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2018-08-29 08:15

USD trading broadly higher into NY trade

Source: EBC Trading Desk

Summary

  • USDCAD: Dollar/CAD is mildly bid this morning, erasing some selling we saw in Asian trade after a Globe and Mail headline said Canada was ready to make concessions on dairy to secure a NAFTA deal.  The bid since the European open has largely been a result of broad USD buying since EURUSD gave up 1.1700, AUDUSD lost the 0.7320s and USDCNH regained the 6.8120s.  A resumption of selling in the EM FX space is not helping either, with TRY down 3% and ZAR down 1% this morning.  October crude is shaking off a bearish API inventory report last night (+38k barrels vs. -5.22M expected) as the looming Iran sanctions appear to already be having an effect on the physical market (Brent curve moving towards backwardation).  The 2nd look at US Q2 GDP just came in better than the advance read (+4.2% vs +4.0% YoY).  Next up is the EIA weekly oil inventory report, where a draw of 686k barrels is expected.  We think the downward sloping trend-line level (today in the 1.2940s) will be the line in the sand again today.  Expect sellers to re-enter should we stay below it, and buyers to chase should we trade above it.

  • EURUSD: Euro/dollar struggled to extend gains during NY trading yesterday, with the turn lower in “risk” (S&P and US yields) being the drivers amid an otherwise quiet tape.  The market closed below the 1.17 handle, which was not great technically.  In Asia trade overnight, we saw Yuan weakness (USDCNH breaking back above 6.8120) and AUDUSD break lower on the Westpac headlines.  Finally we got reports out of La Stampa about Italy apparently asking the ECB for a new round of QE to save its bond market. https://www.bloomberg.com/news/articles/2018-08-29/italy-reportedly-reached-out-to-ecb-on-new-bond-purchase-plan.  We also have a large option expiry at 1.1675 today (1.4blnEUR).  All this is combining to keep EUR on the back foot here.  We think EURUSD can resume its rally should we regain and hold the 1.1670s.  Staying below this level however may invite further selling.

  • GBPUSD: Sterling is bid this morning, but it’s been a volatile 24hrs.  Swift selling emerged during NY trade yesterday after the turn lower in “risk” combined with GBPUSD stalling at 1.2920s resistance and EURGBP breaking out.  GBPUSD saw further selling in Asia and early European trade today amid broad USD strength, but has fully recovered back to breakeven after a wave of EURGBP selling came in.  Brexit headlines today are seemingly negative, with talk of the UK’s Raab reportedly not being able to meet the EU’s Barnier and rumors of the negotiating deadline being pushed back a month to November.  More here: https://www.theguardian.com/politics/2018/aug/29/brexit-dominic-raab-frustrated-by-michel-barnier-lack-of-availability-on-talks.  We think GBPUSD coils up for a bit here, and we would note a triangular consolidation on the daily chart which is reaching its apex.  We would not be surprised to see another attempt at a breakout higher should the market trade above the 1.2910s (upper edge of the triangle).

  • AUDUSD: The Aussie is getting hit this morning after surprise headlines from Westpac bank; announcing that it will raise variable home loan rates by 14bp effective September 19.  More here: https://www.bloomberg.com/news/articles/2018-08-29/westpac-becomes-first-big-australia-bank-to-raise-mortgage-rates.  Traders are digesting the news negatively as it will likely put pressure on Australia’s debt burdened housing market.  The Westpac move also flies in the face of the RBA, which is nowhere close to raising rates formally.  September copper is trading down 1% today, but it appears to be following rather than leading.  We think the 0.7310 level is the key to watch today.  Stay below and we’ll likely struggle, but regain along with some EURUSD buying, and we may see a recovery into 0.7320-40.

  • USDJPY: Dollar/yen continues to waffle around, with daily option expiries and competing demand for USD and JPY keeping the major pair range-bound.  We expect more of the same today, as another 1blnUSD goes off the board at 111.20.  The BOJ’s Suzuki was on the wires today emphasizing that the recent expansion of the JGB yield range is not the same as a rate hike.  Japan reports July retail trade figure tonight at 7:50pmET.

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 Jennifer Danuff at 08:15 AM