UK/EU reach new Brexit deal but UK opposition parities not on-board

ANALYSIS

USDCAD

Dollar/CAD is trading on the defensive this morning as another Brexit-inspired wave of optimism sweeps over markets. Yesterday's slump off chart resistance in the 1.3220s felt driven by dovish comments from Chicago Fed President Charles Evans in our opinion. Moreherefrom the Financial Post. This mornings economic data dump out of the US and Canada is not ruffling many feathers, but wed argue the numbers are bearish on net for USDCAD at the moment. The next support level below is 1.3140-50. We think the market could attempt a move higher to the 1.3200 level should trend-line support in the 1.3160s be regained.

US Housing Starts (Sep): 1.256M vs 1.320M exp (miss)

US Building Permits (Sep): 1.387M vs 1.350M exp (beat)

US Philly Fed survey (Oct): 5.6 vs 8.0 exp and 12.0 prior (miss)

US Industrial Production (Sep): -0.4% MoM vs -0.1% exp (miss)

Canadian Manufacturing Sales (Aug): +0.8% MoM vs +0.6% exp (beat)

Canadian ADP Employment (Sep): +28.2k vs +56.5k exp, prior +49.3k revised to +109.9k (mixed)

Last nights API report showed a surprisingly bearish build to oil inventories over the last week (+10.5mln barrels vs +2.9mln exp), which in turn knocked November crude oil prices back below trend-line resistance in the low 53s. The EIA will report its weekly inventory change number at 11amET this morning, with the Reuters Poll estimate now sitting at +2.878M barrels (which seems a bit low to us).

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

NOV CRUDE OIL DAILY

NOV CRUDE OIL DAILY

EURUSD

Euro/dollar rode the Brexit-deal wave higher this morning as well, and this came on the back of a strong rally yesterday that was edged on by weak US Retail Sales data and cautious comments from the Feds Evans. The market busted through chart resistance in the 1.1080-90s and shot higher to the next trend-line resistance level in the 1.1140s. However, the Brexit story is quickly changing and were now seeing 1-week GBP option volatility scream higher above 20% as GBPUSD reverses lower (more on this below). EURUSD sales are creeping back in as a result but the surge in EURGBP off its 0.8600 lows is helping to stem the slide.

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

DEC GOLD DAILY

DEC GOLD DAILY

GBPUSD

Sterling surged above the 1.2900 level in London trade this morning after the UK and the EU announced a great new Brexit deal, but the optimism was short lived as the UK opposition parties, most notably the DUP, came out with staunch objections to it. Moreherefrom the BBC. This is now introducing massive event risk for the weekend, as traders bet Saturdays UK Brexit vote in the House of Commons will fail. Reports that Boris Johnson will NOT seek Brexit extension from the EU is also adding to trader anxiety here in our opinion. A senior UK government official said earlier that the PM will tell EU leaders that its this deal or no deal but no delays. Implied volatility (the largest factor in options pricing) for 1-week EURGBP and GBPUSD expiries have shot to their highest level since the 2016 Brexit referendum. The 1-month 25delta risk reversal, which exploded higher into a premium for calls vs puts last week, has now collapsed back into a discount (market now wants to price equidistant puts higher vs calls). GBPUSD has moved swiftly back below this mornings breakout point in the 1.2880s and EURGBP has reversed sharply higher off the 0.8600 support level. The headlines are moving fast and so wed advise even further caution with when it comes to your execution strategy.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

The Australian dollar shorts are scrambling to get out over the 24hrs after yesterdays weak chart technicals gave them a false sense of confidence (ourselves included). The AUD buying started when the Feds Evans took the mic and the USD started to sell off broadly. This took the market back above the 0.6750 level it broke down below earlier in the day. The buying continued in Asian trade overnight following a beat on the Australian unemployment rate in the countrys September employment report (5.2% vs 5.3%). This took the market higher to chart resistance in the 0.6780s. Finally, markets collectively cheered this mornings announcement of a new Brexit deal, sending AUDUSD roaring back above the 0.6800 level. Some of this is getting tempered back obviously as GBPUSD traders now reverse the market lower to reflect rising event risk for the weekend, but AUDUSD continues to hold the 68 handle. Todays NY close could create a significant bullish development on the daily chart should the market close around here or a little bit higher.


AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY


USDJPY

Dollar/yen is struggling notably today as US 10yr yields fail to hold their Brexit-deal highs above 1.77%. The market has reversed back below the 108.80s after trying to break above it earlier in European trade. We think this all makes sense, given the possibility that the new Brexit deal might not pass the UK House of Commons on Saturday. The Fed added another 104.2bln USD of liquidity to money markets via overnight and term repos this morning, and this comes on the back of their 7.5bln T-bill purchase operation yesterday that was 4.3x oversubscribed!!!

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

Interested in creating a custom foreign exchange trading plan?Contact usor call EBC's trading desk directly at1-888-729-9716.

About Exchange Bank of Canada
Exchange Bank of Canada, EBC Canadas Foreign Exchange Bank, is the only Schedule 1 Canadian bank specializing in foreign currency exchange and international payments for financial institutions and corporations. EBC provides innovative foreign exchange management and integrated international payment solutions tailored to meet business needs on a global scale. Leveraging industry leading technology and a client-focused team of experts EBC delivers comprehensive, cost-effective and trusted payment processes and foreign exchange currency solutions to create financial and operational efficiencies. To learn more, visit:www.ebcfx.com.

Disclaimer:All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.This publication has been prepared by Exchange Bank of Canada for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Exchange Bank of Canada, its affiliates or any of their employees incur any responsibility. Neither Exchange Bank of Canada nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. All Exchange Bank of Canada products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Exchange Bank of Canada.