The following is paraphrased from ScotiaBank:
USDCAD (1.2844) • CAD is flat, consolidating in a tight range just below Tuesday’s multi-week high with near-term risk centered on the 10:00am ET Bank of Canada policy decision and statement release (no MPR or press conf.). A policy hold is widely anticipated (see middle chart), and the statement tone is expected to remain neutral with ‘roughly balanced’ risks to inflation and no change to the outlook for an H2 2016 rebound in growth. Both CAD and oil (WTI) are trading at levels roughly in line with those observed at the July 13 meeting, leaving the primary BoC risk centered on language relating to financial vulnerabilities. CAD drivers are moderately supportive, as oil prices stabilize off last week’s lows and yield spreads narrow from their recent multi-week highs. Sentiment is also providing support as measures of implied volatility soften and risk reversals suggest a moderation in the premium for protection against CAD weakness.
USDCAD short-term technicals: neutral-bearish—momentum signals have turned and the RSI is below 40. DMI’s are confirming the shift in the balance of risk and USDCAD appears set to test the ascending trendline off the May-August lows. Support is limited ahead of the August 19 open around 1.2780. Look to near-term resistance above 1.2920.
EURUSD (1.1243) • EUR is quiet, consolidating Tuesday’s impressive 1% rally with no material response to the release of weaker than expected industrial production figures from Germany (-1.5% m/m vs. 0.1% exp.). The greatest near-term risk for EUR lies with Thursday’s ECB as market participants consider the lack of clarity with regards to the near-term path for policy. Expectations are generally muted, with the bulk of Bloomberg survey respondents looking to no change in either the deposit rate (-40bpts) or the monthly pace of asset purchases (80bn). Risk of a disappointment is thus limited, reducing the risk of a replay of the March/December experience.
EURUSD short-term technicals: neutral—momentum signals are neutral and the ADX is trendless. Short-term MA’s are bearishly aligned however EUR appears unable to make a clear break of its recent congestion range around 1.12. We look to near-term resistance above 1.1280 and highlight the recent support observed around 1.1150.
GBPUSD (1.3366) • GBP is weakening on the back of softer than expected manufacturing production data for July (-0.9% m/m vs. - 0.3% exp.), challenging the narrative of post-Brexit resilience that had emerged in response to the most recent round of PMI’s. Nearterm risk lies with BoE Gov. Carney’s 9:15am ET appearance before parliament. He will be joined by MPC members Cunliffe, Forbes, and McCafferty.
GBPUSD short-term technicals: neutral—GBP appears to be retreating from resistance just below 1.3450 as it retraces a portion of Tuesday’s impressive rally from 1.33. The broader picture is relatively muted with near-neutral momentum signals and a trendless ADX. The two-hour chart is bearish, delivering a three candle evening star pattern in the latter half of Tuesday’s NA session (see bottom chart). Near-term support is expected at 1.33 followed by 1.3250.
USDJPY (101.68) • JPY is outperforming nearly all of the G10 currencies with a gain of 0.5%, rising in response to local media rumors of discord among policymakers at the BoJ. Gov. Kuroda is said to favor lowering interest rates further into negative territory and Dep. Gov. Iwata is said to favor an expansion in the monetary base. Board members Kiuchi and Sato are said to oppose any further easing. Risk is elevated heading into the September 21 policy decision, given that messaging following the most recent July 29 meeting (and disappointment) had put a heavy emphasis on a comprehensive review that was intended to help formulate the policy outlook into September. The likelihood of another BoJ disappointment is climbing, putting upside risk to the near-term path for JPY. Risk reversals are responding accordingly, pricing a greater premium for protection against JPY strength.
USDJPY short-term technicals: neutral-bearish—USDJPY has dropped back below its 50 day MA, momentum signals have turned, and the RSI is now below 50. DMI’s are providing confirmation to the shift in the balance of risk and USDJPY is attempting a clear break below the 21 day MA.