bank of Canada.
Posted By Mandee Myers at 08:15 AM