Daily FX Wrap: Barclays and Deutsche long USD/CAD ahead of Wednesday’s decision

Markets have been subdued, evident of the historical NFP Monday trade and not helped by no tier one data releases on today’s agenda.

CAD has been the most volatile currency for the day, suffering on the back of oil, as well as Barclays and Deutsche taking positions against the currency, both longing USD/CAD, with CAD continuing to retreat from
Friday’s 10-month high, as we do approach the BoC on Wednesday. An afternoon Genscape cushing draw did lead to some oil reprieve later in the session, as such a minimal recovery was evident in CAD, however, trendline
support has led to some intraday bids.

Oil continues to affect the loonie, with weekend comments from OPEC Sec-Gen Barkindo stating that Oil pact monitors won’t discuss further cuts at the July meet, being followed by reports that Nigeria is not planning to
attend OPEC/Non-OPEC meeting on 24/July, according to sources.

Barclays stated that weak inflation, low wage growth and the risk of triggering a plunge in the housing market, provide the BoC with plenty of rational to proceed carefully, with the risk very much on the CAD downside. Further bullish factors have played a part in USD/CAD, with the Relative Strength Index (RSI) indicating oversold conditions, supported by some small USD buying off the back of a solid jobs report on Friday.

The greenback has traded with very marginal gains today, evident in EUR/USD, with bears slowly grinding the pair lower. The previous day’s bearish shooting star candle further supports the bearish bias, with the 1.1290/1.310 area likely to be key support. However, the majority of dollar watchers will potentially await Wednesday, where Yellen is due for her testimony.

The euro continues to trade near highs despite the slight bearish pressure seen in EUR/USD that has been seen of late. ECB rhetoric does continue to suggest a move towards the exit, however, discussions are about the pace. ECB’s Praet stated that “underlying inflationary pressures remains subdued” and “we should be patient and persistent regarding our monetary policy, with Villeroy telling Bloomberg TV “what we have to do, and what we stated to do, is to adapt the intensity of this accommodative policy”. Finally Knot also has commented, stating that the ECB is very close to the point that they run the risk of carrying on for too long with this policy.

Weekend and overnight Asian news has led to JPY selling, this, accompanied by the aforementioned USD buying has led to the slow bullish grind in USD/JPY. Despite residing above the 114.00 handle, USD/JPY struggles to take May’s 114.38 peak, with cautious trade ahead of Yellen’s Wednesday testimony.

Treasury yields will play a key part in JPY, USD/JPY continues to track yield differentials, and last week’s BoJ bond-buying has weakened JPY, being a large catalyst in getting USD/JPY through the 114.00 handle and EUR/JPY through 130.00. JPY weakness will continue as yields pick-up, this, alongside JGB’s around these levels, another push higher is likely against the Yen, with EUR/JPY and USD/JPY the pairs to watch.

Sterling continued to be shadowed by political and macro-economic conditions, with cautious and light trade clear, as participants await any clear intention from the BoE or direction from May. Light may be shed on the former tomorrow, with BoE speech looming with Haldane and Broadbent both expected tomorrow. The consolidation is clear in GBP pairs, excluding small irrational spikes caused by illiquid conditions, with cable clearly struggling to find any real direction. EUR/GBP further supports the indecision, trading in around a 40pip range throughout the day’s slow session.

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Dollar Index H1

Price remains in our range. Price opened at WM3 though we broken slightly above. Volatility pretty low though a break higher with a pull back to previous resistance should get us to our weekly target. Failing to break the top of the range gets us down to WPP.

US10Y H1

We noted strong support at MS1 in our last post. Price is challenging the top of the range at this week's WPP with the bottom of the range at WM2. A break higher with a pull back to previous resistance see's price heading up to WM4 with a failure to break the range sending price back to the bottom of the range.

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