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2019-01-07 08:15

USD inches lower in quiet start to week. Dovish comments from the Fed's Powell on Friday still on trader's minds.

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD is starting the week with a softer tone as the broader USD sees some follow-through selling from Friday’s session.  The Fed’s Jerome Powell said the US central bank would be prepared to adjust policy “quickly” when referring to near term risks to the outlook, and it was this dovish comment that led market participants to reprice for a Fed that will supposedly now be more data dependent going forward.  These comments hurt the USD broadly and reversed gains scored on the much better than expected US employment report.  USDCAD, in particular, lost chart support in the 1.3440-50s and this then led to further selling into Fibonacci support at the 1.3370s.  February crude oil stalled at the $49 mark on Friday, but it’s making another attempt higher this morning (+2.3%).  USDCAD is now clinging to trend-line support in the 1.3350s as NY trading begins today.  While we would not be surprised to see a bounce at some point this week, we believe the 3-month uptrend in USDCAD is now over and we would expect sellers to emerge on any rallies to 1.3450-1.3500.  The Bank of Canada will announce its latest decision on interest rates this Wednesday, but traders are not expecting any change given Poloz’s dovish turn at the last meeting.  

  • EURUSD: Euro/dollar is stair stepping higher this morning after Friday’s dovish comments from Powell rescued the market from the depths of the move lower following the stellar US job report.  Chart resistance in the 1.1420s has given way, and so this now opens up an upside test of the 1.1450-70 level.  German Retail Sales from November beat expectations earlier today, but Factory Orders for the same month missed estimates.  The US Non-Manufacturing ISM report for December now awaits traders at 10amET today.  We think the market can continue higher here as the Fed funds futures market prices out Fed hikes for 2019, but we’d need to see a firm close above the 1.1450 to confirm.

  • GBPUSD: Sterling is inching higher this morning after Thursday’s flash crash reversal and Friday’s follow-through move higher post Powell combine for a technically positive setup heading into this week.  Chart resistance is looming heavy though in the 1.2750-1.2790 area, and so we think the market may have to pull back here in search for buyers before we can resume higher.  Expect more Brexit headlines this week as the UK Parliament is back in session.  Theresa May’s meaningful vote is still expected to occur next week on Jan 15 or 16.

  • AUDUSD: The Aussie is coasting at chart resistance in the 0.7130-40s as trading gets underway this week.  It’s fascinating sometimes what causes markets to top and bottom, but we think last week’s flash crash/reversal higher in AUDJPY might have just done the trick for the AUDUSD market.  We would not be surprised to see the market come off a bit here to find buyers, but we think AUDUSD now begins a bottoming process with support at 0.7050 being pivotal.  Australia reports its December Trade Balance data tonight at 7:30pmET.  Tomorrow night sees the release of Australia’s November Building Permit numbers.  Finally, on Thursday we’ll get Retail Sales data from down under. 

  • USDJPY: Dollar/yen continues coast within Friday’s range as NY trading gets underway this week.  With the Fed’s Powell now sounding more dovish and US stocks/yields bouncing as a result last week, we think USDJPY may want to test upside resistance in the 108.70-109.20 at some point this week.   We’d expect to see sellers emerge at that point however as the speculative funds (as far as we can tell) are still long this market and may look at these levels to get out.  The CFTC could not report the weekly Commitment of Traders (COT) positioning report for the 2nd week running now, because of the ongoing US government shutdown.

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

 

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

February Crude Oil Daily Chart

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EUR/USD Hourly Chart

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GBP/USD Hourly Chart

EUR/GBP Daily Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

March Copper Daily Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

March S&P 500 Daily

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