Even with the stronger Canada GDP data, it was not enough to overcome the USD’s strength. Analysts are expecting further hawkish comments from tomorrow’s FOMC meeting in regard to interest rates, also oil prices have fallen slightly as uncertainty about the survival of the Iran nuclear accord. Trump still has to announce whether the U.S. will stay part of the accord, this has kept oil traders crazy as markets have become more volatile.
USDCAD 1.2842, 1.2825, 1.2800 1.2880, 1.2900, 1.2920
USD-CAD has remained buoyant, posting a three-week high of 1.2900 on Friday. The move extended a rebound from mid-April two-month low at 1.2527. A correction in oil prices, which have descended back under $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar and associated rise in U.S. Treasury yields, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of the April BoC policy meeting, as the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD has negated the downside trend that had been in play over the prior three weeks, from levels near 1.3100.
EUR-USD dove to a fresh four-month low at 1.2027. Expectations for strong U.S. jobs data on Friday have been maintaining a bid for dollars, while yesterday’s sub-forecast German retail sales figure maintained the economy-slowing narrative in the Eurozone. Regarding the U.S. payrolls report, we expect a solid 210k headline rise, though risks are to the upside following tight initial claims data and remarkable strength in consumer confidence and vehicle sales data. The Fed meets this week, but this will likely be a non-event, with no policy change expected and there being no press conference or forecast updates. EUR-USD last week marked the biggest weekly loss since the week of November 13th-17th last year, aided on its way by dovish-tilting guidance by ECB President Draghi following the central bank’s April policy review, and a set of above-forecast U.S. data. A mix of looser U.S. fiscal policy and Fed tightening, against a comparatively less hawkish ECB, have been driving EUR-USD lower. The pair’s breach and close below 1.2154 last week, a level that had marked the low point of a broadly sideways range that was in play for nearly three months, confirmed an evolving bearish trend, which we advise following. Resistance is at 1.2145-50.
USD-JPY has lifted to a 109.65 high, on route breaching Friday’s three-month high at 109.54. Tokyo markets reopened today after a holiday yesterday, but will be closed again on Thursday and Friday as part of the “Golden Week” holidays in Japan. Broader dollar gains have been driving USD-JPY today, while the BoJ left policy on hold at its policy review last Friday, which was notable for the removal of the timeframe to achieve CPI target. The last projection in January framed that the price goal would be achieved during fiscal 2019, but this was now absent, instead noting that while momentum for achieving the price target has been maintained, it “lacks steam.” The BoJ’s policy maintains one of the fundamental pillars underpinning USD-JPY. The other pillar has been the rise in U.S. Treasury yields. This is a theme that has been true for over the last month during which time geopolitical risks and trade war concerns have abated sufficiently to allow the yen’s safe haven premium to unwind. We have been advising following the trend. USD-JPY support comes in at 108.88-90.
Sterling has dropped quite sharply following the sizable miss in the UK’s manufacturing PMI survey for April. The report’s headline dove to a 17-month low at 53.9, well off the median forecast for 54.8 and the 54.9 reading of the previous month, which itself was revised lower from 55.1. Bad weather can’t be blamed in contrast to the previous couple of months, which fits the narrative the ONS stats office gave with the release of preliminary Q1 GDP data last Friday, that inclement weather conditions only partly accounted for the disappointing growth rate of 0.1% q/q. Sterling markets are now further pricing out odds for the BoE to hike the repo rate on May 10th. Cable dove over 0.5% in the wake of the PMI release earlier, making a four-month low at 1.3668, with sterling falling concomitantly with UK yields. The 2-year Gilt yield dropped towards the two-month low seen yesterday at 0.754%, while 10-year Gilt yields fell to the lowest since April 18th. Cable extended the sharp losses that have been seen over the last two weeks, from a 21-month high of 1.4376. BoE Governor Carney had on April 19th pointed to “mixed data” following a run of weak retail sales, wages and inflation data. For Cable, we have been advising trend following. Resistance is at 1.3712-15.