Bank of Canada's quarterly Business Outlook Survey in the cross hairs

Summary

• USDCAD: Dollar/CAD is starting this holiday shortened week with an offered tone after Friday’s fall in prices damaged the market’s technical structure on the charts.  The close below support in the 1.3330s was not a positive development in our opinion, and this level has in turn acted as resistance in both Asian and early European trade today.  The broader USD is trading lower this morning with an overall, albeit mild, risk-on tone to global equites.  This follows weekend reports that the US has tempered demands that China curb industrial subsidies as a condition for a trade deal.  May crude oil prices are going the other way however; trading 1% lower this morning after Russia’s finance minister hinted at raising production in the 2nd half of 2019 in order to win back market share from the US.  The leveraged funds at CME kept their net long USDCAD position more or less unchanged during the week ending April 9.  This week’s busy US/Canadian calendar kicks off with the Bank of Canada’s quarterly Business Outlook Survey at 10:30amET this morning.  This widely followed poll of Canadian business sentiment will be probably one of the more important reports this week ahead of the Bank of Canada’s April 24th decision on interest rates.  Tomorrow features Canada’s Manufacturing Shipments data for February and the US Industrial Production figures for March.  Wednesday brings the US and Canadian Trade Balance numbers for March, as well as Canada’s CPI for March and the Fed’s Beige Book report.  Finally, we wrap up on Thursday this week with both the US and Canadian Retail Sales figures for the month of March.  Chart support below the 1.3315 level is sort of lacking this morning in USDCAD, which we think could make the market vulnerable to positive surprises out of the BOS out shortly.  The next major support level comes in at the 1.3260s in our opinion.  Resistance today lies at the 1.3350s, then the 1.3360-90s.

• EURUSD: Euro/dollar is trading quietly bid this morning as the broader USD inches lower.  The leveraged fund net short EUR position extended slightly to a new 2yr high over the week ending April 9 as long positions liquidated a bit more than short positions.  This week’s European calendar features the German ZEW survey for April (tomorrow), Italian and Eurozone CPI for March (Wednesday), Italian Industrial Orders data for February and the flash PMIs out of Germany and the Eurozone (Thursday).  Dollar/yuan is starting the week steady above Friday’s chart support in the 6.7050 area, and EURJPY (the big driver of price action on Friday) is trading sideways for the moment.  We think EURUSD waffles around here and possibly drifts higher to trend-line resistance in the 1.1330s into tomorrow.

• GBPUSD: Sterling is bouncing this morning with EURUSD and pretty much everything else.  This week’s calendar might finally bring some focus back on UK economic figures as the UK parliament is now on its Easter break recess until April 23.  The UK reports its February employment and wage growth numbers tomorrow, its March CPI on Wednesday, and its March Retail Sales on Thursday.  The Bank of England’s Haskel will be speaking at 12pmET today.  The leveraged funds at CME were liquidating both long and short positions during the week ending April 9, and the result was a slight reduction in the net short GBPUSD position to now just 6,516 contracts (a new 42 week low).  Chart support today in GBPUSD comes in at 1.3075, then 1.3050-60.  Resistance lies in the 1.3115-30 zone (or where the market capped out on Friday).  With EURGBP continuing to struggle with the mid 0.86s so far this week, we think GBPUSD will try to challenge overhead chart resistance here.

• AUDUSD: The Australian dollar is lagging EURUSD and GBPUSD this morning as May copper prices recede a bit to start the week, but traders are still holding the bulk of the price gains from Friday’s explosive, EURJPY-driven, rally.  The Reserve Bank of Australia reports its Meeting Minutes at 9:30pmET tonight.  Wednesday night ET features the Australian Employment Report for March.  The funds reduced their net short position slightly to 54,400 contracts during the week ending April 9.  We think they may start fretting should AUDUSD get above trend-line resistance at the 0.7200 level this week.

• USDJPY: Dollar/yen is starting the week with a mixed tone as the S&P futures pull back slightly into the US cash open.  US 10yr yields are building upon Friday’s gains and now trade at 2.57% (above chart resistance at 2.55%).  The funds doubled-down on long USDJPY positions during the week ending April 9 (which appears to have been a good move); extending their net long USDJPY position to a new 12 week high.  This week’s Japanese calendar features February Industrial Production on Wednesday night and the March CPI figures on Thursday night.  We think the USDJPY bulls look in good shape here so long as chart support holds in the 111.50-80 region.

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About the Author

Erik Bregar - Director, FX Trading

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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