Conditions during the London morning were once again supportive of ‘risk’, following Yellen yesterday and surprisingly good Chinese data overnight. The JPY faced limited pressure to appreciate and the AUD was firm again. Part of the interpretation of the GBP’s strength around the QIR was related to the fact that the ‘de-emphasis’ of the unemployment rate threshold was already in the price. The BoE’s interpretation of ‘spare capacity’ has kept the GBP rally restrained for now, but the rough ‘blueprint’ for Bank Rate hikes further out is GBP supportive.
USDCAD’s ‘general direction’ during the Asian and London morning sessions has been somewhat weak. Part of this trend lower reflects the fact that there is a distinct lack of upward or downward ‘signalling’ factors available for the CAD right now. On the other hand, after retail sales tomorrow, the next plausible big impetus for getting long of USDs is not really until the first week of March, when we receive key US data. This has left the USD somewhat vulnerable in the near-term, as the recent string of rather weak US data and ‘weather effects’ are discounted into the price.
We’re obviously still very cautious about being exposed to USDCAD topside. We prefer to wait until levels closer to 1.095 emerge before looking to buy the pair. We’d also need a solid close back above the 21-day EMA (1.102) to even start considering a move back to 1.111/20 again. CAD bears should remain very cautious at current levels and wait for 1.095-1.096 to emerge first before seriously getting involved again. However, near-term opportunistic CAD shorts should look to raise that USDCAD bid range up towards 1.097/90 on a topside break of 1.102.
Read the full report: FX Daily
BMO