Today’s announcement of the cancellation of meeting Kim Jong Un, and yesterday’s comments that the White House is contemplating new tariffs on imported cars and trucks have strengthened the USD. Japan, South Korea and Germany are trying to stay within the expected guidelines that Trump has set out, while Mexico and Canada have yet to agree on an agreement for NAFTA. Auto stocks in Asia have dropped while North American stocks are basically unchanged. The Canadian dollar has reacted negatively to this news and has touched over 1.2900 so far this morning.
USDCAD 1.2888, 1.2880, 1.2866 1.2903, 1.2918, 1.2922
USD-CAD has maintained a choppy, broadly sideways range that’s been persisting for a month now. The low over this period has been 1.2729 and the high 1.2997. General U.S. dollar firmness has been met by Loonie-supportive higher oil prices, which has been causing volatility in USD-CAD but little net directional bias. We expect more of the same for now.
EUR-USD has found a toehold today after posting a five-month low at 1.1675 during the New York PM session yesterday. A rebound high was set at 1.1746 before the pair settled back around 1.1730. Yesterday’s FOMC minutes to the early May meeting took the upside fizz out of the dollar, as they showed a Fed not being in any particular hurry to tighten. Fed funds futures are still fully pricing in a 25 bp rate hike in June while showing odds of about 75% for a further quarter-point hike in September. On the Eurozone side of the pond, data and policymaker speakers were in abundance today, and upbeat remarks by ECB member Praet helped lift Bund yields. Italy remains in the spotlight, and while BTP yields have declined by over 7 bp today, they remain up by over 20 bp compared to a week ago, and risk remains that we see further market paroxysms as investors digest the formulating policies of the Eurosceptical coalition government. Big picture, we remain bearish of EUR-USD, though the 14-day RSI momentum indicator is highlighting that the extent and duration of the what is now a six-week down phase is stretched by historical price trend norms, suggesting there is a risk for a rebound or a levelling out in directional bias.