Summary
- Bank of Canada decision at 10amET. No press conference. No change expected with balanced outlook.
- S&P futures -20. US 10s down 4bp to 2.22%. Global investors fleeing to bonds.
- USD seeing broad demand, but the move is fading into NY trade.
- German unemployment explodes higher the most since the financial crisis.
- Australia 10-yr bond yield dips below the RBA cash rate. JPM sees 4 rate cuts from the RBA by mid-2020.
- USDJPY holding chart support in the 109.20s despite risk-off flows.
Summary
USDCAD
USDCAD traders are teasing the upper bounds of the May price range this morning (1.3500) as another bout of risk aversion hits the S&P futures and oil prices ahead of the latest Bank of Canada rate decision at 10amET. We continue to believe that the central bank will happily reference the recent improvement in Canadian data but they’ll be forced to acknowledge that global trade uncertainty and oil prices (two things they said they were openly looking at) have deteriorated since the last meeting. The chart structure for the market remains positive in our opinion so long as USDCAD stays above 1.3460, and so we think any cautious/patient tilt to the tone of the press release could see traders chase the market higher. Note there won’t be a press conference this time around where Stephen Poloz typically clarify things and answers questions. The first Bank of Canada speaker that we’ll hear from this week will be deputy governor Wilkins, when she speaks before the Calgary Chamber of Commerce on Thursday.
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EURUSD
Euro/dollar is trading on the backfoot this morning after the market closed below trend-line support in the 1.1170s yesterday. Today’s broad risk-off tone to markets doesn’t appear to be helping either, as European equity traders fret about a US/China trade war that could now Chinese involve rare earth minerals, growing tension between Italy and the EU, an inverted yield curve in Australia, and the German employment report for May (which saw the unemployment rate tick up for the first time since Nov 2013 and unemployment explode higher by 60k). USDCNH tried to rally and hold gains above the 6.9300 level earlier today (which is EURUSD negative), but this move appears to be petering out heading into NY trade. Italian BTP yields have calmed down so far today (which is EURUSD supportive). We think some EURUSD shorts might cover here at trend-line support in the 1.1150s should they not see follow-through to the downside. We’re also watching gold prices as well to see if any further selling below 2781 in the S&Ps sparks demand for precious metals and the EUR.
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GBPUSD
The British pound is leaking lower this morning as yesterday’s NY close was lackluster. Traders extended the market further south to chart support in the 1.2620-30s overnight, and we’ve since seen some buying come in at that level. The EURGBP cross is trading steady this morning, but continues to hold chart support at 0.8800. We think GBPUSD could see some short covering here as well, should EURUSD bounce.
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AUDUSD
There’s a whole lot of nothing going on with the Aussie so far today, as price remains largely confined to yesterday’s 0.6915-0.6935 range. Traders appear to be shaking off headlines that Australia’s 10yr yield has dropped below the RBA cash rate, as well as JP Morgan’s bold call for four 25bp rate cuts from the RBA by mid-2020. July copper is back in sell mode today, following the risk-off trade lower to the tune of 1%. We think the market’s ability to hold up despite the negative headlines is quite impressive, and we think the entrenched AUDUSD fund short position (which has grown steadily over the last 5 weeks) may have to re-evaluate should we see a move above the 0.6930s.
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USDJPY
Dollar/yen is holding chart support in the 109.20 quite well this morning, despite a late day plunge in the S&P futures below the 2806 level yesterday and continued selling overnight. The US 10yr yield is trading at a new 2-year low this morning as global investors flee into bonds across the board. Germany’s bund now yields -0.167%, Japan’s JGBs are flirting with a new 3-year around -0.10%. The value of negative yielding debt globally is now approaching 11 trillion dollars, according to Bloomberg. We think USDJPY’s ability to hold chart support here is quite impressive as well, but we wouldn’t get too excited about it until the global risk aversion wave abates. For the time being though, we think the risk for USDJPY remains to the downside. The BOJ’s Kuroda spoke last night, but didn’t say anything notable on the monetary policy front.
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Charts: TWS Workspace
Summary
USD Trading Update
- US traders returning from Memorial Day long weekend devoid of major US/China trade headlines.
- USDCAD bouncing but trend-line resistance in the 1.3470s capping.
- EURUSD holding support in the 1.1170s after Thursday’s gold-inspired bullish outside day pattern.
