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2018-09-28 08:15

New Italian budget target (2.4% of GDP) spooks Italian assets

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD sits battered and bruised this morning just above trend-line support in the low 1.3000 level, after a massive wave of EURCAD selling yesterday ignited a fire for CAD sentiment broadly.  Aside from the cross breaking back below the 1.5250 level, we’re not quite sure what the CAD excitement is all about, especially vis a vis EUR.  That being said, EURCAD’s bearish outside engulfing pattern should be respected in our opinion.  We mentioned this yesterday on Twitter, and sure enough EURCAD is plunging yet again today.  This is leaving USDCAD with a weak tone going into the Canadian GDP report at 8:30amET this morning, despite broad based USD strength elsewhere.  Traders are expecting +0.1% MoM for July.  Yesterday’s slew of central bank speak, including a late day speech from the BoC’s Stephen Poloz turned out to be a non-events for markets.  November crude oil continues to coast in this week’s familiar range, with support at 71.50 not under really any threat of breaking yet.  We’d pay close attention to US equities today as the budget developments in Italy have led to some “risk off” flows going into NY trade, which could lead to some further, broad USD buying should the flows intensify.

  • EURUSD: Euro/dollar continues to get hammered this morning as the Italian government finally agreed to a budget deficit target of 2.4% of GDP yesterday afternoon.  This still falls within EU limits, but higher than what finance minister Tria wanted, and not surprisingly, the news is getting some negative feedback from EU President Tajani and EU affairs minister Moscovici today.  Italian markets don’t like the news either.  The FTSE MIB is plunging 4% today, Italian bank stocks were halted limit down, the 2yr has surged 35bp to 1.13% and the BTP/Bund spread has blown out to +277bp.  EURUSD has found some support at the 1.1570-80s going into the NY open here.  It will be curious to see if today’s massive option expiry at 1.1630 (4.3blnEUR) has any magnetic effect on prices before 10amET.  USDCNH continues to hug upward sloping trend-line support in the 6.87s ahead of a week long holiday for Chinese markets next week.  We think EURUSD might bounce here but sellers remain in control sub 1.1640.    

  • GBPUSD: Sterling is following EURUSD lower again today, with a slight miss on the UK’s final Q2 GDP figure and a lack of chart support adding to the delight for shorts since mid Wednesday.  The market appears to be finding some support here at a Fibo level in the 1.3030s.  EURGBP continues to bleed lower for a 5th day in row, defying its tendency to attract bids into month end.  We think the entrenched fund short position will continue to feel comfortable so long as the market stays below the 1.3130s.  The BoE’s Ramden will be speaking around 9:30am this morning.

  • AUDUSD: The Aussie hasn’t done much in overnight trade today, with traders hugging trend-line support in the 0.7210s.  This week’s reversal off the 73 handle highs is quite bearish, and should give the entrenched fund short position some comfort going into the RBA meeting next Tuesday.  Copper sits range bound as well this morning, but has a defensive posture since falling back below the 2.81s yesterday.  Ditto for December gold, with yesterday’s stop hunt sub 1195 providing the fuel for further losses.  The next support levels in AUDUSD right now are the 0.7180s and the 0.7150s.

  • USDJPY: Dollar/yen surged to new swing highs yesterday, fueled by bullish technicals and a snapback rally in US stocks.  The raft of Japanese data last night didn’t appear to have much effect on the market.  July Industrial Production missed expectations, August Retail Trade beat expectations, Tokyo CPI for September came in a little hotter than expected, and the Japanese employment report slightly beat as well.  Risk off flows from Italy appear to be the drivers going into NY trade today, with EURJPY selling leading the charge.  Today’s session also features a 1.6blnUSD option expiry at the 113.00 strike.  We think USDJPY cools off a tad here. 

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 Jennifer Danuff at 08:15 AM