West Texas Intermediate (WTI) is nearly $58 USD a barrel, up 0.64%, oil inventory levels fell the most since August, oil is closing out the year with higher prices. Global stockpiles will remain below seasonal levels and continue to shrink through the second quarter of next year, according to Goldman Sachs Group Inc.
The Canadian dollar is slightly better, however, tomorrow’s CPI and Retail sales will give some direction for the CAD, expect a narrow range today.
USDCAD 1.2825, 1.2818, 1.2796 1.2850, 1.2858, 1.2866
The dollar traded mixed, seeing little impact from the tax bill’s passage in the U.S. Senate in the early hours of the day. The House will re-vote later today due to procedural irregularities in the vote yesterday, and is expected to pass. The dollar posted gains versus the yen, which has generally underperformed, while showing little net change against the euro and sterling while showing moderate declines versus the Australian dollar. USD-JPY rallied to one-week high higher of 113.00, buoyed by a spike in U.S. Treasury yields yesterday. Trading conditions have remained thin, and Japanese markets will be closed tomorrow. EUR-USD eked out a four-session high of 1.1858 before settling around 1.1830-40 after some choppy turns in thin market conditions. The euro remains well up on the levels near 1.1750 that were seen on Monday. Cable has also been consolidating gains seen over the last couple of days.
EUR-USD eked out a four-session high of 1.1858 before settling around 1.1830-40 after some choppy turns in thin market conditions. The euro remains well up on the levels near 1.1750 that were seen on Monday. We anticipate overall directional bias to shift downwardly following the success of the $1.5 tln tax bill (which has passed in both houses, though a revote will take place in the House later today to correct a procedural problem in the vote yesterday). Passage of the tax overall, which will be largely deficit financed and will slash the corporate tax rate, among other things, has been widely anticipated, and is generally seen as a positive for the dollar, heralding a loosening in fiscal policy with the implication of tighter-than-previously-envisaged monetary policy. EUR-USD has support at 1.1809-10, and resistance at 1.1862-65.
USD-JPY has rallied to one-week high higher of 113.00, buoyed by a spike in U.S. Treasury yields, while the passage of the U.S. tax overhaul bill in both the House and the Senate (though the former will re-vote later today due to procedural irregularities in the vote yesterday) also seen as a positive. Trading conditions have remained thin. Technically, USD-JPY is amid a broadly sideways chop, roughly centred between 108.0 to 115.00, which has been persisting for eight months now. More of the same looks likely into 2018. Resistance is presently in play, at 113.10. A break and daily close higher of here would strength signs for a sustained rally phase. Support is at 112.75-77.
Cable has settled in the upper 1.33s after yesterday turning lower on meeting good selling interest higher of 1.3400. Price action remains bearish, with daily highs continuing to descend this week, affirming a downtrend that’s been in play since the early December high at 1.3549. We anticipate little scope for the pound to rally in a sustained manner as we head into 2018. Most likely Her Majesty’s currency will continue to consolidate with the 15% trade-weighted discount that evolved in the wake of the Brexit vote in June 2016. While trade negotiations with the EU for a post-Brexit trade deal will formerly commence in March, the timeframe is slim and both sides are openly talking about a transition period of something in the order of two years beyond the March-31 2019 Brexit date. The political backdrop in the UK is likely to continue to inspire uncertainty for investors and business leaders. The prime minister is weakly supported and facing a fractious group of hardline Brexit in her minority government, while there are signs that the main opposition party, Labour, is evolving to a position that may favour remaining in the EU.
EUR-CHF has seen choppy price action over the last couple of weeks, having turned lower after several attempts higher of 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We still remain bullish over the medium term, however. Assuming the Eurozone has conquered existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable (the central bank reaffirmed this commitment at its quarterly policy review last week), we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1620.
USD-CAD has settled back in the mid 1.28s after a short-lived spike above 1.2900 level yesterday. The pair has failed to hold gains above 1.2900 on multiple occasions since early October. How the U.S. dollar benefits from the expected tax overhaul, how oil prices evolve, how NAFTA re-negotiations go, and how the BoC proceeds with its slow-go tightening cycle will be dominant themes for USD-CAD heading into 2018. Over the holiday period we anticipate USD-CAD to hold in a 1.2700 to 1.2900 consolidation range, roughly.