Markets go risk off after US tariff list announcement on additional $200bln of Chinese imports.
  • USDCAD:Dollar/CAD has had a volatile overnight session following a surprise announcement from the Trump administration about a tariff list on a further $200bln of Chinese imports. More here: This news broke near the NY close yesterday, and led to a swift risk-off move right around the time of day when liquidity is poorest in markets. S&P futures and USDJPY dropped quickly and the broader USD popped higher across the board, led by USDCNH which made a run higher for the 6.70s again (where we last saw intervention from the Chinese). The move took USDCAD above the 1.3130s (a level the market struggled with all day yesterday due to technical resistance). We saw a bounce in risk during early European trading as China responded calmly (will be forced to retaliate, but did not mention specifics), but then we saw another wave of risk off selling during the 4am hour that pushed USDCAD up into the 1.3170s. Markets are now trying to calm down again ahead of the NY open, and so USDCAD has backed off its session highs. Todays North American calendar features US PPI (just reported +0.3% MoM vs. +0.2% expected), and then the Bank of Canada rate decision and Monetary Policy Report at 10amET. This will be followed by the weekly DOE oil inventory report at 10:30amET (expectations for 4.5M barrel draw) and then a press conference with the BoCs Stephen Polozx at 11:15amET. Markets are expecting a 25bp hike from the Canadian central bank today, and so the focus as always will be on the tone of the press release and Stephen Polozs speech thereafter. We think well see a dovish hike from the BoC today, which will likely see USDCAD shoot lower initially but then rebound. Note the tariff news from late yesterday produced a rare, mid-week opening gap on the USDCAD chart around the 1.3120s that has yet to be filled (could act as a magnet). Overnight at-the-money straddles arent pricing in much excitement, trading just shy of 80pts (implied daily range). There also arent any notable USDCAD option expiries today. Should the BoCs tone initially be more hawkish, expect the 1.3060s to be tested to the downside.

  • EURUSD:Euro/dollar is trading weaker this morning; hit by the tariff news that ruined a decent NY close yesterday. Were now trading back in the familiar 1.1690-1.1720 support zone, awaiting a speech from the ECBs Mersch around the 8am hour and US PPI (just out slightly above expectations). With USDCNH now trading back above 6.70 on escalating trade war fears and not much resistance on the chart until 6.7250, we think this has the potential to see the EURUSD rally from last week officially unravel. All eyes are now on China to say the least. Will they verbally and stealthily intervene in markets again? Watch the PBOC fixes tonight. There are no notable EURUSD option expiries today. JUST IN: ECB POLICYMAKERS SPLIT ON TIMING OF FIRST RATE HIKE, MEANING OF "THROUGH SUMMER" RTRS, and with that has popped back above the 1.1720s. Tune in @EBCTradeDesk for more. A recovery back above the 1.1750-60s shifts the momentum considerably.

  • GBPUSD:Sterling continues to waffle around the mid 1.32s; a trading pattern we mentioned yesterday that we would not be surprised to see given the volatility of Mondays session. Multiple attempts to breach the key 1.3280 resistance level were made over the last 24hrs, but all have failed, and so GBPUSD has drifted lower with EURUSD to trend-line support in the 1.3240s. Todays calendar features a speech from the BoEs Mark Carney at an event in Newcastle at 11:30amET.

  • AUDUSD:The Aussie has completely fallen apart on the announcement of the additional China tariff list from the Trump administration. Yesterdays NY close was looking positive, with the market recovering all the way back to trend-line resistance in the 0.7470s, but the tariff news saw risk gap lower to start Asian trade, and with that AUDUSD quickly broke the 0.7420 level we said was important to maintain upward momentum. Copper prices then imploded, taking out stops and falling as much as 4% at one point overnight, and this saw AUDUSD test the next support level (0.7380s). The market is trying to bounce here now on some EURUSD headlines, but the momentum has shifted to the downside. Resistance today is 0.7410, then 0.7425. Yesterdays tariff news also produced a rare, mid-week opening gap in the 0.7450s (which bulls can pin their hopes on, should the market recover back above the 0.7420s).

  • USDJPY:Dollar/yen is surprisingly little changed on the day at this moment. The tariff news saw equity futures and the USDJPY fall hard at the start of Asian trading, but Europe was quick to buy dips into 110.70s support and then 111.00 when the market recovered back above the figure. The recovery continued into the NY open, led by gains in USDCNH, and with that the new daily uptrend remains intact. The dips in other JPY crosses today have been shallow as well (EURJPY and GBPJPY), suggesting that a strong technical shift is underway. Expect further gains if US equities can fill their opening gap lower this morning. The US also auctions off 10 year notes this afternoon, so watch the response in US yields.

Tune in @EBCTradeDesk for more real-time market coverage.

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Erik Bregar - Director, FX Trading
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