USDCAD held on to Friday’s  gains, sparked by disappointing Retail Sales and CPI data.  The reports almost guaranteed that the BoC will leave rates unchanged this week while seriously downgrading the odds for a December rate hike as well.  The mix of a dovish BoC and a hawkish FOMC will underpin USDCAD.  Canada Wholesale shipments rose 0.5% in August (Forecast 0.5%) didn’t have any trading impact.

The US dollar opened with a bit of a bid against the majors except for the NZDUSD, which was flat.

Prime Minister Shinzo Abe and his Liberal Democratic Party won a resounding victory.  USDJPY rallied from 113.44 at Friday’s close to 114.08 before slipping to 113.94 at the New York open.  The result was expected.

NZDUSD bounced on profit-taking, rising to 0.6988 from 0.6933. The sentiment is still negative following the Labour Party election victory.

AUDUSD  remains under pressure on the back of general US dollar strength and bearish short-term technicals

EURUSD started the New York session at the bottom of its 1.1736-1.1776 range.  The single currency is under pressure from US rate hike expectations, the Fed Chair debate, and from position adjusting ahead of Thursday’s ECB meeting.  There is also a little concern over Spain’s promised to take over the government of Catalonia.  A break below major support at 1.1670 will extend losses to 1.1550.

Sterling is caught up in the broad US dollar strength with an under-current of “hard” Brexit lingering.  As in any divorce, the size of the divorce settlement is the key to additional negotiations.

Oil prices extended Friday’s gains supported by a drop in the US rig count and increased US/Iran tensions.  WTI traded in a $51.77-$52.27 range.   Gold prices opened lower in Asian and then chopped in a $1,274.29-$1,278.13 range, undermined by diminished risk aversion and the outlook for US interest rates.

There isn’t any data of note due today, leaving traders to dwell on the Fed Chair debate and expectations for Thursday’s ECB meeting.  USDCAD traders will be eagerly awaiting the Monetary Policy Report and press conference.   The risk is that Governor Poloz could be more dovish than expected due to the state of the NAFTA talks. If so, a dovish outlook and bullish technicals will lead to USDCAD testing 1.2770.

USDCAD Technical outlook:

The intraday and short-term technicals turned bullish with Friday’s move above downtrend resistance at 1.2590, setting the stage for an extended rally to 1.2770.  For today, USDCAD support is at 1.2590 and 1.2560.  Resistance is at 1.2650 and 1.2680.

Today’s Range 1.2610-1.2710

Chart: USDCAD daily