The following is paraphrased from Scotia Bank:
USDCAD (1.3165) • The CAD is steady against a generally softer USD this morning and under-performing against its major currency peers as a result. The CAD’s correlation with crude oil prices has slackened somewhat in the past two weeks but the relationship is nearing a point at which it has typically steadied and strengthened again. Nevertheless, crude oil slipping under $41/bbl accounts for much of the relative softness in the CAD. We expect crude will retain a softer bias and will continue to act as a drag on the CAD’s performance near-term at least. Canadian May GDP data will offer a stark contrast with what is expected to be decent (Q2) growth in the US and should compound pressure on the CAD intraday. The market expects a 0.5% dip in growth in the month; Scotia is calling for a 0.8% decline. The high estimate in the Bloomberg survey is zero so anything with a plus sign will be a major, if unlikely, surprise. Look for USDCAD to retest 1.32+ shortly.
USDCAD short-term technicals: (bullish) Yesterday saw USDCAD test and rebound from key short-term support in the low 1.31 area. This represents the broader, bull break-out point on the daily charts as well as short-term retracement support derived from the rally in USDCAD from the middle of the month. Holding 1.31 keeps the near-term undertone positive for funds and we look for intraday gains through 1.3190 to help drive spot towards a retest of 1.3250. We spot intraday support at 1.3115/30. Overall, we still view a move to the 1.33/1.35 range as likely in the next 1-3 months.
EURUSD (1.1108) • Eurozone data revealed softer French GDP and retail sales data but as expected CPI. Italian CPI was not quite as weak as expected while German retail sales were soft. Eurozone GDP rose 0.3% in Q2—in line with forecasts but half the rate of Q1. GDP was a little higher than expected at +1.6% on the year. All in, not much to cheer about on the growth/inflation front. Slower growth may factor in to ECB thinking in September as policy makers mull options in the post-Brexit environment. We remain bearish EURUSD and continue to see very limited upside for spot from here.
EURUSD short-term technicals: (neutral/bearish) EURUSUD is maintaining its mid-week bounce but progress beyond the high point seen earlier in the week is proving difficult. We have to concede that short-term trends are more constructive for the EUR but we also note that market has struggled to hold gains above 1.11 since late June. A strong close to the week may bring a little more, short -term relief for spot but we still rather view the late June break under trend channel support as a major negative for the market in the medium term. We see a strong band of resistance above the market at 1.1150/1.1250.
GBPUSD (1.3158) • Survey data released overnight offered conflicting insights into the UK outlook; on the one hand, the Lloyds business barometer rose sharply to 29 in July, from June’s 6, suggesting a quick recovery to business sentiment post-Brexit. On the other hand, the Gfk consumer confidence survey plunged to a lower than expected –12 this month, from –1 in June. Mixed data leaves the pound little changed against the USD on the day.
GBPUSD short-term technicals: (bearish) GBPUSD price action suggests the broader July consolidation remains intact. Broader trend strength signals are somewhat weaker but remain bearishly aligned for the GBP, suggesting to us that GBP rebounds will be limited in terms of scope and scale for now. We see resistance at 1.32 intraday and support at 1.3115. Negative technical conditions favour GBP sellers.
USDJPY (103.51) • USDJPY was choppy in the aftermath of the BoJ decision, rising to the upper 1.05 area on the initial headlines and falling below 103 just moments later as the market reacted to the very limited nature of the measures. With additional easing steps so widely expected (78% of economists polled in the Bloomberg survey expected more accommodation), the potential for disappointment was significant. Nevertheless, unchanged policy and the announced review will raise expectations that, after massive stimulus measures already announced, BoJ policy may be running out of room to do more.
USDJPY short-term technicals: (bearish) USDJPY looks soft on the charts and a low weekly close will suggests (strongly) that the broader downtrend place so far this year remains intact. Longer-term trend strength oscillators are bearish but shorter-term studies are mixed, which favours choppy range-trade with a weaker bias. We see strong resistance now at 1.025 and think the USD is prone to a retest of 100