Bank of England holds rates unchanged, but two dissenters wanted cuts now.

ANALYSIS

USDCAD

Dollar/CAD has fallen back from familiar chart resistance in the 1.3180-90s this morning after Bloomberg reported that China and US have agreed to cancel existing tariffs in different phases. Morehere. Upon closer inspection of the story however, there appears to be a couple of big ifs in there.

IfChina, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement, spokesman Gao Feng said.

Ifconfirmed by the U.S., such an understanding could help provide a road-map to a deal de-escalating the trade war thats cast a shadow over the world economy.

This is shoddy reporting in our opinion. There's obviously no trade deal yet because there's no content of the agreement yet. It doesnt sound like the US has confirmed anything regarding tariff relief. This is simply China reiterating their position (which we know already). You cant tell that to the trading algorithms however, which are still incapable of sniffing out nonsense. The S&P 500 futures have shot up to new all time highs on these headlines, the US 10yr yield has taken out Tuesdays highs to trade above 1.88%, the offshore Chinese yuan has collapsed back below the psychological 7.0000 level, and the USD is being sold against commodities currencies. Its risk-on again.

The USDCAD market, in particular, has been relegated back to Tuesdays trading range (which will likely come as a relief to the fund shorts). We think prices will gyrate quietly here ahead of the October Canadian employment report tomorrow. Support 1.3140-50s. Resistance 1.3170-80s.

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

DEC CRUDE OIL DAILY

DEC CRUDE OIL DAILY

EURUSD

Euro/dollar has de-coupled this morning from the inverse correlation to US yields that has been driving it lower so far this week, and it appears broad USD selling was the driver earlier today. Even todays weaker than expected Industrial Output numbers out of Germany for September are getting ignored (-0.6% MoM vs -0.4%). The market regained trend-line support in the 1.1060s after USDCNH plunged lower during the 3amET hour, but it has since run into some chart resistance at the 1.1080s and some negative influence from GBP flows post the Bank of England meeting (more on this below). We think EURUSD will continue to struggle here.

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

DEC GOLD DAILY

DEC GOLD DAILY

GBPUSD

The Bank of England surprised markets this morning with a rather dovish hold to interest rates. While the BOEs monetary policy committee voted to keep rates on hold at 0.75%, the vote was not unanimous like its been for a long time. Two members, Saunders and Haskel, voted for a 25bp rate cut today saying that stimulus was needed now because of downside risks from the global economy and Brexit, and because data suggest the labour market is turning. Bank of England, Mark Carney, struck what we felt was a more balanced, but still dovish, tone in his press conference. He spoke positively about the recent Brexit deal and said on balance we think the world economy is stabilizing", but at the same time he acknowledged growth is well below trend and close to where it starts to feel like a recession. We thought the following headline was notable, and it definitely reads more dovish than the "assumed successful Brexit/modest tightening" bias theyve had up until now:

IF DOWNSIDE RISKS EMERGE TO UK ECONOMY, THERE MAY BE A NEED TO PROVIDE REINFORCEMENT BUT THIS IS NOT PRE-COMMITTING

So there we have it a now more dovish BOE heading into an uncertain UK election season. GBPUSD has fallen back to chart support in the 1.2790-1.2810 area.

The EURGBP is trying to stage another rally off the all too familiar 0.8600 support level. The OIS market is now pricing in a 68% chance that the Bank of England cuts interest rates 25bp by this time next year.

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

The Aussie has been a natural beneficiary to this mornings comments out of China but, as we alluded to above, there is no new news here in our opinion. The market is now trading back above the pivotal 0.6895 level, which it lost in NY trade yesterday after reports that the signing of the phase 1 trade deal could be delayed. The move back above 0.6895 is technically positive, as it now opens up a potential rally to the 0.6930s, but the GBPUSD sales weve seen since the surprise vote split at the BOE meeting appears to be driving some broad USD strength for the moment. China reports its import/export data of October tonight (exact time unknown).

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY


USDJPY

Dollar/yen is trading right back up near yesterdays session highs this morning as todays positive US/China trade headline cancels out yesterdays negative US/China trade headline. The US 10yr yield has rushed back above 1.83%, which now puts the 1.91-1.95% level on the radar in our opinion. Yes, this continued risk-on, risk-off type of market environment just never seems to go away, and we have a feeling this wont change anytime soon. The US/China trade war is a convenient, and easy to understand, bogeyman for all the worlds problems and so long as it rages on global central bankers have their excuse to keep the global debt party going, the Trump administration can continue to dangle the thought of a hugely positive headline to come (which supports the stock market), and we can avoid the tough and more complicated discussion about whats wrong in global funding markets.

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.