Canadian Dollar had a nice start this week after showing mixed numbers for employment last Friday. Canadian employment showed weakness on Friday by losing 1100 jobs this April. However, increasing oil prices gave CAD a nice boost, which is the highest in 4+ years. Trump’s announcement regarding the nuclear deal also pushed the oil prices up. US consumers are feeling very optimistic. US labor market is near full employment that led to slowdown job growth due to shortage of skilled workers. US inflation levels will be a crucial factor for the monetary policy projection of the feds. There is 100% certainty that the feds will hike interest rates in June.
USDCAD 1.2730, 1.2720, 1.2700 1.2807, 1.2809, 1.2810
USD-CAD has found a toehold after posting a three-week low of 1.2719. The disappointing April employment out of Canada, which weakened BoC tightening expectations, has helped give the pair a prop, after declining last week amid the surge in oil prices to four-plus year highs. Resistance is at 1.2807-10.
EUR-USD lifted to an ten-day high of 1.1990, extending a recovery from the four-month low that was seen last week at 1.1822. This is now the most sustained ascent the pair has seen since early April. Softer than expected CPI data out of the U.S. last week has taken the edge out of Fed tightening expectations, in turn weighing on the dollar. The U.S. Treasury yield curve is also the flattest since 2007 and there is a narrative in markets of a potential inversion, a phenomenon that is generally taken as a harbinger of recession (and as highlighted by St Louis Fed’s Bullard on Friday). EUR-USD’s 14-day RSI momentum indicator had been flashing “oversold” over the last week, suggesting that the pair was ripe for a rebound (based on historical trend characteristics). After tumbling some 4% from mid April through to last week, we see EUR-USD as having entered relatively stable trading range. Support is at 1.1910-12.
Cable has traded moderately firmer after a firm clos in London on Friday. The pair lifted out of the four-month low that was posted last Thursday at 1.3459. The pound has also made gains versus the yen, which trading more neutrally against the euro and other currencies. Last week’s unchanged monetary policy decision fro the BoE, the trimming of GDP and CPI forecasts, and the wary-but-still upbeat tone of MPC members, all met expectations, near enough. It didn’t produce a buy-on-the-fact response in the forex market, after a month or so of a declining pound as markets priced out near-term prospects for a BoE hike, but neither did it produce sustained selling. Sterling interest rate futures are now pricing in about 60% odds for a 25 bp rate hike by November, and about 85% odds for a such a move by November. We are gunning for an August move. This week’s UK labour market report will be a focus, which we expect to show an unchanged jobless rate of 4.2%, a multi-decade low, and fresh evidence of building wage pressures. Cable has support at 1.3500-02.