The Canadian dollar is lower on weaker oil prices, oil analysts are expecting that OPEC and Russia will increase production at next week’s meeting, also the USD gain against most currencies as the ECB intimated that it won’t be hiking interest rates over the summer. Expect further volatility, especially when it comes to comments from Trump and NAFTA.
USDCAD 1.3070, 1.3053, 1.2992 1.3085, 1.3096, 1.3106
USD-CAD has settled back under 1.3000 after retreating from yesterday’s five-session peak at 1.3051. A lift in oil prices over the last day, following EIA data showing a drop in U.S. crude inventories, gave the Canadian dollar a lift, along with progressing NAFTA negotiations, despite the public falling-out between President Trump and Canada’s Trudeau last weekend. We still retain a bullish view of USD-CAD, partly on the Fed versus BoC policy outlook, and partly on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.2950-50, which encompasses both a three-week trendline and the current situation of the 20-day moving average. Resistance is at 1.2998-1.3000.
EUR-USD encountered some headwinds after rallying back above 1.1800 from yesterday’s 1.1725 low that was seen in the immediate wake of the Fed’s rate hike and hawkish-tilting guidance. The pair logged a high at 1.1827 as market participants anticipated the ECB to announce an end of QE policy later, before the euro’s upside ambition was stymied by a fresh sell-off in Italian bonds, which was seen after an Italian minister said that the government will be asking parliament not to ratify the EU trade deal with Canada (CETA), re-catalysing investor concerns about the possible threat to the EU’s integrity the new populist government in Italy poses. Final May inflation data out of Germany and France, meanwhile, confirmed that HICP is pushing the upper limit of what the ECB considers is price stability. We think there is a risk that EUR-USD will tip lower following the ECB’s announcement, where we expect the central bank to wrap its end-of-QE signal in a cloak of dovish guidance (a so-called “dovish tightening” signal). The Fed’s bullish assessment of the economy still as some resonance, too, even though Chairman Powell noted that the central bank’s models aren’t showing a spike in inflationary pressures. EUR-USD has resistance at 1.1831-32.