It does appear that some small stops were triggered in GBPUSD following the weaker Services PMI. Otherwise, G10 activity was very limited this morning. Importantly though, the CAD outperformed vs. other major currencies on the move lower in the GBP, and this plays into one of the themes mentioned below.
USDCAD’s range was tight again, but the bias was tilted towards the downside. February net trade data are due at 0830, and our economists are looking for a 0.1bln surplus, which is slightly below the consensus. Given the downside bias in USDCAD at the moment, we think market psychology is more likely to ‘reward’ the CAD for better data today than ‘punish’ it for poor data. FX investors will probably line-up a better net trade figure today with the upside surprise in February CPI as a sign that the weaker CAD really started to do its job during Q1.
However, the bigger piece of event risk today for the CAD is likely to be the ECB from 0745 onward. The positioning adjustment in the commodity-bloc currencies that began last week was almost identical in timing to the increased speculation of ECB QE. If the ECB’s current market-based strategy is to keep investors ‘guessing’, it’s probably working. EURCAD and GBPCAD will be important pairs to watch during the Toronto morning. 1.100 in USDCAD will break quickly in the event of a EUR-negative shock from the ECB today. Initial support in smalls comes in around 1.0975, with better demand for the pair likely to emerge in the 1.090-1.091 range. 1.105 is likely to cap rallies today.
Read the full report: FX Daily
BMO