Chaos in the UK Conservative Party crushed GBPUSD and led to a US dollar rebound against the rest of the major G-10 currencies. The Japanese yen, Canadian dollar and Antipodean currencies gave back most of their overnight gains amidst the drama of UK politics.
Prime Minister Theresa May’s Brexit agreement is meeting with a hostile reception from members of her cabinet, chief among them, Brexit Secretary Dominic Raab. He resigned. That news triggered a plunge in GBPUSD which fell from 1.3029 to 1.2753. It also gave rise to fresh speculation of a ‘non-confidence” vote against the Prime Minister. Weaker than expected October UK Retail Sales (Actual 2.2% vs previous 3.0%) was lost in the political noise.
The UK drama overshadowed a mildly risk positive overnight session. Fed Chair Jerome Powell said the US economy was strong but could face headwinds next year. Trader’s took those words to mean the pace of rate increases would be tempered. Asia and European equity indices were mixed to higher an US Treasury yields fell.
AUD & NZD
There was good news on the US/China trade war front. China issued an offer to the US to jump-start trade talks although details of the proposal are missing. Nevertheless, the news underpinned AUDUSD and NZDUSD.
EURUSD traded higher in Asia and early Europe but dropped from 1.1350 to 1.1271 when Sterling collapsed. Prices have since recovered to 1.1310. Reuters is reporting that Italy Prime Minister Conte is working with the EU on the budget, which may have helped support EURUSD. This week’s drop in US Treasury yields has knocked USDJPY from its 114.20 peak on Monday to 113.45 in early New York trading. Lower than forecast Australia unemployment (Actual 5.0% vs forecast 5.1%) supported AUDUSD.
Oil prices are off their lows but trading with a negative bias due to fears of an oil glut in 2019. Traders are concerned about a slowing of global growth and increased inventories and crude production in the United States. WTI is trading at $56.15/b, well-above Tuesday’s $54.78 low but with a bearish outlook.
USDCAD has been a bystander, content to watch the UK and European drama unfold. The currency pair will track US dollar, equity and oil price moves. The prospect of a Bank of Canada rate hike in December and strong resistance in the 1.3250-90 area, is capping topside moves.
US October Retail Sales are expected to rise 0.5% m/m, in part due to “payback” from a soft September report and a rebound in auto sales.
The intrday USDCAD technicals are bullish above 1.3205 looking for a break above resistance in the 1.3250-90 area to extend gains to 1.3385. A move below 1.3204 would lead to 1.3150 and then 1.3110. Today’s Range 1.3170-1.3250