EURUSD slips above key 1.1500

The immediate catalyst for EURUSD rallying above 1.1500 was not entirely clear, but unfolded during the opening minutes of the US equity trading session and likely catalysed significant trend-following flows as the level was so clearly etched on the charts as a major hurdle.

Curiously, the time of day of the move was also just after the USDCNY stops trading in China and that exchange rate closed sharply lower ahead of the EURUSD move, with the CNY registering its largest single day gain in over a month. Given that the move is unfolding just as US-China trade talks are wrapping up and China is possibly scrambling to call an unusually timed plenum, one can’t help but speculate on whether the CNY exchange rate is a deeper part of the trade negotiations as opposed to simply receiving a boost as a sign of China’s good faith in the talks.

Clearly, something major is shaping up in China’s response to the mounting challenges of its deleveraging process and the showdown with the US over trade. For now, we will go with the flow – which points lower for the US dollar.

A parade of US Fed voters out speaking later today, including the Fed Chairman Powell himself, but we suspect that the market has reached saturation on Fed inputs for now: we all know that they have turned more cautious on the intent to hike rates further and will await developments in financial conditions and incoming data. More important will be the emerging specifics of the US-China trade deal and whether the market feels these are sufficiently impressive to boost risk appetite. Then we will look for signals on new directions in Chinese policy in the wake of the February 5 New Year and of course anything that emerges from a possible CCP policy powwow later this month.

The Bank of Canada yesterday was no surprise, as the bank lowered GDP forecasts relative to its October round in fitting with its dovish shift at the early December BoC meeting. The bank remains hopeful that the next policy move will be to hike. Today, USDCAD changes unchanged from where it was heading into the meeting and USDCAD may trade passively, given the lack of developments in the policy spread with the US – expect oil prices and risk appetite to set the agenda in CAD crosses.

Chart: EURUSD

The break above 1.1500 is very straightforward here and compelling after the long period of choppy consolidation within a restricted range. The immediate upside potential stretches toward 1.1800 in the first analysis in range terms, and in Fibo terms starts with the 38.2% still down within the upper range at 1.1728 and then the 61.8% not until 1.2045, with the 1.2000 as a round-figure magnet closer to the latter.