The major G10 and EM currencies pairs were stuck in very tight ranges during the London morning and Asian session. EU member states are expected to roll out new sanctions against Russia. Those results may therefore dictate the degree of ‘risk-on/risk-off’, but they’re not expected until tomorrow. On the macro side, the FOMC and Q2 GDP are the first hurdles for the USD, but they’re not until Wednesday.
USDCAD traded roughly between 1.0800 and 1.0815 during the London morning. In view of the rally in the pair late last week, its main ‘feature’ headed into Wednesday’s key US events and Thursday’s May GDP report is a slightly ‘rich’ valuation. Relative to its main drivers, USDCAD trades modestly above where it is expected to. This has not happened since the end of March.
Apart from broad EUR weakness, one of the main features of last week as a moderate move into long USD exposures, and USDCAD’s strength was probably one result of that move. Although it is not fully reflected yet in positioning, the broad consensus that the ‘USD will eventually continue to rally’ probably has some FX investors jumping into ‘divergence plays’ early. Heading towards Wednesday & Thursday, above 1.0800 USDCAD retains some ‘disappointment risk’ to either a: weak US GDP print, unexpectedly USD bearish ‘tweaks’ to the FOMC statement or a strong Canadian GDP reading. We would therefore expect 1.0825/30 to firmly cap the pair heading into mid-week, while 1.0775 should provide support. ‘Risk-off’ related to EU/Russian tensions, however, could see that area tested and broken before Wednesday though.
Read the full report: FX Daily