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2018-07-16 08:15

USD extends Friday's weakness following bullish reversals in EURUSD and GBPUSD. Upward revision to May US Retail Sales helping USD this morning. Traders eyeing Trump/Putin summit underway + Fed's Powell speech tomorrow.

Source: EBC Trading Desk


  • USDCAD: Dollar/CAD is trading mildly weaker to start the week as broad USD selling momentum from Friday spills over into today.  A large part of this momentum is coming from EURUSD and GBPUSD, which both bounced strongly after the Trump/Theresa May press conference on Friday and closed with hammer reversal patterns on the daily chart.  The selling has been muted in USDCAD however as the CAD crosses are being bought this morning.  August crude oil is inching lower again after Friday’s rumoured SPR release saw prices reject the 71 handle yet again.  USDCAD is now trading below trend-line support in the 1.3150s, but with the technical structure in EURCAD and GBPCAD improving, we see support on dips to the 1.3120s near term.  Today’s North American calendar features the Trump/Putin summit (currently underway) and US Retail Sales for June (just reported in line with expectations of +0.5% MoM and +0.4% ex. Autos, but with upward revisions to the May figures).  The net USD long (CAD short) position at CME grew to a 16 week high in the week ending July 10 as longs added and shorts trimmed.  This follows a massive liquidation of USD shorts from the week prior (June 26-July 3), and doesn’t help the long USDCAD thesis going into a key week which features the Fed’s Powell on capitol hill tomorrow and Canadian Retail Sales/CPI at week’s end.

  • EURUSD: Euro/dollar is trading comfortably higher this morning after a bullish turnaround in prices on Friday that saw the market score a hammer reversal close.  The 1.1690s were breached to upside in overnight trade and the market is now wrestling with the 1.1720s resistance level as US Retail Sales shows an upward revision to May’s figures (EURUSD negative).  The fact that USDCNH has rejected the 6.7250s for the 3rd time in as many days is helping EURUSD here however, as is the EURJPY cross, which has broken back above the 1.3125 level it retreated from on Friday.  We think EURUSD trades with a neutral to higher tone today, with renewed upward momentum needing a fresh push above 1.1720.  Next up is the Fed’s Chairman Powell, who delivers a monetary policy report before the US Senate tomorrow.  More here:  The net EUR long position at CME reduced to just 24k contracts in the week ending July 10 as longs liquidated and shorts added on the bounce up to 1.1800.

  • GBPUSD: Sterling is leading the gains in G7 FX this morning following Friday’s bullish reversal higher on the charts.  This all came after a press conference where Trump dialed back the negative language he gave to the UK press just the evening before, saying instead that a US/UK trade deal would/could be done after Brexit.  This appeased the markets and allowed GBPUSD to regain the 1.3200 level it lost late Thursday.  The extension of price gains into the 1.3240s to round up the week allowed for a hammer reversal close and the upward momentum needed to catapult the market to resistance now in the 1.3280s.  With GBPUSD selling now emerging into the NY open, and EURGBP regaining the 0.8820s support level, we think GBPUSD cools off a bit here today, but large option expiries above the market (1blnGBP+ 1.3310-1.3330) might keep things elevated before 10amET.  Support today lies at 1.3250-60.  The net short GBP position at CME expanded sizably during the week ending July 10 as a bunch of longs liquidated on the bounce up to the high 1.32s.  Given this expanded net short positioning and Friday’s bullish reversal higher, we think the likelihood of another short covering rally increases, especially if the 1.3280s give way to the upside.  The next meaningful resistance level is 1.3350.

  • AUDUSD: The Aussie is inching higher this morning as well given the broad USD selling theme today, but like CAD it is also getting sold on the crosses, and so AUDUSD gains are lagging EURUSD and GBPUSD.  Friday’s NY close was positive in that chart resistance at the 0.7415 level was taken out late, and this has allowed for further upward momentum; but trend-line resistance in the 0.7440s is capping.  Copper is also trading back to Friday’s lows, which is not helping.  We’ve seen a slight downtick in AUDUSD now on the upbeat revision to May US Retail Sales, but it’s nothing to write home about.  Next up are the RBA Minutes (tonight at 9:30pmET), Powell’s testimony before the US Senate tomorrow and the Australian employment report on Thursday (Wednesday night ET).  The net short AUD position at CME grew slightly in the week ending July 10 as longs liquidated a bit more than shorts.  With the market still positioned net short, a bullish reversal for EURUSD on Friday, and July 11th’s opening gap still looming un-filled above (0.7450s), we think AUDUSD will be bought on dips.

  • USDJPY:Dollar/yen is trading with a neutral to soft tone today as the USD extends Friday’s weakness more broadly.  The overnight range was tight with Japan out on holiday (Marine Day).  Trend-line support in the 112.30 is containing the selling for the time being, but we would not be surprised to see a further downtick should broader USD weaken.  The net USD long (JPY short) position at CME remained largely unchanged during the week ending July 10 as both longs and shorts added about the same in terms of new positions.  This new net long USDJPY position is 4 weeks old and has capitalized from the bullish technical breakout last week, but we would argue it needs to be fed soon with a catalyst that sees USDJPY regain the 112.50s, otherwise a pullback to the 112.00 level is likely near term.  USDJPY and US yields have inched higher after the upward revision to May US Retail Sales.

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


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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