USD Recovering Overnight Losses Into NY Trade
Summary
  • USDCAD:Dollar/CAD longs took some heat yesterday after some stronger than expected Canadian manufacturing shipments data (not usually a market mover) knocked the market below trend-line support in the 1.3010s. This allowed selling to continue into the next trend-line support level, which was the 1.2970s. While we saw a brief bounce at this level in Asian trade overnight, the 1.2970s eventually broke in early European trade, with broad USD selling flows being the driver. The USDCAD chart is looking rather precarious this morning, with yesterdays candle forming a bearish outside day pattern, and the next support level coming in at the 1.2900 level, but longs are breathing a sigh of relief here as a combination of negative Brexit headlines and negative NAFTA headlines just crossed to vault the market back towards the 1.2960s (yesterdays support turned resistance). November crude oil futures (now the new front month) sit steady near yesterdays Saudi-inspired highs, with trend-line resistance in the 69.80sresisting and support in the 69.40-50s holding for now. Todays calendar features US Housing Starts (just released 1.282M vs +1.235M expected) and the weekly EIA oil inventory report (draw of 2.74M barrels expected). We think a regain of the 1.2970s will invite some buying back into the market here. Failure to regain will keep the pressure on the funds (who continue to be positioned net long). Resistance today is 1.3010. Tomorrow features a large option expiry at the 1.3000 strike (1.6blnUSD)

  • EURUSD:Euro/dollar continues to chop around familiar levels, after yesterdays price action faked out longs above 1.1700 and shorts below the 1.1670s. Futures open interest declined 3295 contracts. Todays price action is similar so far, with traders toying both sides of the aforementioned support and resistance levels, but not making much ground either way. The EM FX space is trading 0.5-2% higher today and the BTP/Bund spread remains near two month lows (+235bp), but EUR traders are ignoring this. EURUSD has seen some selling here after the negative Brexit headlines crossed (following GBPUSD lower). We think things could get ugly for EURUSD here if the 1.1670s cannot be regained. Next support 1.1590s. Tomorrow features a decently sized option expiry at the 1.1600 strike (1.2blnEUR)

  • GBPUSD:Sterling has had a volatile overnight session; vaulting higher in early European trade afterUK CPI for August beat expectations (+0.7% MoM vs +0.5%), but now crashing back down after Theresa May is reported to have rejected the EUs latest offer on the Irish border issue. GBPUSD has bounced off its lows however and is now trading back to breakeven on the day, right where the familiar upward sloping trend-line level lies (1.3150). The day is still early, but the daily candle is shaping up so far to be a doji (which signals indecision).

  • AUDUSD:The Aussie is quietly inching higher today, much like CAD. The market managed to shake off yesterdays downside option expiry and mid-day selling in EURUSD; closing well above the 0.7200 mark by the close, which we said would be important for technical strength. AUDUSD has now drifted higher to the next trend-line resistance zone, which lies at 0.7250-60. Kents speech from the RBA was a non-event. Copper continues to hold the bulk of yesterdays gains, after the market scored a bullish outside day on the charts. Theres also been market chatter about physical premiums in China hitting 3 year highs today (which indicates strong demand in the spot market). All this being said, we think AUDUSD cools off a tad here.

  • USDJPY:Dollar/yen and JGBs are trading relatively flat this morning, with absolutely no excitement coming from the Bank of Japan meeting overnight. The Japanese central bank kept its dovish monetary stance in place as expected and offered no hints to forward guidance. So much for a near term catalyst for a breakout higher in USDJPY, after the market scored a bullish outside day on the charts yesterday. Traders must now look to continued strength in US stocks and US yields to get the upward momentum going again in USDJPY. US 10s trade at 3.05 this morning (a 5-month high). Over 1.7blnUSD in options expire at the 112.00 strike this morning, which could weigh things down a bit here. Support 112.15-20, then 111.90-95.

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