The London morning in spot G10 was generally characterised by more EUR weakness, but the crucial factor here is where that weakness was concentrated: in the EUR crosses rather than in EURUSD. The consequence, not the cause, was an approach of 1.375 in EURUSD. The AUD, CAD and NZD have been firm partially because the US data have underwhelmed so far this week, and the EUR has fallen more vs. the commodity bloc than vs. the USD. It appears that the bar for the US data to cross may be higher whilst the Fed is still expanding the size of its balance sheet.
In theory, CAD short covering, which has surprised us this week, should start to run out of steam around current levels (spot ref: 1.1076). The previous two short covering rallies in the CAD have stopped at the top of the Ichimoku cloud, and that currently comes in at about 1.105. Additionally, 2-5yr swap and sovereign rate differentials are all getting close to signalling that USDCAD is a bit cheap simultaneously. That has not happened for some time. Finally, in rates, participants have not continued to exit 5s-10s flatteners which were put on after the March FOMC. This suggests that some are holding out for what could be a strong March employment report next week.
The immediate risk is that tepid US data today forces remaining CAD shorts to get squeezed, but opportunistic new CAD longs should start to see downside price action in the 1.100-1.105 range become fatigued.
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BMO