The following is paraphrased from Scotia Bank:
USDCAD (1.3063) • Crude oil prices recovered sharply from the fresh 3 month low just above $39/bbl reached yesterday; despite what looked to be a technically bullish rebound (outside range reversal), crude prices have slipped again so far today. How much benefit the CAD can derive from a broader firming in prices remains to be seen. A look at the typical drivers of the CAD’s performance—commodities broadly, crude specifically and US/Canada rate spreads—shows that usually strong correlations with spot are relatively weak at the moment—especially spreads and WTI. The CAD might not too much bounce from a recovering crude oil market at this point. But softness might not matter too much for a market that looks to be range trading around 1.30/1.31 either. There are no data reports from Canada today; trade and labour market data are out Friday.
USDCAD short-term technicals: (neutral/bullish) USDCAD has found solid support on dips to the 1.3000/10 area this week but has also encountered good selling interest on strength to the 1.3140/50 zone to establish a well-defined, sideways range. Intraday price action suggests a firm bid from the overnight low which should see spot challenge 1.3120/40 again in the next few hours.
EURUSD (1.1130) • Eurozone retail PMI data suggested modest gains for Germany and France while Italian data remained very soft; aggregate data for the Euro area rose to 48.9 in July from 48.5, suggesting retail activity remains anemic. EURUSD is modestly lower in quiet trade. We continue to view Eurozone-US short-term rate spreads (127bps at the 2Y sector of the curve, a little narrower than the late July peak) as a major impediment to a higher EUR.
EURUSD short-term technicals: (bearish) Spot has drifted steadily lower from Tuesday’s peak near the 100-day MA (1.1237). Intraday losses below 1.1125/30 (retracement support and 40-day MA) should see EUR weakness extend to the mid/upper 1.10s in the next 24-48 hours. We see intraday resistance now at 1.1155/60 and stronger resistance in the 1.1200/50 range.
GBPUSD (1.3169) • The Bank of England announced a relatively aggressive round of monetary and quantitative easing steps; the Bank’s key rate was cut 25bps to 0.25%, the first rate cut since 2009. QE was increased by GBP60bn/month and corporate bond purchases of GBP10bn/month were also announced. New forecasts showed the central bank expects a significant slowing in the UK economy next year (0.8% GDP growth versus 2.3% in the last forecast) as Brexit bites. The policy statement suggested many policy makers would favour additional easing if the economy performs as expected. The ’kitchen sink” approach from Gov. Carney suggests renewed downside risks for the GBP broadly after the July consolidation.
GBPUSD short-term technicals: (bearish) Cable has spent most of July consolidating in a triangular pattern around the 1.31/1.32 range. This morning’s sell-off is pressuring the lower bound of the range and short-term price signals are bearish. A break under 1.3165 intraday should see losses extend near-term and would point to a resumption of the longer-term sell-off in the GBP more broadly.
USDJPY (101.38) • USDJPY is trading narrowly as the market consolidates sharp losses in spot seen over the past week. Local stocks out-performed regional peers on speculation of more aggressive BoJ ETF purchases but the boost to the market failed to lift USDJPY significantly, with the broader pro-risk bias noted above failing to do much for spot in the European session.
USDJPY short-term technicals: (bearish) the short-term charts look unequivocally bearish for USDJPY. Price action is building an obvious bear flag off the August 2nd low which confines topside prospects to the 101.75/80 area into the end of week and suggests renewed (and significant) downside risk for the USD below the base of the formation at 100.95 currently.