The main ‘mover’ during the London morning was the GBP again, around the release of the May CPI inflation data. Although the data fell short of expectations, front-end rates moved to the downside by very little, probably because the June MPC minutes are due tomorrow. Given positioning, an unexpectedly ‘dovish’ set of minutes could now trigger a sharper downward squeeze in the GBP. EUR downside has been very limited so far today, in view of some of positioning and slightly firmer rates, and EURCAD is still flirting with a test/break of 1.4750.
USDCAD was generally better bid this morning in London. The oil price has edged a little bit lower and EURCAD has seen some decent support so far today. Players need to watch the 1.4750 level in that pair for signs of a break. The odds of USDCAD heading into tomorrow’s FOMC north of 1.0875 are now a bit better, and they will be affected by the result of today’s US CPI data due at 0830.
If the preference is to head into tomorrow’s FOMC with some sort of a bias, the one to watch today in the data is core CPI YoY, as a ‘stronger’ 2-ish percent print could slightly tip the balance of risks away from a ‘neutral’ FOMC statement. The consensus is for a 1.9% print, but our economists are a touch lower at 1.8%. However, we really think the moves around the numbers today, if any, will be short-lived. Due to the number of new FOMC voters, tomorrow’s statement and press conference are ‘wild cards’ to some extent. London afternoon upside in EURCAD and some better CPI numbers at 0830 could see 1.0900 tested in USDCAD as rate differentials are still USDCAD supportive, but we’d expect very good offers up there.
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