Dollar in demand to start new week
Erik Bregar of Exchange Bank of Canada - InsideFutures.com - Mon May 11, 10:25AM CDT

ANALYSIS

USDCAD

The broader USD is trading higher this morning as traders focus on Boris Johnsons confusing re-opening message to the UK public yesterday; the German finance ministers admission that EU/UK trade talks have hardly made any progress; and talk of China considering a dumping duty on imported barley from Australia. Were also hearing a broad consensus develop that Fed chairman Powell will try and kill last weeks negative rate cut speculation when he speaks at the Peterson Institute for International Economics on Wednesday. If we combine all this Trumps tweet which insinuated that the horrible virus pandemic was inflicted on the USA by China, and news that some coronavirus clusters have resurfaced in China and South Korea, there are lots of reasons to sell risk and buy the USD this morning.

Dollar/CAD has bounced strongly back to the 1.3990-1.4010 region after double-bottoming at Fridays lows in the 1.3910s. The US and Canadian job reports on Friday were largely the non-events that FX option traderswere predicting. This weeks North American economic calendar features the April releases for US CPI, Retail Sales and Industrial Production. Well also get awful lot of Fed-speak throughout the week, in additional to Powells speech on Wednesday, plus a press conference from outgoing Bank of Canada Governor Stephen Poloz on Thursday following the release of the central banks annual Financial System Review.

The latest Commitment of Traders report released by the CFTC showed the leveraged funds increasing their net long USDCAD position to a new 11-month high during the week ending May 5th; which is not a good development considering spot prices have not confirmed the same and continue to trade sideways instead. We think Aprils trading range (1.3850-1.3900 to 1.4200-1.4250) could very well become Mays trading range so long as traders lack the conviction to build positions centered around an escalation of US/China tensions and/or growing money market liquidity issues.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

JUNE CRUDE OIL DAILY

JUNE CRUDE OIL DAILY


EURUSD

Fridays rally back above the 1.0850 level unfortunately proved short-lived for euro/dollar, as the rushto price in negative US ratesinexplicablyran into a brick wall after the London close. The March 2021 Eurodollar futures contractfell apart during the NY afternoon, which in turn dragged EURUSD back below 1.0850 for a rather miserable NY close.

We feel that this negative technical disappointment, along with todays broad demand for dollars, is the reason why EURUSD has fallen back further still this morning. We also think nothing positive will come out of this weekends threat by the European Commission to sue Germany after lasts week German court decisionquestioned the legality of the ECBs bond buying programs. European Commission President Ursula von der Leyen said on Sunday. The final word on EU law is always spoken by the European court (European Court of Justice in Luxembourg). Nowhere else.

This weeks European calendar doesnt feature much until the flash Q1 GDP numbers for Germany/Eurozone are released on Friday. This probably then explains why 12blnEUR in option expiries are lined up this week between the 1.0750 and 1.0900 strikes and why EURUSD FX option vol is falling back once again. Traders arent really expecting anything to happen this week. The latest Commitment of Traders report released by the CFTC showed the leveraged funds marginally reducing their net long EURUSD position during the week ending May 5thby adding new short positions.


EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

SPOT GOLD DAILY

SPOT GOLD DAILY


GBPUSD

The decline in sterling/dollar is one of the pairs leading the dollar broadly higher this morning and, to be fair, there are a couple of negative fundamental narratives to chew on. The first was Boris Johnsons confusing speech before the UK public on Sunday, where he attempted to plot the nations road-map out from coronavirus lockdown measures:

"This is not the time simply to end the lockdown," Johnson said on Sunday evening. "Anyone who cant work from home, for instance those in construction or manufacturing, should be actively encouraged to go to work." Opposition Labour Party leader Keir Starmer said Johnson had raised more questions than he had answered and there was now the prospect of different parts of the United Kingdom pulling in different directions. "Nobody has seen the guidelines yet," Starmer said. "It's a bit all over the place." Trade union leader Len McCluskey said Johnson had confused people. "Millions of people this morning will be completely dumbfounded," McCluskey said. (Reuters)

