The following is paraphrased from Scotia Bank:
USDCAD (1.3048) • CAD is flat from Wednesday’s close, consolidating within a tight range ahead of Thursday’s NA session — its tone likely to be dominated by the 8:30am ET ECB press conference. Domestic risk is limited to second-tier wholesale trade, leaving the focus squarely centered on broader market sentiment. CAD remains completely disconnected from the 2Y U.S.-Canada yield spread and continues to trade in tandem with oil prices. Risk reversals are stable, having consolidated for over a week, thus limiting the potential for CAD support on the back of a continued moderation in bearish sentiment. We remain medium-term CAD bears.
USDCAD short-term technicals: bullish—momentum signals are neutral-bullish, short-term MA’s are bullishly aligned with the 9 day MA trading above the 21 day MA, and medium-term upside is set to be confirmed with the imminent crossing of the 50 day MA above the 100 day MA. USDCAD is once again testing the upper bound of the triangular consolidation from early May, and we continue to look for gains toward 1.33 and 1.35.
EURUSD (1.1018) • Spot is virtually unchanged on the day so far, having spent most of yesterday grinding higher from the test under 1.10. French business confidence for July came in higher than expected, suggesting no obvious Brexit impact. However, markets are expecting ECB President Draghi to give a clear nod to the potential for additional easing later this year in this morning’s press conference. The EUR has had a tendency to bounce after recent ECB meetings and, with expectations geared towards a dovish message, there is some risk of disappointment and a short-term, positional squeeze. We remain fundamentally EUR-bearish.
EURUSD short-term technicals: bearish—We remain bearishly disposed to the EUR outlook from a technical point of view though downside progress remains slow (see middle chart). Intraday price signals look weak – suggesting short positions are accumulating – after gains struggled to make progress through 1.1040/50. We spot strong, short-term resistance at 1.1085/90. Intraday weakness under 1.1005/10 should see losses extend. Technical oscillator signals are aligning bearishly across a range of short, medium and longer-term timeframes – a development which often means the move lower (in this case) will extend.
GBPUSD (1.3169) • The pound traded heavily for most of the day yesterday until comments from BoE policy maker Forbes, suggesting no rush to cut rates, boosted sterling broadly late in the day. Cable has struggled to sustain gains overnight, however, and looks heavy again below 1.32 this morning. Forbes’ comments were not bullish for the GBP, in our opinion; the remarks simply suggested she was leaning towards more policy accommodation but wanted evidence of the economic impact of Brexit. UK retail sales were soft, falling 0.9% in June against a 0.6% decline expected. Fundamental focus falls on the preliminary July PMI data due tomorrow for the first real post-Brexit snapshot of the economy. Note BoE Gov Carney is speaking late tonight (23.35ET) at the G-20.
GBPUSD short-term technicals: bearish—Yesterday’s snap higher interrupted the bearish evolution of price action to some extend and eases the more immediate risk of a drop to 1.28 that we had identified earlier in the week. Broader patterns are still rather soft for GBPUSD and we still view 1.32+ levels as somewhat “rich” and liable to attract selling interest (see bottom chart). Weakness below 1.3215 (now resistance) overnight should see spot ease back to 1.3165 or so near-term.
USDJPY (106.37) • JPY has been remarkably volatile through the European session, weakening over 1% and recovering nearly half of its decline into the NA open as market participants considered comments from BoJ Gov. Kuroda in which he pushed back on the concept of helicopter money and reiterated a preference for QQE with negative interest rates. Gov. Kuroda’s comments were delivered to the BBC and recording is rumored to have taken place in mid-June, leaving open the question as to whether his views may have shifted in the past month. The July 29 BoJ policy meeting has been the subject of intense speculation and its timing is set to roughly coincide with the release of details surrounding the upcoming fiscal stimulus. Measures of JPY sentiment remain a headwind as risk reversals continue to fade the premium for protection against downside risk, testing levels last seen in mid-June.
USDJPY short-term technicals: bullish, with caution—we have re-introduced our cautious stance on the basis of an outside range of the daily charts, signaling uncertainty following a short-lived test of a fresh one month high. A bearish outside reversal would be completed on a close below 105.83. USDJPY’s momentum signals are modestly bullish, DMI’s are biased to gains, and short-term MA’s are bullishly aligned. Near-term support is expected at the 9 day MA (105.30) and resistance is expected at 107.50.