FX markets started the week looking for direction. They didn’t find it in during the Asia or European sessions and they are unlikely to find in the New York session today.
Traders are still digesting Friday’s US employment report and what it means for the US interest rate outlook, moving forward. Traders don’t expect a hike in July or September but have bumped the odds for a third hike in 2017 to 50% in December.
USDCAD are even more motivated to twiddle their thumbs. The Bank of Canada is widely expected to raise interest rates by 0.25 bps on Wednesday. The policy statement should will be closely studied to see if this rate hike is the first of a series or merely a “one and wait and see.”
USDCAD is unlikely to break below Friday’s 1.2860 low (if at all) until after the statement and Governor Poloz’s press conference. Until then, position adjustment trades may lead to a small drift upwards in prices.
The US dollar opened in New York with modest gains compared to Friday’s close, despite some selling pressure seen in Asia and early European trading. Furthermore, the moves were more “noise” than substance as FX ranges were narrow.
EURUSD ticked higher in Asia and then reversed the move in Europe. Traders are torn between the chance of another US rate hike and the risk of a quicker end to QE in Europe.
Sterling tracked the EURUSD trading patter overnight, rising in Asia and falling in Europe. Weak UK data reports in recent days have diminished the prospects for a UK rate hike and weighed on the currency.
USDJPY inched higher throughout the Asia session and in early European trading rising from 113.88 to 114.2 The move was supported by Friday’s US jobs report and weak Machinery Orders data (Actual 0.6% vs. forecast 7.7%, y/y)
An AUDUSD rally in Asia, from was snuffed out in European trading as US dollar buyers emerged. China CPI (Actual -0.2% vs. forecast -0.1% m/m) and PPI (Actual 5.5% vs. forecast 5.5% y/y) had no bearing on trading. NZDUSD flat-lined in a tight band and was ignored.
Oil prices continued to trade with a negative bias. Friday’s report of yet another increase in the number of US drilling rigs. The on-going supply concerns have led to talk of added production caps from Opec. However, that chatter hasn’t given any support for prices.
USDCAD Technical outlook:
The USDCAD technicals are bearish while prices are below 1.3000 which will now act as resistance, a level being guarded by 1.2960 which is the 61.8% Fibonacci retracement level of the May 2016-May 2017 range. That break opens the door to 1.2770, the 76.4% Fibonacci level. For today, USDCAD support is at 1.2890 and 1.2860. Resistance is at 1.2930 and 1.2960.
Today’s Range 1.2870-1.2950
Chart: USDCAD 30 minute