The second negative narrative came from German Finance Minister Heiko Maas in our opinion, when he voiced his concern about the stalled state of EU/UK trade talks:

A hard Brexit is becoming increasingly likely, as negotiations between Britain and the European Union have stalled, German Foreign Minister Heiko Maas told theAugsburger Allgemeinenewspaper."It's worrying that Britain is moving further away from our jointly agreed political declaration on key issues in the negotiations," Maas said, in an interview published on Saturday. "It's simply not on, because the negotiations are a complete package as it's laid out in the political declaration," he added."If it stays like this, we'll have to cope with Brexit as well as coronavirus," he said. (DW.com)

We also think Fridays failure on the part of buyers, to close the market meaningfully above the pivotal 1.2400 level, was a negative technical omen for the market heading into this weeks trade. The negative-US-rates tradefell flat on its face towards the end of trading on Friday and perhaps theres a fear the Powell will kill it for good when he speaks this Wednesday? GBPUSD has bounced off last Thursdays chart support zone in the 1.2270-90s this morning, but the bearish head and shoulders pattern on the daily chart now still remains intact on a closing basis.

This weeks UK calendar features a March data dump on Wednesday (GDP, Trade Balance, Industrial Output, Manufacturing Output). The BOEs Ben Broadbent and Andy Haldane will be speaking tomorrow. Finally, Bank of England Governor Andrew Bailey will speak in a webinar hosted by the Financial Times on Thursday. The leveraged funds at CME added to their new net short position during the week ending May 5thby liquidating longs and adding shorts.


GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

AUDUSD

The Australian dollar is having a rough morning so far. The overnight session started relatively well, despite Fridays buyer failure in the 0.6540s. Buyers reappeared in the 0.6510s and then seemed to follow the Nikkei/S&P futures higher throughout the Asian session. The 0.6540s resistance level then gave way as buy stop orders allegedly were triggered.

News then broke about Chinas Ministry of Commerce considering imposing a duty of 80% on imported barley from Australia, according to industry group Grain Producers Australia. The proposed tariff comes two weeks after Chinas ambassador to Australia warned of economic consequences for Australias push for an investigation into the origins of the coronavirus, and after an 18-month enquiry into whether or not Australia has been dumping grain into China.

The Aussie has now quickly fallen back below the 0.6540s, the 0.6510s and now the 0.6480swhich is very negative price action for those traders who were looking for another upside breakout earlier today. We also see a bearish outside reversal in the workson the daily chart, should AUDUSD close NY trade below the 0.6480salthough this weeks 1.8blnAUD in option expiries for Wednesday/Thursday could make follow-through selling a little bit challenging. Australia reports it Q1 Wage Price Index tomorrow night and its April Employment Report on Wednesday night. The leveraged funds at CME marginally reduced their net short AUDUSD position during the week ending May 5.


AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY


USDJPY

The Golden Week holiday effect on Japanese markets is now long gone and were seeing USDJPY directional bias/volatility return with a vengeance today. Risk-on flows were talked about the catalyst in Asian trade as the Nikkei rallied +1.4% higher. Reuters then reported that a US bank was buying USDJPY in size at the start of European trade, and this coincided with buy stop orders triggering above the 107.00 figure. Broad USD buying, led by GBPUSD selling in London, seemed to be icing on the cake, and we now have a market that is ripping the faces off the leveraged fundswho continued to hold a net short USDJPY position into May 5th.

Dollar/yen is now testing the upper most level of chart resistance (107.40s) that has been anchored upon Aprils price action. We think that a NY close above this level could bring about a noteworthy, positive shift in market momentum for the month of May.


USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR YIELD DAILY

US 10YR YIELD DAILY

Charts: Reuters Eikon

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