The USDCAD is basically unchanged after yesterday’s volatile move due to Trump’s tariffs and weak Canada GDP numbers. Crude oil is still moving lower and the reason is still OPEC and Russia will increase production and US output continues to grow. Although inventory numbers are lower than this time last year.
U.S. employment is still strong, nonfarm payrolls rose 223,000 in May to just top analysts’ high estimates while the unemployment rate moves down a tick to a new expansion low of 3.8 percent. The monthly gain for average hourly earnings came in at the high end of expectations, up 0.3 percent for a year-on-year rate that is up a tenth to 2.7 percent.
Expect a quieter day.
USDCAD 1.2906, 1.2893, 1.2870 1.2955, 1.2981, 1.2992
USD-CAD has remained buoyant after rallying yesterday in the wake of a weaker than expected Canadian GDP outcome, which came in with a 1.3% q/q growth rate, down from 1.7% q/q in the previous quarter and well off the median forecast for an acceleration to 1.9% q/q. The pair logged a high of 1.2991 before coming off the boil. The move reversed over two thirds of the loss seen on Wednesday on the BoC announcement and policy guidance, which laid the groundwork for gradual tightening, while caveating that rate hikes would be data dependent. The breakdown in NAFTA negotiations, the U.S. slapping of tariffs on Canada’s steel and aluminium exports, and the risk of weaker oil prices (should OPEC and Russia soften supply restrictions) collective suggest that USD-CAD is more likely to firm than to weaken. Support is at 1.2860.
EUR-USD lifted back above 1.1700 after Five Star and the League won the support of President Mattarella to form a coalition government, avoiding the spectre of a new election. We advise maintaining a weather eye on how things evolve given the Eurosceptic credentials of the new government. If the experience of Greece’s governing Syriza party is anything to go by, the policies of the anti-establishment populist parties in office will be more market friendly than the firebrand proposals made on the campaign trail. Time will tell. Over on the Iberian peninsular, Spanish PM Rajoy fell in a confidence vote, with Pedro Sanchez, of the left-wing — but pro EU — PSOE, taking up the reigns. Market participants will be keeping a close watch on the trade war after Trump hit EU with tariffs on its exports of steel and aluminium, with the union set to retaliate. EUR-USD needs to hold above 1.1649-50 through to today’s close to mark this the first weekly gain out of the last seven weeks. Resistance is at 1.1728-1.1733, which encompass highs that were seen over the last week. Support comes in at 1.1608-10.