• US dollar remains bid
• FOMC minutes minutely important
• Cross CAD demand offsets US dollar strength
Monday arrived and was a rude awakening after the weekend. FX markets do not appear willing to acknowledge the onset of a new working week, leaving the majors to drift aimlessly within very narrow bands. At the same time, the US dollar appears quietly bid against the G7 currencies as the implications from last Thursday's nonfarm payrolls data are still being digested. More than a few major bank economists and strategists see the report as solid evidence of a US recovery and a shift to higher interest rates. The Bank of England (BoE) interest rate decision and the European Central Bank (ECB) monthly report on Thursday will be the highlights of the European trading week, both of which will take a back seat to the World Cup semi-finals. There is no change expected from the BoE.
48 hours (or so) until minutes
The minutes of the Federal Open Market Committee (FOMC) meeting will be released on Wednesday and will be dissected for clues of a shift in interest rate hike sentiment. The June FOMC statement noted that the "unemployment rate, though lower, remains elevated" and that was after four consecutive robust employment reports. Bloomberg published a chart (below) depicting six employment indicators that are being closely watched by the US Federal Reserve chairman Janet Yellen. Bloomberg notes that "only three of the nine indicators are back to where they were in the four years leading up to the last economic downturn". With this in mind, the FOMC minutes are unlikely to provide any evidence that interest rate hikes are any nearer than they were last month.
Chart: Yellen's Labour Market Dashboard
Key Canada data releases
Wednesday: Housing Starts (Forecast 191,000) Continued improvement in the Canadian housing market will underpin recent Canadian dollar gains.
Thursday: New Housing Price Index (Forecast 0.3 percent, month over month) The Calgary and Toronto housing markets are still the key drivers of gains.
Friday: Employment Report (Forecast net change in employment - 26,200; unemployment rate 7 percent). As usual, this data should prove to be entertaining. If the data follows in the footsteps of the US employment report a large jump above expectations should drive USDCAD lower with a test of 1.0570 likely. On the other hand, a big miss would be less damaging as 1.0720 should contain USDCAD gains.
Key US data releases
There is a lack of US data this week with only the FOMC minutes providing the markets with any possibility of actionable fodder
Wednesday: FOMC minutes
Loonie torn between conflicting demands
The domestic data may be mixed and the Canadian economic recovery is a tad on the sluggish side but diverging economic policies between the US and both Europe and Japan have bolstered the Canadian dollar. The FX market is anticipating further stimulus by the Bank of Japan while the ECB has sketched out its Targeted Long Term Refinancing Operations (LTRO). At the same time, rapidly improving US economic data have many analysts pulling their US rate hike projections forward putting downward pressure on the loonie.
EURCAD technicals
EURCAD is in a short-term downtrend channel confirmed by the break of the uptrend from September 2013 at 1.4690 and supported by the move below 1.4530. However, support at 1.4460 could prove difficult.
Chart EURCAD Daily
CADJPY technicals
The CADJPY slow grind higher from May accelerated in June and has been in a steady uptrend ever since. The break of strong resistance in the 94.70-95.20 extended gains targeting the early January high.
Chart: CADJPY 4 hour chart
USDCAD selling meeting support
There is much support for USDCAD in the 1.0590-1.0330 area, stemming from Fibonacci retracement supports, trend lines and form multi-tops. For now, USDCAD trading will be confined to 1.0610 to 1.0690. There is a risk that better-than-expected Canadian data – especially a strong employment report – could combine with demand against EUR and JPY to put 1.0550 in play. For now, the tug of war continues.
Chart: USDCAD 4 hour with trading range