Fed leans dovish. ECB stands pat. UK election result looms.

ANALYSIS

USDCAD

Dollar/CAD is hanging on to the bottom end of its post payrolls (1.3160-1.3260) range in the wake of yesterdays dovish FOMC meeting. While the Fed kept interest rates on hold as expected, chairman Jerome Powell gave the market another dose of dovish commentary when talking about inflation, the interest rate outlook, and the 2020 dot plots. The broader USD started to dip when Powell muddled his way through a reporters question about repo and this weeks report from the Bank of International Settlements. We think the market found these two headlines rather disheartening:

I DIDN'T SEE THE CHALLENGES WE FACED THIS YEAR COMING

THERE HAVE BEEN PAYMENTS, SUPERVISORY AND REGULATORY ISSUES RAISED WITH REGARD TO REPO MARKET STRESSES

A discussion about interest rates then ensued, where Powell reiterated:IN ORDER FOR FED TO MOVE RATES UP, WOULD HAVE TO SEE SIGNIFICANT, PERSISTENT MOVE UP IN INFLATION.The market really latched on this headline in our opinion, as it essentially cemented the idea that rates will either stay here or go lower (but certainly not higher). When you combine this commentary with other soundbites about the Feds readiness to act (willingness to buy short-term securities other the T-bills if appropriateie. QE4), you really have to ask yourself if the Fed is now trying to steal a page out of Mario Draghis playbook of well do whatever it takes. This is dovish stuff in our opinion, and reminds us of the Japan-style rabbit hole of monetary policy failure that the European Central Bank now finds itself trapped in. The US 10yr yield fell swiftly back below the 1.80% level on this headline and USDCAD broke below chart support in the 1.3180s.

Were seeing a mild bounce in USDCAD here as NY trade gets underway today, and we think the near term focus for traders will be whether or not the market can regain the 1.3180s. Success in this regard should invite more buyers in and reiterate the 1.3160-1.3260 post-payrolls range we talked about late last Friday. Failure, on the other hand, will set trader sights on breaking the market below the 1.3150-60s, which would create another bearish technical development that could see the market slip much lower. The Bank of Canadas Stephen Poloz will be giving a speech today at the Empire Club in Toronto. The speech is expected to commence between 12:45-12:55pm, with the Governors text being released on the BOCs website at 12:40pmET.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

JAN CRUDE OIL DAILY

JAN CRUDE OIL DAILY

EURUSD

The European Central Bank kept all monetary policy measures in place as expected this morning. Full press releaseherefrom the ECB. The EURUSD market barely moved, as one might expect, but its now starting to gyrate as ECB President Christine Lagarde commences her first press conference. Stay tuned to @EBCTradeDesk on Twitter for more. The bulls have very much taken back control of EURUSD with yesterdays clean upside breakout above the 1.1100 level after the dovish Fed meeting. The next resistance level comes in at the 1.1160s.

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

FEB GOLD DAILY

FEB GOLD DAILY

GBPUSD

Sterling traders sure look nervous this morning as the Brits head to the polls for todays general election. Overnight option volatility has shot up to 45%, which is the highest since the June 2016 Brexit referendum vote. The premium for GBPUSD puts over calls for the 1-week tenor (risk reversal) has surged to over 6%, as traders rush to pay more for downside insurance. Spot GBPUSD prices, in turn, have reversed sharply back below the 1.3200 handleand this comes after yesterdays post-Fed, upside breakout. This is not a great technical development for the market in our opinion and could portend a disappointing result for the Tory party later today. Over 1.1blnGBP in options expire at the 1.3200 strike this morning. The polls close at 5pmET in the UK, after which exit polls will emerge with predictions as to the winner. Seeherefor some more election day coverage from the BBC.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

The Australian dollar extended its gains yesterday following the Feds dovish press conference, and this upside move was helped immensely in our opinion by the markets early-NY session break back above the 0.6840 level. The post-Fed move then dented chart resistance at the 0.6870-80s, which has given dip buyers confidence in the overnight session. Chart resistance in the 0.6890s now looms ahead of a high-stakes White House meeting today to debate planned Dec 15 China tariffs. Moreherefrom the CNBC.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY


USDJPY

The dollar/yen fund longs got dealt another blow yesterday following the FOMC meeting, but theyve managed to hang on to 108.50 chart support during the overnight session despite some UK-election related risk-off flows. The US 10yr yield has just reversed back above the 1.80% as German bund yields spike 3bp higher. This is likely ECB-press conference driven as Christine Lagarde continues to speak. We continue to believe the funds (who have been buying USDJPY for weeks) are not well positioned here for risk-off headlines heading into weeks end. We have the UK election results coming up during the Asia session tonight, and then of course the looming Dec 15th tariff deadline.

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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