The stronger than expected U.S. housing data lifted the USD against most currencies, plus investors still believe that the new U.S. tax bill will provide added impetus. The tax plan will allow U.S. multinationals to bring back their foreign profits at rates lower than before.
There is no Canadian data till Thursday when retail sales and consumer price index are released.
Expect the USDCAD to move a little higher.
USDCAD 1.2895, 1.2883, 1.2873 1.2953, 1.2983, 1.2991
The dollar has traded on a softer tack into the U.S. tax bill votes, although most pairings remained within their respective ranges that were posted yesterday. AUD-USD was an exception, lifting to a two-session peak of 0.7684. EUR-USD lifted back above 1.1800, though the market has lacked the muster for a challenge on yesterday’s high at 1.1834 ahead of the Congressional votes on the U.S. tax reform bill. The December German Ifo business climate survey also unexpectedly dipped to a headline reading of 117.2 from 117.5 in the month prior. USD-JPY plied a narrow range centred around 112.50. Japanese machine tool orders were revised slightly lower, to +46.8% form +46.9% in the final reading for November. Cable turned lower after meeting good selling interest above 1.3400. An intraday high was left at 1.3402 before the pair tipped to a low at 1.3353.
EUR-USD lifted back above 1.1800, though the market has lacked the muster for a challenge on yesterday’s high at 1.1834 ahead of the Congressional votes on the U.S. tax reform bill. The December German Ifo business climate survey also unexpectedly dipped, to a headline reading of 117.2 from 117.5 in the month prior. We see EUR-USD has remaining in a trading range roughly centred on 1.1700 and 1.1900, with the downside likely to prevail should the U.S. tax vote go through, which would set in motion fiscal stimulus in the U.S., implying a need for tighter than hitherto considered monetary policy.
USD-JPY has been plying a narrow range, centred around 112.50. Trading conditions have remained thin and there has been a lack of market-moving data and/or news developments, although the final November reading on Japanese machine tool orders was revised slightly lower, to +46.8% form +46.9%. Focus remains on the U.S. tax overhaul bill, with the House expected to vote on it today and the Senate tomorrow. The December German Ifo business climate survey is also due later. 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 comes in at 113.10, which was a former support.
Cable turned lower after meeting good selling interest above 1.3400. An intraday high was left at 1.3402 before the pair tipped to a low at 1.3353. The price action is bearish, with yesterday’s peak at 1.3418 having been left unchanged, and with the pair having been in a down trend 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 the 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 above 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 in the mid 1.28s after rallying from sub-1.2800 levels to a peak of 1.2895 on Friday. Expectations that Republicans will push through the corporate-friendly tax overhaul has given the U.S. dollar a prop, while at the same time there are some concerns about the NAFTA re-negotiation has given the Canadian buck an offered tone. This backdrop offset remarks from BoC governor Poloz last Thursday, when he inspired a spike in Canadian yields by saying that policymakers are increasingly confidence that less stimulus will be needed. USD-CAD has support 1.2800-05, and resistance at 1.2881-84.