Broader market conditions were decisively ‘risk-off’ during the London morning, as a meaningful improvement in EM conditions has still failed to materialise. USDJPY served as a good barometer once again, with equity market weakness and more ‘downside pain’ forcing a break of 102.00 in the pair. EURUSD appeared soft for most of the morning. 1.345 stayed out of view as the key PMIs were upbeat, but rallies are likely to be capped between 1.350 and 1.355 ahead of the ECB on Thursday.
USDCAD price action reflects a degree of ‘capitulation’ on the part of CAD shorts, and it appears for now that room for another move to 1.120 before key data on Friday is going to be limited. CAD bears should therefore remain cautious for the time being before putting anything sizeable on. Last week’s quick stab above 1.120 failed to see to key levels come into view: 1.1244 and 1.1256, which respectively denote the 50% retracement of the entire 2008-2011 move lower and the upper level of the 30-day moving average Bollinger Band. As a result, stale CAD shorts are probably in the middle of a moderate clear-out. This should bring positioning back into better balance a bit ahead of Friday.
We’d prefer to wait to see if there is another clear out towards 1.100 the figure before buying the dips, unless the pair breaks back above 1.1080. In that case, there is probably a some value in buying the pair in anticipation of a move back up towards the 1.110-1.112 range. Canadian data this afternoon will probably be overlooked by FX investors, unless the numbers are decisively out of line with the consensus.
Read the full report: FX Daily
BMO