Activity in G10 FX pairs was extremely lacking this morning in London, but that shouldn’t shock anyone. European equity indices were trading in the black following modest gains in Asia overnight, but the tone still feels cautious overall, with EU leaders meeting on Ukraine/Russia now. Provided the ECB holds off from new measures today, we’ll be looking to buy EURUSD on any dips into the 1.360-1.366 range. That range is perfectly achievable on moderately dovish ‘verbal posturing’ from Draghi today, but something more aggressive will be needed to force that range to break on the downside. The odds of that aggressiveness appearing today are nothing more than a ‘coin toss’.
Very recent price action in USDCAD suggests that the short-CAD covering we had been highlighting as a factor since the start of the week has been reserved until after the BoC. Our hunch is that it’s not entirely finished yet. So although we do expect very good support 1.095-1.1025, a very weak US employment report tomorrow will put the USD quickly on the defensive versus the CAD.
The main scrutiny and focus tomorrow is going to be on the US data, because of what it could mean for the ‘taper’ and because the US 10-year yield is not far from its 2014 lows. The outcome of Canadian employment, on the other hand, should simply restrain or exaggerate the magnitude of the initial USDCAD move stemming from the US data. For today, the most immediate risk in USDCAD would appear to be that better Canadian data due at 0830 and 1000 EST get the ball rolling down towards 1.100.
Read the full report: FX Daily
BMO