The euro jumped against the dollar on Thursday after the European Central Bank said it could revisit its communication stance in early 2018, boosting expectations that policymakers are preparing to reduce their vast monetary stimulus programme. Yesterday’s banter between Canada and the USA on the NAFTA and Canada appealing to the World Trade Organization the USA’s countervailing duties, caused the CADUSD to weaken in a very short space of time. However, oil prices are still moving higher, this morning WTI is $64.57 USD a barrel, which has helped the CAD from selling off any further. Oil shot above $64 a barrel for the first time in more than three years as tighter supplies and stronger demand pointed to more balanced markets.
The ECB released its minutes, giving insight as to where the ECB is going with interest rates. The European economy seems to be doing better than expected, however, the ECB remains cautious, but once it has determined that the recent economic strength is valid, hen it will hike rates.
USD-CAD’s rebound gathered pace over the last day, with the pair gaining by over a big figure in setting a two-week high at 1.2583. The move reflects reports that the U.S. may pull out of NAFTA, and partly a rebound in the U.S. dollar after Beijing refuted yesterday’s story alleging that it was thinking of reducing U.S. Treasury purchases. This backdrop has offset the Loonie-positive implications of the march high in oil prices, which hit a 37-month peak yesterday by the WTI benchmark measure, and expectations for the BoC to hike interest rates by 25 bp next week. Ahead into 2018, how the U.S. dollar benefits from the expected tax overhaul, how oil prices evolve, how NAFTA re-negotiatios go, and how the BoC proceeds with its slow-go tightening cycle will be dominant themes for USD-CAD.
EUR-USD has settled at net flat levels on the day near 1.1950. Price action has been choppy over the last day, rallying sharply above 1.2000 before retreating back below 1.1950. Beijing’s rejection of the story that it was thinking of reducing its purchases of U.S. Treasuries gave the dollar a lift, which in turn weighed on EUR-USD. The volatility convolutes directional signals, so we advise caution for now. Resistance comes in at 1.1955-60 and 1.2019-20.