USDCAD remains offered ahead of Canadian Q4 GDP figures

Summary

• USDCAD: Dollar/CAD continues its downward trend this morning after sellers pounced at trend-line resistance in the 1.3200 area yesterday.  Strong EURCAD selling and a persistent bid in April crude oil prices also ending up dragging the market lower despite the rather stellar Q4 GDP report that came out for the US.  It’s Canada’s turn to report Q4 GDP this morning at 8:30amET, with traders expecting growth of 1.2% QoQ and 0% for the month of December.  Expect the selling pressure in USDCAD to continue should we get stronger than expected numbers, and conversely expect a bid to emerge should the numbers disappoint.  The 10am hour will then feature the US ISM figures for February and the expiry of over 1.4blnUSD in options at the 1.3150 strike.  Next week features a boat load of market moving events, including the Bank of Canada rate decision on Wednesday and the February employment reports out of the US and Canada next Friday.

• EURUSD: Euro/dollar is breaking higher this morning; something we alluded to yesterday as being a possibility should the 1.1370s hold.  While we can’t point to a specific headline for the overnight move higher today, we would note a number of positive influences.  First, and probably more importantly, trend-line resistance at the 1.1400 level has given way.  Second, the BTP/Bund yield spread has resumed its contraction today, falling down to +260bp (Italian bonds are rallying).  The EURGBP cross has reclaimed chart support in the 0.8550s on demand which is now commonly seen at month end.  Both Italy and Germany reported in-line MoM CPI figures for the month of February this morning and while they weren’t great numbers, they weren’t bad either.  Lastly, with the Fed’s semi-annual testimony before Congress now out of the way and confirmation that we’re going to have “patient” monetary policy out of the US for the foreseeable future, we think the market is starting to test the resolve of entrenched fund short positions here.  We think the 1.1400 level will act as today’s pivot for price action.  Should buyers hold the level after a downside test, we think EURUSD could make a run for 1.1450 at some point heading into next week’s ECB meeting.  The stronger than expected US Q4 GDP figures just released however is now forcing a test of the 1.1400 level rather quickly and it’s not going well.   

• GBPUSD: Sterling leaked lower in overnight trade after the market closed NY trading below chart support in the 1.3270s.  The EURGBP cross is seeing some follow-through buying after yesterday’s month end demand.  Buyers are trying to make a stand at the next chart support zone in the 1.3210-40 area this morning though, and we think they may have a shot to rally this market again should we get a weak US ISM number this morning.

• AUDUSD: The Aussie is getting a slight lift this morning, after chart support in the 0.7090-0.7100 level held into the NY close yesterday.  A better than expected Chinese Caixin Manufacturing PMI for February provided a brief positive influence in Asian trade overnight, but it’s really been all about the bounce higher in EURUSD and copper prices since then.  Expect AUDUSD to follow the broader tone of the USD into week’s end.  Some hefty option expiries lie above the market this morning (0.7150-0.7175).  Australia reports its January Building Permit data on Sunday night ET.  The Reserve Bank of Australia will announce its latest decision on interest rates on Monday night ET.

• USDJPY: Dollar/yen took off yesterday after it broke above chart support in the 111.10s.  The continued rise in US 10yr bond yields and the lack of meaningful overhead chart resistance in USDJPY paved the way for impressive gains, and all of a sudden we’re now trading just shy of the 112 level we talked about yesterday.  Pay close attention to US bonds here as the selling appears to be getting worse.  A break above 112.00 in USDJPY could usher in a quick move higher to 112.50.

Tune in @EBCTradeDesk for more real-time market coverage.

Market Analysis Charts

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Charts: TWS Workspace

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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