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2018-02-12 08:15

USD mixed to start week, but broadly firming now. UK CPI on deck tomorrow and US CPI Wed. S&Ps stable.

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD is starting the week with a softer tone after Friday’s spike higher and reversal lower.  The January Canadian employment report was a stunner in that the headline was a huge miss (-88k) and the participation rate dropped.  Some traders later argued that the rise in wages was decent (+3.3% YoY) and that these were part time job losses (-137k, the most on record), so the argument was that the headline was not so bad.  Regardless of how one wants to spin the report, USDCAD spiked higher, tested the next key resistance level (1.2650-1.2660) and then completely reversed lower, and it’s this technical structure that casted a shadow over Friday’s NY close and is now giving us the softer tone to start the week.  The 1.2585-1.2595 support level gave way in early Asian trade and the market is trying to regain the level now after testing the 1.2550s earlier.  We think USDCAD regains its composure today and trades higher as the broader USD finds a bid here and GBPCAD works to reversal an ugly NY close.  The Canadian calendar is light this week, with the only notable data point being Existing Home Sales on Thursday.  The US calendar is more interesting, with CPI and Retail Sales on Wednesday; PPI, Philly Fed and Industrial Production on Thursday; and Housing Starts, UofM survey on Friday.

  • AUDUSD: The Aussie is starting the week with a bid tone, which one could argue is coming from both the S&P and copper being up over 1% this morning, but the market is dealing with some tough overhead resistance at the moment (upper end of 0.7815-0.7825).  Upward sloping trend-line resistance today checks in at 0.7830, and we have a downward sloping resistance trend-line as well in the 0.7840s.  We think AUDUSD trades range-bound today to higher today as the European, USD-led, dip was shallow.  Traders have some Australian data tonight to look forward to (Jan NAB survey and Feb Consumer Confidence).  The big Australian data point this week is the employment report on Thursday.  The RBA’s Lowe is also expected to testify before Parliament on Thursday as well.  Reuters is reporting another large option expiry for this Friday’s NY cut ($2.4bln AUD at 0.7850).

  • EURUSD: The ability for EURUSD to close back above the 1.2220s in late NY trade on Friday was important, as it arrested Friday’s negative momentum, and gave the market an excuse to tick a bit higher to start the week (which is has done).  However, EURUSD ran into thick resistance at 1.2280-1.2300 earlier in Europe and we’re now settling into a range as NY trading gets underway.  USDCNH rallied back into the green after a weak start, and we think this might pressure EURUSD here so long as it stays above the 6.32s.  We think EURJPY could be a dominant influence again this week, but it’s not doing much at this hour.  EURGBP is consolidating Friday’s gains fairly well and looks poised to take another crack at the 89 this week.  It’s going to be quiet week for European data, with the only notable items on Wednesday (German and Eurozone Q4 GDP, Eurozone Industrial Production).  The Italian elections are now three weeks away (March 4th), and we continue to hear about demand for put options to cover this event.

  • GBPUSD: Friday’s action in sterling proved that Brexit risks still remain for this market.  Just because we don’t get notable Brexit headlines (as was the case for most of January), it doesn’t mean the risk disappears, and as the EU’s Barnier reminded us on Friday, Brexit negotiations are far from resolved.  At its worst on Friday, GBPUSD traded to trend-line support in the 1.3770s.  The market managed to bounce off that level, and regain the 1.3820s to start the week (which is somewhat positive), but upward sloping trend-line resistance has capped trade so far today (1.3870s).  The BOE’s Haldane said on the weekend that they are in no rush to hike rates.  The BOE’s Vlieghe sounded uncertain about the economic outlook when he spoke earlier.  We have the BOE’s McCafferty speaking later (11:30amET).  We think GBPUSD trades range-bound to lower today as the broader USD continues to firm and the prospects for EURGBP look higher.  Traders will be glued on the big UK data item tomorrow, which is Jan CPI.  Markets are expecting +2.9% YoY and -0.6% MoM.  The number will be released at 4:30amET.

  • USDJPY: Dollar/yen recovered nicely with the afternoon bounce in the S&Ps on Friday.  With that, USDJPY has averted the stop hunters below 108 and is now working to regain the 108.70-80s (which it broke down through early Friday), but there is very little momentum at this hour.  The JPY crosses are quiet too.  US yields are right back up at their recent highs to start NY trading (2.87) and the S&Ps look poised for a positive open.  We think it’s going to be more of the same this week for USDJPY in that traders will follow equities.  A move back above the 108.70-80s invites a rally back to the 109.40s.  Support today checks in at the 108.20s.

Market Analysis Charts

USD/CAD Chart

AUD/USD Chart

EUR/USD Chart

GBP/USD Chart

EUR/GBP Chart

USD/JPY Chart

USD/CNH Chart

EUR/CAD Chart

GBP/CAD 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.

Interested in creating a custom foreign exchange trading plan? Contact Us or call EBC's trading desk directly at 1-888-728-4918.


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Posted By Rachel Butler at 08:15 AM