USDCAD (1.3086) • CAD is up 0.2% from Tuesday’s close, trading at the upper end of its October range ahead of the much-anticipated BoC policy decision, statement, and MPR forecast update at 10am ET followed by a press conference by Gov. Poloz and Sr. Dep. Gov. Wilkins at 11:15am ET. A policy hold (0.50%) is widely expected. We look to CAD weakness in response to the BoC events as we note the potential for a reiteration of the dovish language used in the September statement and look to a markdown in the growth forecast that will likely extend the closing of the output gap beyond the late 2017 time frame that had been anticipated in the July MPR. Markets are pricing in a neutral path for the BoC, leaving CAD vulnerable, and an intensified focus on financial vulnerabilities and the housing market will likely deliver additional CAD weakness via sentiment. We anticipate a widening in the U.S.-Canada 2Y yield spread and a reversal of the narrowing from early October. We remain bearish CAD with a year-end forecast of 0.75 (USDCAD 1.33).
USDCAD short-term technicals: bullish—USDCAD is under near-term pressure, softening toward Tuesday’s low in the mid-1.30s. We look to limited downside beyond the 50 day MA at 1.3070 (see middle chart) and would anticipate considerable support at 1.30. The broader, multi-month bullish trend remains intact, and we maintain a bias to medium-term gains toward the 1.33-1.35 area.
EURUSD (1.0979) • EURUSD retains a generally soft undertone. There was little data to focus on in the European session; Eurozone construction output fell -0.9% in August and growth slowed to just 0.9% (from 4.1%) in the year. EU Parliament President Schulz said the EU was facing a “real struggle” to remain together as Brexit weakened the union. We remain fundamentally bearish on the EUR and continue to near term risks as being geared towards a test of the 1.05 area. Movement may remain limited ahead of the ECB meeting Thursday.
EURUSD short-term technicals: negative—Loss of short-term support around 1.1005 yesterday prompted modest weakness in the EUR but not to the extent we expected. However, the EUR has struggled to recover through the 1.10 zone and intraday price signals look weak again at the outset of our session. We see strong resistance at the figure now and look for EUR losses to extend below 1.1075. Trend strength signals are aligning bearishly for the EUR across a range of timeframes, suggesting steady downside pressure on the EUR in the medium-term and limited scope for counter-trend corrections. Sell EUR rallies.
GBPUSD (1.2290) • UK labour market data was a little better than expected. Employment rose 106k in the last three months through August – reflecting a slowdown in the pace of hiring but suggests trends remain quite healthy considering Brexit worries. Weekly earnings rose modestly to 2.3% y/y in August, up from 2.2% (revised) in July. The GBP slipped on Bloomberg reporting that Germany would close down “back door” talks with the UK on Brexit, however, renewing concerns about “a hard Brexit” impact. Fundamentally, we think the GBP remains vulnerable and has yet to find a sustainable base.
GBPUSD short-term technicals: neutral/negative—Sterling is just about holding on to yesterday’s gains but is clearly struggling to extend this week’s rebound above 1.2325. The near-term trend in the GBP looks consolidative. The GBP sell-off has clearly lost momentum in the short-run but there is scant evidence of a stronger base of reversal developing. We still rather see current trends as a pause ahead of another push lower. Gains through 1.2325/50 might give speculators a chance to sell nearer 1.2450/1.25 but we are not hopeful that the GBP can really gain any more ground from here.
USDJPY (103.33) • JPY is outperforming along with gold, resolving its recent consolidation with an upside break on the back of a turn in the broader market tone. The outlook for relative central bank policy remains dominant in the absence of domestic data, and rumors are adding to JPY’s strengthening bias as market participants consider local media headlines hinting to the potential for a steady BoJ policy stance at the November 1 meeting. Measures of sentiment are stable, and options markets are pricing a modest premium for protection against JPY strength.
USDJPY short-term technicals: bearish—USDJPY has resolved its recent consolidation with a break below the 9 day MA (see bottom chart) and we look to further downside toward the 21 day MA in the mid-102s. Bullish momentum signals have softened to neutral, and DMI’s are confirming the shift in the balance of risk. Resistance is expected above 103.80.