FX Update: Chinese renminbi surge accelerates as USD wilts further

Broader USD technical levels
As we await August Retail Sales and the FOMC meeting tomorrow (more on that above), we focus on the broader technical status of the US dollar after a rather weak consolidation period saw the greenback unable to take out important resistance. The focus for EURUSD is on the 1.1900-1.2000 zone after the pair found resistance right at the 61.8% retracement of the sell-off from the 1.2000+ at 1.1912.

Elsewhere, USDJPY is coiling interminably within a shrinking range and can’t help conjuring at least a false break soon – first levels there are 105.00 to the downside and 107.00 to the upside. AUDUSD had a poke at new local high overnight before fading a bit – underlining the sloppy and choppy upside trend – really needs to stick a close below 0.7200 to start breaking things there.

GBP still on edge as we await fate of Brexit Bill
Boris Johnson’s Brexit Bill, which would give the UK government the mandate to override portions of the original Brexit withdrawal agreement, has passed its first test in a long path before it can become a law, but this news was not met with any market reaction and the pressure on sterling has eased slightly, perhaps on a number of prominent UK Conservatives coming out to speak against the bill, while Boris Johnson insists that retaining the ability to move against parts of the withdrawal agreement is vital for leverage in negotiating the post-transition period trade deal, as he complains that the EU is leveling “absurd” threats in the latest round of talks. Support for EURGBP comes in at perhaps 0.9200-0.9175 and resistance in GBPUSD is perhaps 1.3000 or even a bit higher, given the size of the recent fall.

The G-10 rundown

 USD – the greenback weaker, and most impressively in EM, with the USDCNH move in the driver’s seat there. Within G10, need to see if the FOMC meeting can move the needle tomorrow. Suspect it will be difficult to get strong directional momentum in the US dollar until post-election – generally looking for longer term downside potential with short-term uncertainty.

EUR – tough to build a strong case for the single currency as the EU is the new epicenter of COVID-19 cases, investors are unable to take European equities out of the range, and after the ECB meeting last week failed to spark more confidence in the currency. But lack of upside doesn’t mean downside, so bargain hunters may yet be frustrated.

JPY – someone wake us up when USDJPY close above 107.00 or below 105.00, until then merely looking for directional sympathy for USD and JPY in the crosses.

GBP – still waiting for a breakthrough in Brexit negotiations and whether Boris Johnson’s Brexit Bill can pass through parliament. Positioning in options market with call or put spreads the lowest risk way to trade a volatile move once the situation clears up either way in months to come.

CHF – weekly sight deposit data from the SNB out yesterday shows the bank continues to intervene and the recent EURCHF rally was once again unable to hold. Locally, watching whether the SNB allows the EURCHF rate to fall meaningfully below 1.0700 as well as whether the market will challenge the twice-tested cycle low in USDCHF near 0.9000.

AUD – the AUD marginally boosted overnight by the RBA minutes discussing the Aussie as “broadly aligned with its fundamental determinants” like higher commodity prices, they would like it lower. Strong Chinese data also a boost at the margin, together with firm commodity prices and the recent potent CNY rally.  AUDUSD is frustrating to trade in the messy ascending channel – new highs don’t feed much additional momentum and bearish reversals don’t develop either.

CAD – the 1.3000 area in USDCAD is a critical chart point, with CAD held back a bit more here on the weakness in oil prices that doesn’t fit with strength in the commodities complex elsewhere. To the upside, the 1.3300-50 area is important resistance if USDCAD bears

NZD – last week’s AUDNZD rally from important support above 1.0800 has stumbled as the hurdle for the RBNZ to out-dove the competition seems to be quite high and will require an even stronger move into negative rates than the market is pricing for next year to impress.

SEK – EURSEK managing to find resistance near 10.40 as a bigger squeeze on SEK longs is avoided as long as risk sentiment generally stable even as wobbly EU outlook on COVID resurgence is one of drivers taking EURSEK off the cycle lows.

NOK – EURNOK has failed to burst higher to the next major resistance line above 10.75 as the oil sell-off has been corralled. The August Regional Network Survey for Norway was nothing to write home about – a tiny improvement to 0.19 from 0.08 in July.