USDJPY Leads USD Higher To Start Week. Bank of Canada & ECB In Focus This Week
Summary
  • USDJPY leads the USD higher to start week as Abe wins election in Japan. Bank of Canada and ECB policy meetings in focus for this week. Quiet week ahead for scheduled economic data: US durable goods and Eurozone flash PMIs on Tuesday, Australia Q3 CPI, UK Q3 GDP and German IFO on Wednesday, and Japanese CPI on Friday.

  • Fridays COT Report (Positioning as of 10/17): Recent EUR longs liquidate on the rally into the mid 1.18s. GBP longs use the prior weeks 300pt bounce to liquidate and shorts rebuild for a second week. The net long in CAD, while slightly lower into 10/17, is still near a 5yr high. JPY net positioning largely unchanged as well.

  • CME open interest changes 10/20: AUD +1517, GBP -1293, CAD +4929, EUR -3121, JPY +16079

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Daily FX Snapshot
USD/CAD - Canadian Dollar

Dollar/CAD starts the week steady but with an upward bias as USDJPY lifts USD higher across the board. Softer than expected Cdn CPI and the big miss on Cdn Retail sales were the catalysts for the surge to 1.26 on Friday. Markets now await the Bank of Canada policy announcement on Wednesday along with the quarterly monetary policy report (MPR). A 25bp rate hike has effectively been priced out, but hearing talk of a sizable option expiry at 1.2700 on Wednesday (could make things very interesting). The net USD short position as of 10/17 still looks extended and so its interesting to note position accumulation after Fridays move higher as opposed to liquidation (perhaps new USD longs as the shorts wait until Wed?). The charts are showing a clear technical bias to the upside now with the first real test of resistance coming in the mid to high 1.27s. The 2yr US/Canada yield spread is going along for the ride too (see chart). Support for today 1.2600-1.2610. EURCAD scored an outside bullish reversal on the weekly chart last week. GBPCAD is hanging in there too as GBP holds its bid, across the board, from Friday.

USDCAD
EUR/USD - European Central Bank Euro

Euro/dollar is getting sold again this morning as the USD trades broadly higher across the board and negative Catalonia headlines from the weekend continue to stream across. The focus for the week will be the ECB monetary policy meeting on Thursday. The markets are expecting a dovish taper (in other words, a reduction to the monthly bond buying program with a policy statement that still sounds accommodative for longer). Traders appear to be trimming positions in advance of the meeting (ie. Fridays COT report and Fridays open interest change), but the net long EUR position is still elevated. We continue to note technical weakness on the charts and negative correlations (bearish daily H&S topping pattern, a 2nd failure for EURGBP at the 90 level on Friday, widening yield spreads (US over Germany). Market resting on precarious support in the 1.1730s as we write, not much support below here until the 1.1660s.

EURUSD

USD/JPY - Japanese Yen

Dollar/yen is leading the USD higher today as Shinzo Abe wins a landslide victory in the Japanese election over the weekend. While markets were expecting this result, it also removes uncertainty with regard to the monetary policy outlook (it should be more of the same ultra-loose policy for the foreseeable future) and that is bearish JPY relatively speaking. Combine this with US yields that continue to track higher on upbeat US tax reform headlines and we have a USDJPY market that has the wind at its back right now. We have now broken out to the upside on the weekly chart, which puts the 115 level on the radar. Hearing talk of a sizable barrier option at 114.50 that could cap the market near-term. Resistance intra-day 114.10. Support in the 113.50s, right around Sundays opening gap. Would not be surprised to see the gap filled along with some consolidation of the recent move higher. EURJPY and GBPJPY flows have been a bit of a drag overnight in Europe.

USDJPY

US-CA 2Yr Spread

US-CA

Charts: TWS Workstation & Reuters


Erik Bregar - Trader
Exchange Bank of Canada
Toronto, Ontario
Email:erik.bregar@ebcfx.com
Phone:647-728-4918

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