- GBPUSD traders deciding what to do next following Theresa May’s announced June 7 resignation date.
- AUDUSD trading bid with copper and EURUSD.
- USDJPY continues to struggle as US 10s start the week below 2.30%.
- Bank of Canada announces its latest interest rate decision tomorrow.
Summary
USDCAD
Dollar/CAD is USD trading with a mixed tone this morning as US traders return from the Memorial Day long weekend. A mild wave of selling in European equities and the S&P futures earlier this morning has helped the USD more broadly, but there hasn’t been a whole lot of momentum behind the move and USDCAD is now hitting familiar trend-line resistance in the 1.3470s. This week’s calendar features the Bank of Canada interest rate decision tomorrow, where no change is expected. While we think Stephen Poloz will acknowledge the recent improvement in Canadian data (record employment report for April, higher than expected core CPI for April, better than expected Retail Sales for March), we think he’ll continue to express concern over global trade uncertainty and oil prices (both of which have deteriorated since the April meeting). Thursday’s session will bring the 2nd look at US GDP for Q1, along with a speech from the Bank of Canada’s deputy governor Wilkins. Finally, on Friday we’ll get the US PCE Index (April), Canadian GDP (April), Canadian Raw Material Price Index (April) and the Chicago PMI (May). The leveraged funds continue to hold a net long position in USDCAD, but they have trimmed long positions as of May 21.
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EURUSD
Euro/dollar continues to hold chart support in the 1.1170s despite reports that the European Commission is considering disciplinary procedures against Italy for its failure to meet EU budget rules. More here. The Italian 10-yr BTP yield shot up to 2.70% from 2.55% yesterday when the news broke, but EURUSD traders appear to be taking the news in stride ever since. Italian deputy PM Salvini has said today that he will use all his energy to fight outdated EU fiscal rules, while the EU’s Moscovici said that he does not prefer sanctions against Italy. This week’s European calendar features the German employment report for May (Wednesday), and the German Retail Sales for April (Friday) and the Italian Q1 GDP figures (Friday). The funds added to their net short EURUSD position as of May 21 but we suspect they’ve trimmed this since the gold-inspired bullish outside day recorded on the daily chart last Thursday. Chart resistance today for early this week resides in the 1.1210s. We think any move above this level will incite more buying towards the 1.1300 level.
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GBPUSD
Sterling traders are suffering from a bit of anxiety ever since Theresa May announced on Friday that she’ll be resigning on June 7. While the news provided a bit of relief rally for GBPUSD, Brexiteer Boris Johnson is currently the front-runner to become the next Tory leader/prime minister, and we think some traders are starting to think about “no-deal” Brexit risk once again. This week’s UK economic calendar doesn’t feature any prominent releases, as so we think market participants will be focused on the upcoming leadership race, which is expecting to kick off in two weeks’ time. Near term chart support lies in the 1.2620-30s, while resistance resides just above the 1.2700 figure. The funds piled into new short positions during the week ending May 21. We think they remain in charge sub 1.2750-80. The EURGBP cross looks well supported into month end, with traders buying yesterday’s dip back below the 0.8800 figure.
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AUDUSD
The Aussie continues to enjoy some upward momentum since it bottomed with EURUSD last Thursday. We’re now trading within yesterday’s tight 0.6915-0.6935 range as US traders return from the holiday weekend. July copper prices are also trying to extend gains since bottoming last week and we think a move above the 2.72 level could be quite supportive for AUDUSD. Dollar/yuan, on the other hand, has been trading bid to start the week as US/China trade tensions linger. We think AUDUSD could find continued buying interest should USDCNH stay below the 6.9300 level. This week’s Australian economic calendar features the April Building Permits data for release on Wednesday night ET. The funds extended their net short position to -66.1k contracts during the week ending May 21.
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USDJPY
Dollar/yen continues to struggle after last Thursday’s risk off move saw chart support give way in the 109.85-95s. The S&P futures have been trading range-bound ever since and the cash US 10-yr yield is starting the week offered below 2.30% (which isn’t helping in our opinion). Buyers appear to be taking a stand at chart support in the 109.20s this morning but there are no major US economic releases/central bank speeches scheduled for today which could provide catalysts for further upside momentum. Bank of Japan governor Kuroda will be speaking tonight at 8pmET. The funds liquidate both long and short positions during the week ending May 21, bringing down their net long USDJPY position slightly week-over-week.
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Charts: TWS Workspace
