"FX Set-up: Friday On My Mind

Event risk peaks today with the release of the US NFP report for December.  OK or better data will be USD-supportive though whether this is able to generate much impact on EURUSD remains to be seen.  Mixed EZ data and “strengthened forward guidance” from the ECB this week has failed to have much downward impact on the EUR and the market remains well supported in the mid/upper 1.35s at the moment.  We still rather favour looking to sell EURUSD rallies to the mid 1.36s for a push back to 1.33/1.35.

USD/CAD: Taking the Under on Canadian Jobs

Open 1.0863     Range 1.0836/1.0866     Previous Close 1.0843

The CAD got battered by the contrasting Canada/US trade data earlier in the week (USDCAD rose 1.2% on the day) so the prospect of a combination of better-than-expected US data and worse-than-expected Canadian data, at least according to TD’s forecasts, suggests significant upside risks for funds today.  We don’t think this move up is complete yet and look for the above combination of outcomes to drive funds close to 1.10.  In the event of the reverse—or at least in-line or better Canadian data, CAD shorts may feel a modest squeeze but weakness is unlikely to extend too far at present.  We look for good support on any dip to the high 1.07/low 1.08 area today.  As we noted earlier this week, the CAD sell-off seems justified on the basis of short-term spreads and fundamentals.  Note that the 5-year spread has dropped to the narrowest premium for CAD yields since early 2010; a decreasing yield advantage will sustain downward pressure on the CAD versus the USD.   

EUR/GBP: Minor Rebound

Strengthened ECB forward guidance—a bit too subtle for the FX market, perhaps—weighed on the EUR to a modest degree yesterday but the EUR remains resilient.  With UK industrial production data disappointing, rather than revealing the solid gain that was expected today, EUR/GBP may rebound modestly in the short-run.  The broader trend here remains lower though, given the overall trend towards stronger UK growth and conditions that linger close to recession in the Eurozone.  We expect further EURGBP gains to be capped in the low/mid 0.83 area.

AUD/USD: Bear Trend Stabilizing?

Fading rate cut bets and some calls for a Q1 rate hike are helping stabilize the AUD.  AUDUSD recovered some ground last week but has slipped back again over the past few days.  This might be one to watch in the next few weeks as price action suggests that a low may be trying to form—the market has done enough to stabilize the extended sell-off (bullish outside range week last week) but perhaps really needs to firm up a bit more near-term and get above 0.90 to attract a little more support.  Monitor.   "