USD heavy ahead of Powell
Erik Bregar of Exchange Bank of Canada - InsideFutures.com - Wed May 13, 10:09AM CDT

ANALYSIS

USDCAD

All of yesterdays Fed speakers reiterated their views against negative interest rates and, while one could argue this allowed the USD to recover from the risk-on flows we saw in Europe, we get the sense this morning that traders are a little bit nervous that chairman Powell might not do the same. For starters, the various Fed member positions on negative rates is arguably well priced into markets by now. What is more however, what if Powell purposely doesnt touch on the topic or sounds ambiguous when referring to it? This would technically leave the door open on negative rates and force markets to re-price for it once again. Jerome Powell is expected to speak at 9amET on the current economic issues in a webcast hosted by the Peterson Institute for International Economics.

Dollar/CAD has now fallen back to chart support in the 1.4010s after scaling familiar resistance in the 1.4070-80s over the last 12hrsall not that surprisingly as our expected range trade continues. We think the over 1.5blnUSD in options expiring at the 1.4000 strike at 10amET morning is also keeping the pressure on as the notional amount is much larger than usual.


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EURUSD

Euro/dollar has risen back above the pivotal 1.0850 level as traders await Powells comments at 9amET. Reuters is reporting some mild interest in topside option strikes today and wed note the 1-month EURUSD risk reversal trading back to its early May highs of -0.65 vols. We think all this confirms the mild trader angst we mentioned above.


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GBPUSD

Sterling underperformed its G7 peers yet again yesterday as a combination of poor chart technicals and negative lockdown-easing/EU trade-talk narratives continued to weigh on UK sentiment. Yesterday mornings GBPUSD buyer failure in the 1.2370s and the strong breakout above the 0.8750s in EURGBP was very telling in our opinion, and the NY closes for sterling against the USD and EUR were as bearish as you can get.

We think this mornings better than expected UK dataset for March is irrelevant information as the country was just beginning its more serious lockdown measures towards the end of March. Details below. Todays bounce, however unjustified it may seem from a technical/UK fundamental perspective, is being driven by pre-Powell angst in our opinion.

UK Mar GDP Estimate MM, -5.8%, -8% f'cast, -0.1% prev, -0.2% rvsd
UK Mar GDP Estimate YY, -5.7%, -7.2% f'cast, 0.3% prev, 0.2% rvsd
UK Q1 GDP Prelim YY, -1.6%, -2.1% f'cast, 1.1% prev.

UK Mar Industrial Output YY, -8.2%, -9.3% f'cast, -2.8% prev, -3.4% rvsd

UK Mar Manufacturing Output YY, -9.7%, -10.4% f'cast, -3.9% prev


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AUDUSD

The Australian dollar has risen back above the 0.6500 this morning as traders sell the USD broadly ahead of Powells comments. None of this price action is surprising though, when we think about the large option expiries that were telegraphed in advance for today and tomorrow around the 0.6500 strike (1.1blnAUD in total). We are bit surprised however that the market is largely ignoringtwo negative sounding articleswhich made the rounds overnight (see below). The market also didnt flinch at all when its antipodean cousin (NZDUSD) sold off after the dovish sounding RBNZ meeting. Traders are expecting 575k jobs lost during the month of April, and an unemployment rate of 8.3%, when Australia reports its latest official employment report at 9:30pmET tonight.

CHINA'S BOYCOTT MAY EXTEND BEYOND BEEF, BARLEY AS BEIJING GOES TO WAR

https://www.afr.com/world/asia/china-s-boycott-may-extend-beyond-beef-barley-as-beijing-goes-to-war-20200513-p54sja

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HTTPS://WWW.WSJ.COM/ARTICLES/CHINESE-IRANIAN-HACKING-MAY-BE-HAMPERING-SEARCH-FOR-CORONAVIRUS-VACCINE-OFFICIALS-SAY-11589362205


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USDJPY

Dollar/yen is flip-flopping its risk sentiment correlations once again; trading lower with the broader USD this morning ahead of Powell instead of higher with the S&P futures (equity market risk sentiment). We also think this mornings 1blnUSD option expiry at the 107.00 strike is exerting downside pressure as well. The bond and Eurodollar futures are trading flat to mildly bid, which makes sense to us given some of the anxiety were seeing ahead of Powell.


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Charts: Reuters Eikon

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