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2018-07-05 08:15

Report suggesting easing of US threat on EU car imports ignites rally in European equities and EUR. US ADP report dissapoints. US ISM, DOEs and FOMC Minutes on deck today.

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD is entering NY trading this morning with a neutral to negative tone as EURUSD and crude oil resume their moves higher, and technical resistance in the key 1.3150 area reasserts itself.   Today’s calendar is eventful, with the US ADP Employment Report just out (+177k jobs for June vs. +190k expected), followed by US Services ISM at 10amET, the weekly DOE oil inventory data at 10:30amET and finally the FOMC Minutes at 2pmET.  With 4 months in a row now of disappointing US ADP jobs data and broad based USD selling now underway at this hour, we think USDCAD risks a test of chart support in the 1.3085-1.3105 level, but the 1.3125 level has to definitely give way first.  August crude oil is knocking on the door at 74.70s resistance, despite another Trump tweet directed at OPEC on high oil prices.  Market participants are looking for a draw of 3.5M barrels for this week’s oil inventory numbers, following Tuesday’s draw of 4.5M barrels in the API report.

  • EURUSD: Euro/dollar regained its composure yesterday following a Bloomberg report that suggested some ECB sources were uneasy that markets don’t see a rate hike until late 2019.  This saw the market retest trend-line resistance in the 1.1670s.  Overnight trade in Asia was choppy and then we got a report out of Handelsblatt saying that the Trump administration would suspend threats to impose tariffs on imported European cars if the EU lifted duties as well.  This has ignited a bid under European equities, especially auto stocks.  Combine this with better than expected German Factory orders (reported 2.6% MoM in May vs +1.1%) and a large option expiry at 10amET today (2blnEUR+ at the 1.1700 strike), and it is not surprising to see EURUSD now comfortably back into the 1.17 handle.  USDCNH is a bit directionless today, correcting a bit higher earlier but now trading back below trend-line support at 6.65.  We think there’s a possibility that EURUSD continues to rally here, as there is very little in terms of meaningful resistance on the EURUSD chart should the 1.1720s give way on a closing basis.

  • GBPUSD: Sterling has inched higher this morning, following a rather lackluster US holiday session yesterday.  EURUSD’s afternoon rise yesterday was enough to propel GBPUSD past trend-line resistance in the 1.3220s however, and after a brief test of the level in early European trading, we have extended higher.  Upbeat comments from the BoE’s Mark Carney around the 6am hour have been the catalyst for the move through 1.3250 (says he’s more confident Q1 slowdown was temporary and that gradual rate rises will be needed).  More here: https://www.reuters.com/article/us-britain-boe-carney/bank-of-englands-carney-says-confident-uk-slowdown-was-temporary-idUSKBN1JV10X.  August rate hike odds have moved up to 80% following his comments and with that GBPUSD is now attacking trend-line resistance in the 1.3260s.  EURGBP has given back some of the EURUSD driven gains we saw earlier, but the cross is still comfortable above the 0.8810-0.8820 support level (a technical structure that may still make it difficult for GBPUSD to rally decisively higher).  Traders are also anxiously awaiting the key Brexit meeting with Theresa May and her cabinet at Chequers tomorrow.  More here: https://www.theguardian.com/commentisfree/2018/jul/05/option-cabinet-chequers-soft-brexit-eu-theresa-may.  Any sort of compromise here will likely see GBPUSD shoot higher into the mid 1.33s.

  • AUDUSD: There’s very little going on in the Aussie, but the market successfully found buyers during a test of 0.7360s chart support in early European trading today.  The move higher in EURUSD has helped propel AUDUSD back up to the 74 handle as NY trading gets underway, but traders will still have chart resistance in the 0.7410-0.7420 area to deal with.  Copper prices got crushed in quiet trading yesterday, but AUDUSD traders continue to ignore this.  The RBA’s Heath was on the wires overnight with generally positive comments on recent economic data, but there was nothing there to ignite markets.  With the AUDUSD’s ability to seemingly ignore negative developments on copper and the US/China trade war headlines, the net short AUD position at CME, and renewed strength in EURUSD, we think the prospects of a rally increase substantially with a firm close above the 0.7420s.

  • USDJPY:It’s been a choppy overnight session for USDJPY, but buyers continued to step in and support the market in the 110.30s.  The BoJ’s Masai was out today, echoing the usual dovish rhetoric from the Bank of Japan.  More here: https://www.reuters.com/article/japan-economy-boj/bojs-masai-banks-structural-problems-are-separate-from-monetary-policy-idUST9N1RW027.  A big wave of EURJPY cross buying seemed to be the driver early on, and while the USDJPY market has run into some chart resistance here at 110.60-70 level, there aren’t many levels to hold price should price break back above there.  Expect today’s 1bln option expiry at the 110.50 strike to contain things before 10amET, but then we’d be on guard for upward momentum.  We’d also note a bullish triangular consolidation of price (commencing in May) which is reaching its apex.  US equity futures and US yields are trading higher at this hour, following gains from Europe, and this helps USDJPY as well.

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

 

Market Analysis Charts

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GBP/USD Hourly Chart

AUD/USD Daily Chart

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USD/JPY Hourly Chart

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.

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Posted By Rachel Butler at 08:15 AM