As interest rates continue to rise, equities are falling due to expectations that higher rates will be a drag on the economy. There is no clear direction as where the Canadian will go and until the volatility dies down, expect wide swings.
USDCAD 1.2576, 1.2560, 1.2542 1.2622, 1.2632, 1.2650
USD-CAD has gained nearly 3 big figures from last week’s lows. The stellar U.S. jobs report of last Friday lit a fire under the U.S. dollar. The data, having rekindled expectations for Fed tightening, also sparked a spike on sovereign yields and a risk-off theme in global equity and commodity markets, including oil prices. This is a supportive backdrop for USD-CAD, and we expect the pair to remain underpinned this week. Support is at 1.2475-76.
EUR-USD logged a 16-day low at 1.2225 amid a fresh bout of general dollar gains. We remain bearish of EUR-USD, noting that recent bullish euro leads (such as news that Germany’s CDU and SPD have reached a coalition agreement) have been largely having little impact in supporting the euro, which suggests that a sentiment shift has happened, with the market seeing scope for a sustain phase of dollar buying on the back of the Fed’s rekindled commitment to policy tightening. The ECB’s evident disquiet about euro strength has also been in the mix. EUR-USD’s technical picture has been turning bearish, with a discernible downtrend having developed over the last week. During this time, both the 14- and 20-day moving averages have been breached, and the 14-day RSI momentum indicator has been showing downside impetus to be picking up. Trend-line resistance comes in at 1.2343-45.
EUR-CHF has been experiencing choppy trading, drifting toward the mid 1.1500s in the latest phase after failing to sustain gains above 1.1600. The cross logged a four-month low at 1.1509 on Monday, and we expect directional bias to remain to the downside while the risk-off phase persists. The fresh low this week capped what is the biggest correction the cross has seen since the Swiss franc started to trend lower in mid last year. The correction has reflected EUR-USD declines amid dollar outperformance in the latest phase, along with the ECB’s evident disquiet about the extend of the euro’s recent rally, which looks to have had a dampening impact on hawkish voices at the central bank. There is also some concern appearing in market research notes about the Italian election in early March, given the popularity of anti-EU Northern League.