- China sees little sincerity in the US approach to trade talks. S&Ps -24. USDCNH > 6.9400.
- Oil prices trading bid as two new US war ships enter Persian Gulf.
- Tory/Labour Brexit talks formally break down. Boris Johnson enters Tory leadership race.
- Broad demand for USD sees USDCAD threatening break higher into 1.35s.
- Australia elections on tap for tomorrow. Trump to formally decide on auto-tariff delay today.
- Canadian markets closed on Monday for Victoria Day.
Dollar/CAD is trading bid once again this morning as another bout of risk-off flows sweep across global markets. Today this is coming from more discouraging trade talk from China, rising tensions in the middle east, and a formal collapse in Tory/Labour Brexit talks. According to Bloomberg, Chinas state media signaled a lack of interest in resuming trade talks right now as it sees little sincerity in the US approach and that the US has been playing little tricks to disrupt the atmosphere (think Huawei). Two more US war ships entered the Persian Gulf late Thursday in the latest round of US provocation against Iran. Finally, Labour leader Jeremy Corbyn has admitted that Brexit talks with the government havegone as far as they can and that theres not much point to negotiate further with a Tory leader that is set to depart the position in June. All this is seeing the S&P futures lower, oil prices higher, sterling weaker, and the USD broadly bid. USDCAD, in particular, has completely reversed yesterdays negative chart developmentand now finally looks poised to break higher into the 1.35s. While todays North American economic calendar is light (US Michigan Sentiment Index for May at 10amET), expect further clarity at some point on Trumps plan to delay auto tariffs beyond tomorrows May 18 deadline. We have a feeling traders might not want to go home long risk heading into what could be an eventful weekend of headlines. Canadian markets will be closed on Monday for the Victoria Day holiday.
JUN CRUDE OIL DAILY
Euro/dollar is being pressured further this morning as traders flock into the traditional safe havens (USD, JPY, US and German bonds). Dollar/yuan continues to rally after yesterdays upside breakout above the 6.9240s. Trend-line support at the 1.1170 level has just given way in EURUSD, but were not seeing much follow-through to the downside, probably because over 1.6blnEUR in options expire at the 1.1175 strike at 10amET. We think yesterdays firm reject of the 1.1220s will give the entrenched EUR fund short position comfort heading into the weekend.
Things are going from bad to worse for the British pound. Key horizontal chart support in the 1.2770s (or the February 2019 lows) has given way in early European trading today and a flood of selling has ensued. Todays news about Tory/Labour Brexit talks formally breaking down is the last thing the market needs right now and we think Boris Johnsons confirmation to bid for Tory party leadership in June is adding to trader anxiety, consideringhes a hardline Brexiteer. The EURGBP cross continues its amazing 10-day rally, as its the purest way for the fund community to play deteriorating Brexit fundamentals (without broad USD influences). We see the next meaningful resistance level for the cross around the 0.8800 level, which means traders will likely continue to sell GBP on bounces.
Australian dollar traders made no attempt to get the market back above the 0.6930s in NY trade yesterday, and so they resumed selling after some positive US data knocked EURUSD lower. So where does chart support lie today? We think quite possibly at 0.6850, where a downward sloping trend-line anchored off the March low comes in. Australia will be electing a new government tomorrow. Moreherefrom CNN on the dilemma facing voters down under.
JUL COPPER DAILY
Dollar/yen is pulling back this morning amidst selling in the S&P futures and demand for the traditional safe-havens. Last Sundays opening chart gap in the 109.85-95 area filled in NY trading yesterday, and there was an attempt to get above the psychological 110.00 in Asia today, but this failed. The market has been facing sellers ever since, but we think todays 1.2blnUSD option expiry at the 110.00 strike might exert some upside influence. Well be paying close attention to the Trump administration again today, and what the formal communication will be regarding the planned auto tariff delay. We think chart support in the S&Ps around 2837-2850 is at risk of getting tested, which would be USDJPY negative.
S&P 500 DAILY
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