Markets are waiting for the FOMC meetings to finish tomorrow, plus President Trump’s State of the Union speech tonight. Lower oil prices seem to have had little effect on the CAD, oil is down $1.21 USD a barrel, investors believe that tomorrow’ inventory numbers will be significant.
Expect a narrow range today.
USDCAD 1.2325, 1.2313, 1.2292 1.2337, 1.2345, 1.2368
USD-CAD has settled in the mid 1.23s after logging a four-month low last Thursday at 1.2281. Focus will remain on the NAFTA front, where a new deal looks to be a probability, while the fresh surge in oil prices over the last week is a positive for the Loonie. USD-CAD has resistance at 1.2390-91, and support at 1.2310-11.
Sterling ticked high in the wake of the labour data release, although the data showed mortgage approvals at a near three-year low. Cable gains coincided with a correction in the dollar, helping lift the pair to a peak of 1.4105, well up on the intraday low at 1.3979. The rise in Cable largely reflects a wave of dollar selling, which has pushed the buck into the biggest loser position out of the main currencies on the day so far.
EUR-USD rallied back above 1.2400 as the dollar came back under pressure. We still see risk for there being a relatively sustained correction in the pairing, which hasn’t seen much of a pullback since rallying from levels near 1.1900 on January 10th. This week’s FOMC meeting (announcing tomorrow), which will be Yellen’s last as Fed chairperson, is likely to see the Fed upgrade its balance of risks assessment with regard the growth outlook while working in a slightly more hawkish tone on inflation, which in the event would likely shore up some support for the dollar. A Bloomberg report last week, meanwhile, citing unnamed sources, held that a faction of ECB policymakers want to wait until June, instead of March, before tweaking policy guidance, which has helped dampen some of the hawkish interpretations of last week’s post-meeting communication. EUR-USD, which has been looking ripe for some mean reversion, has resistance at 1.2494-95. The 20-day moving average, at 1.2224, provides an initial target for those looking for a sustained correction. .
The expected hawkish tweak in the Fed’s guidance this week has, aside from giving the dollar a broad bid, spilled into global equity markets, souring risk appetite in a richly valued asset environment. Most commodity markets are similarly down for a second consecutive day. This backdrop has given the yen and underpinning. AUD-JPY, which is a forex market proxy of risk appetite, is trading at 18-day lows and is registering the biggest movement on the day out of the currencies we track, with a 0.7% loss as of the London open. USD-JPY has help in a narrow range in the upper 108.0s, with the yen better bid versus other currencies amid the backdrop of declining stock markets. We anticipate that the dollar and yen will continue to hold firm into tomorrow’s announcement by the Fed. USD-JPY has support at 108.50-51 ahead of 108.28-30. Initial resistance is at 108.98-109.00. We cautiously anticipate some mean reversion this week, targeting the 20-day moving average at 110.45.