The following is paraphrased from ScotiaBank:
USDCAD (1.2938) • CAD is up 0.3% and strengthening for a third consecutive session to test a fresh one week high, rising in an environment of continued risk appetite. The broader tone is set to remain dominant through the end of the week, as domestic risks fade following Wednesday’s surprisingly optimistic Bank of Canada tone. CAD drivers are providing support as oil prices stabilize around their recent lows and as USD-supportive yield spreads steady following their recent widening. Measures of CAD sentiment are also supportive, as risk reversals continue to fade the late-June rise in the premium for protection against CAD weakness. We maintain a bearish medium-term CAD bias, however the near-term risks appear balanced to the upside as we consider the broader turn in both fundamental drivers and sentiment.
USDCAD short-term technicals: neutral—both the MACD and RSI have faded to neutral and USDCAD has fallen back below both its 50 and 100 day MA’s to trade at the mid-point of its ascending trend channel from early June (see middle chart). Both the channel and rising trend line off the May-June lows hint to support below 1.28. We look to the 21 day MA (1.2946) for clues to the near-term direction.
EURUSD (1.1157) • EURUSD retains a soft undertone, in our opinion, but the reluctance to trade significantly lower (or higher) is driving market players to the sidelines and short-term vols lower (1M EURUSD vol has slipped to its lowest level in two months). There were no data releases in the Eurozone today and, with ranges holding while all eyes are on the GBP, market participants were happy to job positions around within recent ranges.
EURUSD short-term technicals: neutral/bearish—The broader assessment of the technical picture remains negative from our perspective. EURUSD’s weakness below the base of the rising channel in place since December should see price ease in the medium term. However, short-term price action is very flat, with spot barely moving +/- 15 ticks around 1.11 through the overnight session. There is resistance around 1.1120, evident on the short-term chart, however, and we still rather think price action is consolidating ahead of another push lower (below 1.1045/50).
GBPUSD (1.3365) • Sterling popped on the BoE decision to keep policy unchanged. Many were looking for at least a 25bps cut today (and we were anticipating even more aggressive steps) after Gov Carney indicated that more accommodation might be required in response to Brexit. The overnight rate remains at 0.5% and asset purchases are unchanged at GBP375bn. The policy statement said that most officials expect to ease policy in August. The BoE decision may provide the GBP with modest support in the short run but we continue to see limited upside risks for the GBP at the moment.
GBPUSD short-term technicals: bullish—GBPUSD’s spurt higher this morning gives the GBP a slightly stronger profile on the shortterm charts but the rebound is only now and only barely touching the 1.3337 23.6% Fib retracement of the sell-off from 1.50+ on June 23. Longer-term charts do look more constructive but the force of the broader bear trend remains strong and, if Cable cannot progress above the minimum retracement of the late June/early July slide, recovery prospects will look pretty bleak.
USDJPY (105.62) • JPY is down 1.0%, weakening for the third session in four with a near-5% decline from Friday’s close. Domestic developments and the broader market tone are both providing for JPY weakness as market participants respond to a material shift in expectations surrounding Japan’s policy outlook—with a focus on both fiscal and monetary stimulus. Fiscal details are set to be delivered by the end of July, and monetary developments remain a source of considerable speculation ahead of the BoJ’s July 29 policy decision. Fundamentals and sentiment have combined to provide for material JPY weakness this week, however both yield spreads and risk reversals have failed to carry their move into Thursday, suggesting that this most recent decline is being driven by an adjustment in positioning. Note that CFTC data show JPY as the largest held net long with a $7.8bn net position as of July 8.
USDJPY short-term technicals: bullish—USDJPY has rallied to a fresh July high with a near full retracement of the bearish June 24 candle and its open at 106.16 (see bottom chart). Momentum signals are bullish and slow-moving DMI’s have provided confirmation. The 9 day MA appears poised to make a near-term break above the 21 day MA. We look to gains toward the 50 day MA at 106.35.