June 23, 2017
The broad-based USD is weak across the board except against the Loonie largely on lower than average volumes putting pressure on the currency exacerbated by EUR resilience north of 1.11 and a vulnerable 111 USDJPY. In the overnight, Sterling led the way as investors perceive PM May’s plan on residency rights for EU citizens currently living in the U.K. as a sign of her softening her tone on Brexit. The Pound enjoys a 0.43% gain, triggering stops near 1.2720 and with the 1.2758 June 20 high now in focus. Stronger-than-expected manufacturing PMI data out of the Euro zone helped the currency build up the bullish sentiment with 1-month 25d RRs trading at the most bullish level in a week. The ECB is proposing a statute change to become the Euro clearing regulator, insisting it needs oversight of activities affecting its monetary policy while the U.K. pushes back with the view that fragmenting the industry will put pressure on costs for everyone with the EUR in the middle of the G10 pack. Russia’s Ruble and Mexico’s Peso led gains among emerging market currencies as Brent crude adds 0.2% to $45.29/barrel. BRL however remains vulnerable as the political situation remains cloudy with pension reform far from having a vote date estimate combined with medium term uncertainty linked the BCB’s signal of low current inflation – 3.4 remains the target. The Central Bank of Mexico The Peso trade has become somewhat crowded with the biggest threat more hawkish US monetary policy as seasonality factors loom - historically the currency observes the most declines in August.
In Canada, all eyes on CAD CPI as recent figures show a pattern of surprising on the downside robust GDP, low unemployment, surging home prices and a weak currency. 1-week USDCAD vol is at its 10-day high with sentiment pointing to further downside risk ahead of CPI numbers. We focus our attention to a report our Chief Economist released late May noting that shelter cost inflation reported in the Canadian CPI report is eerily low and likely understating the figure substantially. Today’s data will help gauge the BoC's position on policy tightening as odds of a July rate hike stand at 55% right now, while Sept and October creep up to 65% and 78% respectively (Canada OIS). In Funds, 1.3210/15 remains a good support level to watch with a break below paving the way for a bigger move towards 1.3165 low. Topside 1.3265 then 1.3295/1.3300. Fed’s Bullard speaks in Nashville late am on monetary policy with Mester and Powell also on the wires early afternoon.