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EUR violently reverses higher post ECB press conference.


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ANALYSIS

USDCAD

Dollar/CAD is breaking above trend-line resistance in the 1.3220s this morning as the US Retail Sales figures for August beat expectations (+0.4% MoM vs +0.2%). This could technically halt the downward momentum of the market, in our opinion, should USDCAD be able to close todays NY trade above this level, and usher in the wider 1.3100-1.3300 range we talked about after the Bank of Canadas less dovish than expected hold to interest rates last week. With the ECB meeting now out of the way, the focus will now turn next weeks interest rate decision from the Fed. Market participants are still expecting Jerome Powell to cut interest rates one more time by 25bp, but theres growing angst in the bond and money markets that this might be it. Global bond yields continue to rally this morning, with German bunds yields now above -0.50% and US 10s back above 1.80%. The December Eurodollar futures contract has now fully priced out another 25bp of cuts by years end, and the S&P futures are closing in on new all-time highs. We think Jerome Powell will be feeling a whole better heading into next week, and all it really took was some positive headlines on the US/China trade front, some re-pricing of no-deal Brexit risk, and now a German bond market that doesnt believe the ECB. We see some near-term resistance today at 1.3250 in USDCAD.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

OCT CRUDE OIL DAILY

OCT CRUDE OIL DAILY

EURUSD

Euro/dollar put in a bullish outside day pattern on the charts yesterday, after screaming higher at the conclusion of the ECBs press conference, and the markets upward momentum is continuing today with a clean break of trend-line chart resistance at the 1.1070s. So why did we get a sudden positive change in EUR sentiment? Wasnt the ECBs interest rate cut, the re-start to asset purchases, and the were going to be doing this for a long time tone to its forward guidance supposed to be a dovish development for markets? In theory yes, but heres what we gathered from market chatter after the press conference:

1. While the ECB said it would restart it asset purchase program (QE) to the tune of 20blnEUR/month for as long as necessary starting on Nov 1, it didnt raise their internal sovereign debt issuer limit rules (ie. how much of each countries bonds theyre allowed to buy). A number of analysts quickly came out saying QE could only last for 12 months on average, unless Christine Lagarde (the new ECB President come November) changes the rules. So perhaps this is not QE-infinity?

1. Mario Draghi apparently did not have unanimous consent from all ECB members for yesterdays decision. According to Bloomberg, the Dutch, German, French, Austrian and Estonian central bankers all reportedly opposed the resumption of asset purchases. The Dutch central bank confirmed their stance this morning by issuing a press release. Seehere. So, is there a revolt brewing internally at the ECB and could Christine Lagarde be forced to reverse some of what we saw yesterday when she takes over?

1. Mario Draghi said there was unanimous consent amongst ECB members that fiscal stimulus measures needs to take over in Europe, and the that lack of having such measures in place up until now is the reason why the ECB has been ineffective with monetary policy. Is this a round about way of passing the buck and justifying why everything the ECB has done hasnt worked? Did Mario Draghi just admit that the ECB is out of bullets? Well, if thats the case, this might truly be their last hurrah and so theres less of a reason to be dovish on rates (at least for now).

The fact that Mario Draghi went ahead with more of the same yesterday should be another wake-up sign that central bankers dont know what to do anymore. It hasnt worked for 10 yearsso sure, lets do more of it. Mario Draghi didnt ride off quietly into the sunset (as we has hoped he would). He would have got the same response out of the German bond market and EURUSD had he done nothing. Instead, he just further ruined his legacy yesterday, in our opinion, and caused a you-know-what show for Christine Lagarde to deal with now.

This mornings better than expected US Retail Sales print for August is now causing some broad USD buying to come in, and so we think EURUSD buyers might be put to the test at the level they broke above earlier (1.1060-70). Over 1.5blnEUR in options expire this morning around the 1.1050 strike as well.

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

DEC GOLD DAILY

DEC GOLD DAILY


GBPUSD

Sterling is surging higher this morning after the UKs DUP party said it would accept Northern Ireland abiding by some European Union rules after Brexit as part of a new deal to replace the Irish backstop. It also said it would drop its objection to regulatory checks in the Irish Sea, and when we combine this positive sounding Brexit news with a technical break for GBPUSD above chart resistance in the 1.3250s, theres your reason to rally. GBPUSD galloped higher to the 1.2400 level, hesitated there for a bit at during the European AM, but has now vaulted higher amid a lack of meaningful chart resistance until the 1.2450s. Boris Johnson said this morning there was the rough shape of a Brexit deal to be done. We are working incredibly head to get a dealI would say Im cautiously optimistic. We think this mornings breakout higher in GBPUSD is technically significant because well now likely get a serious test of the markets long-term downtrend. Watch 1.2470-1.2500 over the next week.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

It seems the Australian dollar market is feeling a bit tired this morning. Yesterdays gyrations caused by the inaccurate reporting of an interim China trade deal caused a false breakout above the 0.6880s, but the market avoided a negative technical development by closing above the 0.6860s (perhaps with the help of EURUSD's violent reversal higher). Follow-through EURUSD buying isnt helping today though, nor are copper prices (which are surging 1.8% higher this morning amid the broad risk-on tone to global markets. So whats wrong with the Aussie here? Perhaps weve rallied too much, too fast. The better than expected US Retail Sales report out this morning is also a reason for buyers to pause. We think the downward sloping price channel (0.6855-0.6875) will be pivotal for price action heading into next week.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

DEC COPPER DAILY

DEC COPPER DAILY


USDJPY

A sharp reversal higher in German bund yields, after the ECB press conference concluded, brought the USDJPY buyers back yesterday. It brought them back because the German move brought back US 10yr yields as well. Dollar/yen managed to end NY trading on a high note, by closing above chart resistance 108.10, but its struggling a bit this morning as talk of Japanese exporter selling around the 108.00 level makes the rounds. The markets inability to benefit from the good US Retail Sales report is also a bit concerning. Perhaps the market searches for buyers once again here. Japanese government bonds (JGBs) are falling apart today after the BOJ said its watching the lower threshold of its yield curve control program yesterday (-0.20%) and that "yields could be at a tipping point". The Japanese 10yr benchmark is now trading at -0.15%, which should come as a relief for the Bank of Japan, when it meets next Thursday (right after the Fed meeting) to announce its latest decision on monetary policy.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

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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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Contributing author since 09/25/17 

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