Oil prices are up over comments from Goldman Sachs Group, the company sees North Sea Brent reaching $82.50 USD a barrel, currently $69.61 USD, within six months. Also, yesterday’s FOMC comments showed that the U.S. economy is growing nicely and that there would be no rate hikes in the immediate future.
The USDCAD needs to break 1.2250 level before moving into a new trading range.
USDCAD 1.2238, 1.2200, 1.2167 1.2299, 1.2305, 1.2336
USD-CAD lifted out of yesterday’s four-month low at 1.2248, recouping to the lower 1.23s. The upgraded forecasts from the Fed has given the pairing a yield-differential underpinning, which we think should sustain for now. NAFTA uncertainty also remains in the mix, although with trade negotiations potentially playing out through 2018, the trade pact will likely fade to the backdrop until the next round kicks off in Mexico on February 26. USD-CAD has support at 1.2310-11.
Moreover, American customers are so eager to hire Canadian rigs they are willing to help pay relocation costs, CEO Brent Conway said in an interview on Tuesday, adding he would rather avoid the headaches of a move if he could find profitable work in Canada.
The rigs owners say the investment climate in the U.S. makes them doubtful the rigs will ever return. They may move more rigs south if customer demand remains strong.
EUR-USD flipped back above 1.2400 after seeing a two-day low at 1.2384. EUR-JPY clocked a four-week high, while EUR-GBP rebounded from lows. We still think there is a risk for a relatively sustained correction in the wake of the upgrades in the Fed’s growth and inflation projections, which should see a March 25 bp hike fully priced in. This comes amid evident disquiet at the ECB about the pace of recent euro gains, which seems to have cast a dampening impact on hawkish voices at the central bank. EUR-USD has been looking ripe for a correction, which hasn’t seen much of a pullback since rallying from levels near 1.1900 on January 10th. The 20-day moving average at 1.2286 provides an initial target. Resistance is at 1.2451-52.
EUR-CHF has settled near 1.1600 after clocking a two-month low at 1.1541 on Monday, which capped the biggest correction the cross has seen since the Swiss franc started to trend lower in mid last year. The move reflects the ECB’s evident disquiet about the extend of the euro’s recent rally, which looks to have had a dampening impact on hawkish voices at the central bank. There is also some concern appearing in market research notes about the Italian election in early March, given the popularity of anti-EU Northern League. Before the correction, EUR-CHF logged, on January 15th, a 37-month high at 1.1833. The broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area, is now on pause. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.
Sterling has ground lower in the wake of a miss in the UK manufacturing PMI release, which unexpectedly declined in the headline January reading, to 55.3, the lowest sine last June and down from 56.2 in December, which was itself revised slightly lower, from 56.3. Cable had ebbed by about 25 pips in settling around 1.4237-40, and the pound has seen a similar moderate retreat against the euro and yen, among other currencies. The decline in the January manufacturing PMI marks the second consecutive month of abatement in the pace of expansion in the sector from the 51-month high of 58.2 that was seen in November, though at 55.3 the indicator still remains comfortably above the long-term average of 51.7. Cable closed out January with just over a net 5.0% gain, which is the biggest monthly advance the pound has seen since July 2010. The outperformance was driven by an unwinding in the Brexit discount that the forex market has been demanding since the UK’s vote to leave the EU in June 2016. The EU and UK’s agreement on Brexit divorcing terms in December has been behind the dynamic, along with widespread expectations for the two to agree on a post-Brexit transitory phase.