Key technical reversals, weak US ISM, reduced "no-deal" Brexit risk propels USD lower

ANALYSIS

USDCAD

Key technical reversals and strong NY closes across the major currencies yesterday is pressuring the broader USD this morning. It all started with yesterdays dismal US ISM Manufacturing print for August, which derailed the post weekend rally in the dollar and pressured US 10yr treasury yields to new cycle lows below 1.44%. A strong reversal higher in the British pound also played a part in leading the USD broadly lower, after the UK House of Commons defeated PM Boris Johnson in an emergency vote that would see the parliament take over the next Brexit proceedings in the house. The pound is continuing its rally today as its expected Boris Johnson will also lose todays emergency motion which would force him to ask the EU for a Brexit extension to Jan 31. So it would appear no-deal Brexit risk has simmered down for the time being and markets are feeling better overall. This makes for a more uncertain technical setup for USDCAD however heading into this mornings Bank of Canada interest decision. The market has now slipped below chart support in the 1.3320s whereas yesterday morning we were on the verge of an upside breakout above the 1.3360-70s. A growing consensus has also emerged on the street in recent days that the Bank of Canada will sound more dovish than they did in July, and so were starting to wonder if todays expected negative change in tone is largely baked into prices here. The press release will come out at 10amET. The key levels to note on the charts today are 1.3290 and 1.3240 to the downside, the 1.3370s to the upside, and the 1.3320s as the near term price pivot.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

OCT CRUDE OIL DAILY

OCT CRUDE OIL DAILY

EURUSD

Euro/dollar continues its reversal higher this morning, largely following in the footsteps of GBPUSD. Yesterdays bullish hammer reversal NY close was the precursor to todays move higher in our opinion, and we think todays continued re-pricing of no-deal Brexit risks is adding some fuel to the fire on an otherwise quiet morning when it comes to other European news headlines. ECB President-to-be, Christine Lagarde, said this morning that inflation is persistently too low and that highly accommodative policy will be warranted for a prolonged period, but German bund and EURUSD traders seem to be ignoring this for now (plus we would argue we have heard these dovish tones from her before). The market is now wrestling with trend-line chart resistance in the 1.1010s and is bracing for a barrage of Fedspeak on tap for todays NY session:

Williams 9:45amET
Kaplan 12:00pmET
Bowman & Bullard 12:30pmET
Kashkari 1pmET
Fed Beige Book 2pmET
Evans 3:15pmET

We think the 1.1010s will be pivotal for EURUSD price action today. A move back below could invite the sellers back in for a possible re-test of the 1.0960 whereas a move above could prompt more buying into 1.1050.

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

DEC GOLD DAILY

DEC GOLD DAILY


GBPUSD

Sterling is ripping higher this morning and we very much believe yesterdays bullish hammer reversal NY close back above trend-line support in the 1.2060s set the market up for this. Things are getting worse by the minute for Boris Johnson and, while this hurts the UK PM politically, the markets are thinking this reduces the odds of a no-deal Brexit outcome for the time being. Johnson has lost a motion to lead the parliamentary time table in the House of Commons; he has lost his majority rule in the house by way of one of his members defecting to the Lib-Dem party; he is now likely to lose todays emergency vote which will outlaw a no-deal Brexit and force the British PM go back to Brussels for an Brexit extension; and what is more, its still uncertain at this point if Boris Johnson will be able to call for the snap general election he now wants for Oct 15 (he needs 2/3 of the house to approve it and Jeremy Corbyn has said the Labour party will block it until a no-deal Brexit bill is passed). GBPUSD has blasted through the 1.2160-80 resistance level this morning and were now seeing some profit taking to retest this level as new chart support. Expect some fanfare later this afternoon and in early Asian trade tonight as the no-deal Brexit vote and Boris Johnsons election motion gets voted on.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

The Australian dollar was the first G7 currency pair to start reversing higher yesterday off the back of the RBAs unexciting hold to interest rates. The bullish outside day pattern, that we talked about developing on the charts yesterday, then got confirmation by way of the much weaker than expected US ISM figures for August and the USD selloff which ensued after that. Yesterdays NY close above chart resistance at the 0.6750 level was as bullish as they come, especially when you combine it with an outside day pattern, and were now seeing some nice follow-through in AUDUSD to the upside today. Australia reported its Q2 GDP figures in-line with expectations last night (+0.5% QoQ). A trend-line resistance level in the 0.6790s now appears to capping prices heading into NY trade, and its quite possible we could see the market pull back here should GBPUSD cool off a bit more and EURUSD fall back below the 1.1010s.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY


USDJPY

Dollar/yen saw selling yesterday off the back of the weak US ISM figures for August, but the market has recouped those losses this morning. Theres a sense of risk-on today if we look at the S&P futures (+26) and the global bond yields (German bunds +5bp and US 10s +4bp). The Chinese and German Services PMIs for August beat expectations, no-deal Brexit risk appears to be subsiding for the moment, and one could even argue that Hong Kongs decision to formally withdraw the extradition bill is positive for risk sentiment here. USDJPY, however, remains largely confined to its recent range and we think todays 2blnUSD of option expiries in the 106.30-50 zone wont help with that. Todays lineup of Fedspeak should be the focus for bonds and the Fed rate cut trade in general. We think a strong close for US 10s above 1.50% could mark a short-term bottom for rates.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR YIELD DAILY

US 10YR YIELD DAILY

Charts: Reuters Eikon

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