Talk of China potentially curtailing economic stimulus hurts Chinese stocks, yuan and commodity currencies
Erik Bregar of Exchange Bank of Canada - - Tue Apr 23, 9:24AM CDT


  • USDCAD:Dollar/CAD is trading right back within chart resistance in the 1.3370-90s this morning as concerns start to make the rounds that Chinas PBOC may end the aggressive economic stimulus measures theyve put in place more recently. Chinese stocks slumped lower by 1.5% today; dollar/yuan rallied and surpassed yesterdays high of 6.7190; the China-sensitive Australian dollar slumped further after losing the 0.7140s on the charts yesterday; and the Canadian dollar (a commodity currency) appears to be slumping in sympathy. June crude oil prices are giving up overnight gains at this hour after a Bloomberg report reaffirms Saudi Arabias position to accommodate the market with extra supply in the event Iran finds it increasingly difficult to export oil. Canada just reported its Wholesale Sales numbers for February and they beat expectations (+0.3% MoM vs +0.1%). The main event of the week for USDCAD however (or the party as we described it to Reuters) comes tomorrow when the Bank of Canada announces its latest decision on interest rates. We still believe that traders need to be an guard for a more cautious than expected monetary policy outlook from Stephen Poloz and company. The USDCAD chart continues to coil in a manner that would suggest a big move is forthcoming; the market has failed to decline despite better than expected Canadian core CPI and Retail Sales out of Canada last week and despite yesterdays explosive rally in oil prices. All this suggests to us that the market is concerned about something and that the path of least resistance could be higher here. The market appears to be tripping some buy stop orders above the 1.3400 level as we go to press.

  • EURUSD:Euro/dollar traders dont seem in the mood to do much here today as they return from the Easter holidays. Trend-line chart resistance in the 1.1260s (which we talked about yesterday) has asserted itself twice in overnight trade, and were now starting to see the selling pressure pick up as NY trading gets underway. We think the USDCNH move back up through the 6.7190 level should be pause for concern for EURUSD as there is not much chart resistance on this pairing until the 6.74-6.75 level. Is a shoe about to drop in China?

  • GBPUSD:Sterling is seeing a bit of a bounce this morning, but this appears to be flow related in EURGBP more than anything else, as the famed cross rate once again violently reverses a breakout attempt above the 0.8650s. Cross party talks are set to resume today as the UK parliament returns from the Easter recess. Theresa May is still facing pressure from Tory MPs to resign and the Guardian is now reporting that shes preparing a key Brexit vote for consideration within the next 10 days. Morehere. Chart resistance in the 1.3010-20 area is capping the trade as NY trade gets underway this morning and so we think the market continues to struggle here.

  • AUDUSD:The Australian dollar is not having a fun time of it this morning as the selling witnessed in overnight trade continues to pick up steam. Blame it on China worries or the markets inability to hold chart support in the 0.7120s, but were heading lower right now and theres not much support on the charts until the 0.7070-0.7080s. Australia reports its Q1 CPI figures at 9:30pmET tonight and the expectation is +0.4% QoQ and +1.7% YoY. May copper prices continue lower for the third day in a row today, and have broken below key support at the 2.90 level. We think the technical setup for AUDUSD is turning rather precarious unless the 0.7120s can be regained on a better than expected CPI print tonight.

  • USDJPY:Dollar/yen tested the resolve of the fund longs in quiet Asian trade overnight, as the market tested the 111.60-80 support zone we talked about yesterday, and more buyers were found. Were now trading back towards yesterdays highs around the 112.00 level, but with some upward momentum. The S&P futures are trying to grind higher this morning, as are US 10yr yields. We think a positive week of corporate earnings out of the US could help USDJPY restart its march higher.

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