[DanRath]

USD/CAD – Gains in the USD overnight after yesterday’s consolidation suggested the prospect for some further stabilization in the USD today but the USD bid tone has disappeared very quickly as US markets return to the fray and USD/CAD looks very soft and perhaps quite vulnerable again; much depends on where we close out the day but heavy selling from the low 1.13s so leaves a very negative impression on the daily candle chart and the main risk is for a further – perhaps steeper – slide in the USD overall. The key medium term support is at 1.1155 (200-week MA) and little below there until the 1.08/1.10 area. Prefer to sell rallies (through the mid upper 1.12s near term, risking 1.1375, for example) and continue to target 1.0465 from a technical perspective.



EUR/CAD – The case for a rally in the cross is still there on the face of it as the short term 11 and 21-day MAs have crossed bullishly and the inverse H&S reversal remains intact and in play (bullish above 1.5891). However, with spot actually below the MAs and looking rather heavy over the last three trading days, there is still something of a question mark over the short term trend here. Remain neutral for now; above 1.5891 - will be more bullish while a break of Friday’s 1.5671 low will open up the downside for a renewed test of the early May low of 1.5473.

[Jason_Lim]

The outlook for the CAD is mixed as Canada has a currency of two stories. As a commodity currency, CAD stands to benefit greatly from external demand and trade flows as the global business cycle establishes a bottom, with most professional forecasters seeing a return to growth later this year. On the other hand, its own economy is highly tied to the United States. As a nation dependent upon exports, 80% of its goods have a final market state-side. This polar dilemma frames the debate around CAD and its relation to the other dollar bloc currencies of AUD and NZD. Some analysts continue to see near-term weakness for the CAD, with more permanent strength resuming later when market forecasts the USD easing broadly against the G10.

External developments have been one of the main drivers of USD-CAD over the past month, and traders continue to expect the currency to be responsive to drivers of risk, whether within the asset class or cross it. The Canadian dollar, after all, is one of the most correlated currencies to global equities.

In the near term, the focus is on US data and equity markets as the predominant drivers of CAD, but several domestic economic releases remain of importance. The balance of payments for Q1 (29 May) is expected to continue its contraction. Q1 GDP (1 June) is expected to contract 6.5% on an annualized basis, significantly above the Bank of Canada’s forecasts. This is important moving into the Bank’s rate meeting on 4 June. With core CPI from April roughly in line with central bank expectations, further developments on the QE front are unlikely.

[DanRath]

USD/CAD – A lot of chop around what we have identified as key medium term support at 1.1104 (trend/channel support from the 2007 low) and 1.1155 (200-week MA) this week increases the risk of a stabilization in the underlying USD bear trend (markets sometimes get very choppy around important turns). While we cannot exclude a correction after a sustained period of USD weakness, we remain of the opinion that the USD will struggle top sustain any sort of bounce for the moment at least. We note that trend strength indicators remain well entrenched and pointed in the direction of further USD losses across short, medium and long term time frames and this sort of situation usually means very limited counter trend corrective potential. This is still a sell on rallies market and continue to target 1.0465 as the measured move objective of the 1.30/1.17 double top break down. New lows will refresh downside momentum from a short term point of view.

[ProfileOou]

The broader strength in the USD yesterday seems to have been built on rather shaky foundations and we remain firmly in the USD bear camp. Commodity prices remain well supported – looking at gold around $950 and crude oil holding up in the $64 area this morning – which should be supportive for commodity currency sentiment while the USD itself remains vulnerable to further weakness in the short and medium term, as its “risk premium” fades and the markets focus on US Treasury supply and the mountain of US debt that is accumulating as the US administration attempts to boost the economy and stabilize the banking system. That contrasts with relatively contained government deficit and debt levels in Canada and a central bank that remains reluctant to embark on credit or quantitative easing policies. USD/CAD’s rally seemed to reflect the very strong technical support the market is finding in the low/mid 1.11 area at the moment but the rally has fizzled out overnight and USD/CAD looks quite heavy again on the short term charts; technically, the short, medium and long term trend indicators remain bearishly aligned, which typically allows for only brief counter trend corrections before the underlying trend resumes and it looks quite likely that the overnight peaks around 1.1250/60 are about as good as the USD will do for the moment. Intraday, there is support in the 1.1155/60 area but we still look for another probe of the 1.1100 area in the near term. CAD/JPY has put on a huge spurt in the overnight session and if the cross can hold gains through 86.60 through the end of the week, further CAD strength here will look very likely, supporting the broader CAD tone. Commodity currencies generally are today’s notable outperformers, with the NZD rallying strongly after S&P revised the NZ outlook higher following today’s budget.