Even as oil rebounded over $70 USD a barrel for WTI, other commodities continue to fall such as gold and silver. Global trade wars still overhang the markets, Trump said he may negotiate separate trade deals with North American Free Trade Partners Mexico and Canada, David MacNaughton, Canada’s ambassador to the United States, said he was confident that talks to modernize NAFTA would maintain the trilateral nature of the pact. The USDCAD has broken the 1.3220 resistance level, and the 1.3263 level, which means that the new resistance levels are 1.3280 and 1.3300.Expect further weakness.
USD-CAD turned back below 1.3200 after peaking yesterday at 1.3259, which is a three-week peak. Fed chair Powell’s upbeat view of the U.S. economy, along with recent hefty declines in oil prices, formed a cocktail of bullish narratives for USD-CAD. We retain a bullish view of the pairing, looking for a revisit of the June highs at 1.3384-87. Support comes in at 1.3146-68.
EUR-USD printed a 17-day low at 1.1595, extending declines into a third consecutive day. We remain bearish of the pairing, based on the prognosis for strong U.S. economic growth and the Fed’s tightening course, while any move from Trump to follow-through on hits threats to tariff car imports would likely be negative for the Euro relative to the Dollar. EUR-USD has resistance at 1.1660-62 while the July-2 low at 1.1591 provides a downside waypoint.
Cable has recouped most of the losses seen after UK data, where retail sales unexpectedly contracted by 0.5% m/m. The pairing printed a 1.2982 low, which is the lowest level seen since last September, and extending the present run lower into a third consecutive day. The Pound has since recouped back above 1.3000, although has remained about 10 pips below pre-release levels at 1.3018-20. There is a qualification behind the dip in retail sales, as the ONS stats office has stressed, in that hot weather and the national fixation on the World Cup combined to lower both footfall in non-food stores and online purchases, which more than offset strong food store sales. The underlying trend also remains strong, with retail sales rising 2.1% q/q in the three months to June, which is the largest increase since the three months to February 2015, with growth seen across all the main sectors. The data maintains our call for the BoE to hike the repo rate by 25 bp on August 2, although this is admittedly now a less-than-full-conviction view following the unexpected dip in UK core CPI to 1.9% y/y from 2.1%. Brexit remains in sharp focus given the fragility of both the prime minister and the government, with ideologically-driven Brexiteers MPs threatening disruption. We continue to see directional risks to Cable as being greater to the downside than to the upside.