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Trump’s Tough Tariff Talk Awakens CAD & MXN Bears

Trump’s Tough Tariff Talk Awakens CAD & MXN Bears

2017-04-25 21:30:00
Tyler Yell, CMT, Currency Strategist
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Will JPY longs continue to unwind? See our forecastto find out!

Talking Points:

  • CAD falls aggressively to 14-month lows on fears of protectionist trade stance from the US
  • EUR/JPY becomes the hottest trade of the week in anticipation of positive ECB on Thursday
  • Crude Oil revisits 200-DMA

Join Tyler in his Daily Closing Bell webinars at 3 pm ETto discuss market developments.

After much excitement about EUR/JPY on Monday, which continued higher today, Tuesday’s focus was on the North American Free Trade Agreement or NAFTA renegotiations. This news took the Canadian Dollar to the lowest level since February 2016 against the USD as the US commerce department issued a 20% countervailing duty on Canadian lumber exports. Despite the terribly small impactthat lumber makes of total exports and furthermore of Canadian GDP, this news increased market fears of a US-CA trade conflict,and the Mexican Peso also dropped to one-month lows.

Given that Oil has fallen back to the 200-DMA, traders would do well to pay close attention to the next big move. Oil has a recent history of aggressively rising from the 200-DMA. However, recent news has been putting pressure on Oil, and a break below the 200-DMA could see USOil move to the lower-$40/bbl zone. Such a move could exasperate CAD bears.

Lastly, ahead of the Thursday ECB meeting, EUR is continuing to find a bid as options traders are showing they no longer fear EUR-downside like they once did. Two positive developments are the EURJPY 25D Risk Reversals beyond 1-month is at its highest levels in over a month, and the 1-year 25D Risk Reversals have risen 28% this week per Bloomberg to trade at their highest levels since January 2015. While the ECB could reverse this course with a dire outlook, the options market seems to be favoring EUR upside from here.

Interested in seeing what IG client’s positioning means for the EUR breakout? Find out here!

Closing Bell’s Top Chart: April 25, 2017, USD/CAD Breaks > zone of resistance to new 14-month highs

Trump’s Tough Tariff Talk Awakens CAD & MXN Bears

Tomorrow’s Main Event: Australian CPI & RBA Governor Lowe Speech

Wednesday will provide a double-shot of excitement to traders holding AUD exposure. CPI is set to come out at 01:30 GMT with YoY expectations showing the likelihood of upside risk in the Aussie despite recent weakness. AUD could ride the recent rise in risk sentiment after the French election has seen the JPY sell-off and base metals find support. After CPI, the speech by RBA Governor Lowe at the Renminbi Global Cities Dialogue could help provide clarity and upside for AUD on AUs position economically with China.

IG Trader Sentiment Highlight:USD/CAD Bears 14-Month Highs

Trump’s Tough Tariff Talk Awakens CAD & MXN Bears

USDCAD: As of April 25, retail trader data shows 34.0% of traders are net-long with the ratio of traders short to long at 1.94 to 1. The number of traders net-long is 36.0% higher than yesterday and 13.3% lower from last week, while the number of traders net-short is 4.6% lower than yesterday and 76.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USDCAD trading bias. (Emphasis Mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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