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2018-11-15 08:15

UK's Brexit minister Raab resigns in shock turn of events in Brexit saga

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD is struggling again this morning after chart resistance in the 1.3240s capped prices again yesterday, despite negative comments from a Democratic lawmaker about the USMCA needing changes before it can pass Congress.  Crude oil prices appear to have stabilized above the $56 level for now, and the fact that traders are shrugging off last night’s 8th consecutive weekly build in API oil inventories (+8.79M barrels) is somewhat encouraging for the commodity.  Adding to the downside pressure today in USDCAD this morning is heavy CAD cross buying, most notably against GBP, in light of today’s swift turn of events in the UK.  The US just reported October Retail Sales +0.8% MoM vs +0.5% expected, but the broader USD seems unimpressed.  Next up is the weekly EIA oil inventory report at 11amET, and a speech from the Fed’s Jerome Powell at 11:30amET.  We think USDCAD still has upside potential here, but we think the market may still want to test the resolve off longs with a downside test.  Support is 1.3195-1.3205.  Resistance is 1.3250-55.

  • EURUSD: Euro/dollar has had a volatile 24hrs.  The market broke above the 1.1300 mark as EUR traders followed the ebbs and flow of GBPUSD for most of the session during the UK cabinet meeting yesterday, and while this was a positive technical development, chart resistance in the 1.1330-40s asserted itself twice and held the market back from breaking higher.  This level was tested yet again in early European trading today and the breakout attempt failed yet again.  This technical setback, along with the 1.5% plunge in the GBPUSD that followed this morning, has dragged EURUSD right back down to yesterday’s NY opening levels.  The 1.1270-90s is now support as EUR traders try to figure out what to do next.  The BTP/Bund spread is edging higher again this morning (now at +312bp), but there hasn’t been any formal reaction yet from Brussels to Italy’s defiance on its budget revision (EURUSD negative).  USDCNH has edged below the 6.94 mark and has struggled to regain it so far this session (EURUSD positive).  Over 1.5blnEUR in options expire at the 1.1300 strike this morning.  We think EURUSD chops around here until the 1.1270s-1.1340s range breaks one way or the other.

  • GBPUSD: Everything is blowing up for Theresa May this morning as the UK PM’s supposed cabinet support for her Brexit deal appears to be vanishing after the surprise resignation of Brexit minister Dominic Raab.  This has prompted four other ministers to resign and there are also reports that Tory MP Rees-Mogg has now formally submitted a no-confidence motion against Theresa May.  Theresa May was speaking in the UK Parliament this morning, and while she remained confident in her position, her calling yesterday’s deal just a “draft treaty” is not going over well with her opposition.  The Northern Irish are not onboard either.  A whole lot of uncertainty has now entered the fray for sterling traders and it is understandable why GBPUSD is 200pts lower at this hour.  Chart support in the 1.2770s appears to be stemming the selling for now, but we would tread carefully here as the day in young and the situation still very fluid.  The next major support level lies in the 1.2680s.  UK Retail Sales for October missed estimates today, coming in at -0.4% MoM vs +0.2% expected.

  • AUDUSD: The Aussie is outperforming the other major currencies this morning after the Australian October employment report smashed expectations last night (+32.8k jobs vs. +20k).  This saw AUDUSD vault through yesterday’s NY high to test the next resistance point in the 0.7270s.  An attempt was made to break above this level in early European trading today, but like EURUSD, this effort failed and when sterling fell apart, this invited selling back into AUDUSD as well.  We think the 0.7250s will act as the pivot for today’s price action.  A bounce should give bulls another shot at the upside, but a fall below by the NY close will lead to a technically negative closing pattern.

  • USDJPY: Dollar/yen broke lower yesterday amid the swift reject of the 2740s in the S&Ps and bond trader desire to push US 10yr yields back below 3.10%.  Support in the 113.60-70s gave way in USDJPY, and this saw swift selling down to the next support level in the 113.30s.  This level is being tested again this morning, with EURJPY selling appearing to be the driver so far.  We think USDJPY risks rolling over here, especially if the 113.30s give way.

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

 

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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.

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Posted By Isabella Guevara at 08:15 AM